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June 19, 2002
Win/Win in Agency Compensation

I've been putting client/agency compensation agreements together for about 23 years. That's probably why I have no hair on the top of my head. Creating agency/client compensation agreements that are fair and "relationship building" requires hard work and a lot of learned skill. This article covers some principles I've learned, and hopefully they will include a nugget or two that will help you as you work through this process. Let me put a couple disclaimers on this discussion, First, my experience comes from the small agency world, so you big agency folks out there may have different processes - but I think you'll understand that the principles are the same. Second, I'm not going to get into the "types of compensation"such as fee, commissions, incentive, compensation, and so forth. I am going to stay at the 40,000-foot level.

1. The agency has a great product.

More and more clients tell me that "your creative excellence" was a given. It was the price of admission to the game. You didn't win with it, but it got you in the door. I'm not sure I always believe this, but I do think it suggests that excellence was expected and they received it.

As you negotiate the compensation arrangement, don't lose sight of the fact that you have a product that the client wants. To me, that means that we don't have to apologize for what the service is going to cost. The product is great, so we should get paid a fair price for it.

2. Trust exists between agency and client.

Is there anything better than the "honeymoon" period after a new piece of business has been won? The realist in me helps me understand that after the wedding night we have to live together. A wise person told me once this about the courtship period: "Courtship is not about preparing for the wedding - but rather preparing to stay married."

During the process of the new business pitch a great deal of trust is developed. As we move into putting the compensation agreement together we must do nothing to decrease that trust level. Rather, the trust level should increase because the client comes to understand that we have expectations to only be honestly and fairly compensated for our services

3. Strong agency internal processes.

A client once told me of an experience he had when he was on the agency side. A very large and important client called them on the carpet because the agency internal processes were not adequately protecting the relationship. And, therefore, even though the creative product was wonderful, the client was ready to fire the agency. I've had that conversation with a client. It's an awful conversation, isn't it?

There is absolutely no reason for that conversation to have to take place in our agencies. We just need to take the time to make sure that our internal processes are completely reliable and believable. Someone once showed me the education process they used to orient a new client to its processes. They had all the forms associated with the billing process pasted on a large piece of foam core. It wasn't pretty, but it communicated the processes.

As agents, we deal with millions of dollars of our client's money. The vast majority of that money does not belong to us, so we must be completely in control of our internal processes.

I would suggest that as agencies we must also have that same trust of the client's processes. We must trust the client that they can meet the obligations they will have us incur as their agents.

4. Communication

Good communication skills are founded on a thorough understanding of what is being discussed, I believe. Therefore, if you are the one discussing compensation, be sure that you know what you are talking about. Understand the difference between fees, incentive compensation, commissions, mark-ups. If you have an agency-preferred method of compensation, then become very competent in discussing and selling it.

We are a fee agency. As the financial person, I obviously have a good understanding of what that means. However, my having an understanding is not enough. I believe that every person in the agency must understand how the agency gets paid. Then everyone can work together to make sure that promises are kept and opportunities are captured.

If you are a financial person and have responsibility for negotiating compensation, become a good communicator. Develop the skills necessary to represent your agency in this critical part of the relationship.

5. Negotiating skills

My experience has been that clients are much better at negotiating than agency people. Clients seem to devote more resources to teaching their people how to negotiate. It is a learned skill. I recommend that all agencies have negotiation skill training at all levels in the agency.

In many cases, agencies are no longer negotiating with the client's advertising or marketing people. Instead, we now negotiate with purchasing people whose sole purpose in life is to get the best price. They are trained negotiators. Agencies must have similar skills to represent themselves in the best possible manner.

6. Accountability

Now I've really hit a nerve, haven't I? I'm not sure that we really like to talk about accountability. We'd all rather just do our thing, get paid for it, and move right along. Things don't work that way anymore, if they ever did. In today's world we scrutinize every dollar we spend in our agencies. We want to get the biggest return possible for every penny we spend. Well, that is exactly how our client's feel. And, today they are requesting that we account for how we are spending their money.

I'm not tackling the "how"s of doing this return on investment calculation in this article, but I am suggesting that we can't put agreements together and ignore accountability. What I have found successful, as a beginning point, is to have regular business meetings with our clients. I know that having these meetings works. Now, it doesn't address the issue of ROI on spending advertising dollars, but what it does do it establish a partnership where the agency and the client work together to answer those questions.

It is really surprising how few words it takes to summarize a lifetime of learning. But, I hope something in these few words will help someone to become more successful. All of us have different takes on what one must do to create business relationships with our clients that provide a fair return to both sides. In closing, may I suggest that the same civility that I have suggested we have for our clients may also be transferred to our relationships with each other? But, that is a topic for another day. Thanks for listening.

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A CPA, a CFO, and a private pilot, Sam Williams takes people and organizations where they want to go. As Managing Director for Sullivan Higdon & Sink, one of the hottest agencies in the Midwest, Sam's expertise has led the agency to over $100 million in billings. Sam also chairs the AAAA Committee on Agency Finance. Sam.Williams@shscom.com

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