Selecting, Evaluating &

Compensating Advertising
Agencies

Evaluating Agency
Performance
To evaluate existing agency (review)
To evaluate potential agency (selection)

Underlying change in philosophy:

Move away from presumption of agency
competence, only evaluating when
problems occur, to regular measure to
ensure accountability

Evaluation Process
Decide & weight your ideal attributes
Determine questions which will elicit info on
attributes from agency (agree them with
agency!)
Rate agency against these attributes
Analyse the results

Decide & weight your ideal

attributes
Importance*

Creativity
.20
Media planning & buying .20
Account management
.15
Services provided .15
Chemistry
.10
Track record .10
Compatibility .10
1.00
* figures for illustration only

Determine questions to elicit

info on attributes
eg Compatibility
Does the agency personnel have knowledge of our industry?

Complete knowledge
Good knowledge
Average knowledge.3
Poor knowledge
No knowledge

.5
.4
.2
.1

Are the backgrounds of the agency people compatible with our

needs, marketing qualified, planning expertise?

Completely compatible
Good compatibility
Average compatibility
Poor compatibility
No compatibility

.5
.4
.3
.2
.1

Rate each agency

Attribute

A Importance rating
ABC agency
Creativity
0.2
Media
0.2
Acc Man
0.15
Services
0.15
Chemistry
0.1
Track record
0.1
Compatability
0.1

B Agency performance
0.1 0.2 0.3 0.4 0.5

AxB
0.6 0.7

0.8

0.9

0.12
0.08
0.105
0.075
0.08
0.05
0.07

X
X
X
X
X
X

Creativity
Media
Acc Man
Services
Chemistry
Track record
Compatability

XYZ agency
0.2
0.2
0.15
0.15
0.1
0.1
0.1
1

0.58
0.1

0.2 0.3

0.4 0.5

0.6 0.7

0.8

0.9
X

X
X
X
X
X
X

1
0.18
0.16
0.09
0.075
0.03
0.03
0.03
0.595

Selecting an advertising
agency

Requirements
Agency v Agencies v In-house
Selection Criteria - prioritised
Questionnaire / Checklist
Preliminary List
Short List
Briefing Short List
Credentials, strategy pitch or Full (creative) Pitch
Assessment against Criteria
Appoint and Contract

Why clients change agencies

New

broom
Follow my leader
Our policy on global alignment
But we always do that with your
account
We just cant see eye to eye

The Agency Register

Agency scorecards
Client counselling
Agency de-briefing
Assessing your needs
Conflict issues
Existing relationships
Agency profiles
Strict confidentiality
Capabilities presentation
Presentation schedules
Stage managing presentations

Agency remuneration

Commission system - historical

Level of commission = 10%
Service fee = 7.5%
Example

Gross media cost (agency bills client) 1000

Less 10% commission 100
Net media cost (agency remits net to media)
agency keeps 10%
100
+ 7.5% GMC or
75
19.44% of NMC

900

175

Production billed as net to client + Service Fee of

19.44% !!!

Alternatives to Commission
System
Hourly rates
Fixed fee (Cost + Profit)
Sliding Scale
Performance based

Commission System
Disadvantages - Advertiser
Agency overspending in
commissionable media
Commission + Service Fee on high
media spend prohibitive
Good, Bad, Indifferent get commission

Commission System
Disadvantages - Agency
Media spend = Servicing cost???
Immediate work but not income
Works for buyer, paid by seller
Exceptional skills not rewarded

Commission System
Advantages - Media
Prompt payment via agency
Ease of communication (200 accredited
agencies)
Acceptable ads (Codes & technical)

Commission System
Advantages - Agency
Guaranteed income from media
Well known
More effective advertising
more
commission
more effective advertising...
Advantages - Advertiser
Agency co-ordinates
Agency bears cost of media upfront

How clients pay agencies

Remuneration method % 93
Service fee only
34
Comm + serv fee
34
Flat fee
8
Person hours
5
Comm + flat fee
10
Performance incent
1
Comm only
Other
8

95
44
31
9
3
5
1
7

96
24
23
13
6
18
4
7
8

97
19
29
14
7
15
3
12
9

Source: AMR Quantum Harris/Aus Street Cons

What clients pay agencies

Level of service fee % 93 95 96 97
Over 10%
8 8 15 6
7.6-10% 5 13 9 5
7.5%
65 48 35 44
5.1-7.4% 6 16 20 16
2.6-5%
10 6 10 12
Up to 2.5%
3 2 1 4
Refused/DK
4 3 10 13
Source: AMR Quantum Harris/Aus Street Cons

Reasons for appointing a

media
agency

To take advantage of greater expertise in media

planning & buying 39%
To get better rates from the media
24%
To reduce the cost of planning & buying media
16%
Need to appoint a global ad agency 8%
To gain more creativity in media
buying 8%
Other
6%

The Ten-Point Pitch Guide for

Advertisers (AFA 98)

1 The Background Information

2 The Initial Prospect List

identifying agency capabilities you need

no competitors, size compatibility, chat,
questionnaire eg appendix

3 The Pitch List

3-4 agencies on strength of questionnaire,

media release

The Ten-Point Pitch Guide for Advertisers

(contd)

4 The Brief

5 Financial Compensation

Payment for strategic/creative (?)

6 Confidentiality & Copyright

Quality of brief = quality of pitch

Agreement for protecting both parties

7 The Evaluation System

Agreed criteria with all decision-makers

The Ten-Point Pitch Guide for Advertisers

(contd)

8 Contract & Remuneration

9 Decision Time

Takes time to get it right

Inform winners & losers & media

10 The Changeover

Losing agencies debrief, have confidential

material returned, ~ 90 days notice