The Rise of the Fixed Fee Model – But at what cost?
Everyone wants the hottest model. But what if the hottest isn’t the best for your business? More and more marketers and businesses are using the “fixed fee” remuneration model. It’s popular and easy to implement. But is that the best for your business?
Our projects start with an analysis that can determine the most appropriate model for your business goals and ROI rather than worrying about simple percentages, $ hourly rates or the reliability on agency timesheets.
Since the turn of the new millennium, Enth Degree has seen a move away from the % of media spend model to a fixed fee across all disciplines. However, the advantages for providing the agency with a regular fixed income, appear to outweigh the benefits for the client.
We have assisted clients that still experience servicing issues, despite retaining their agency team. Furthermore, despite scope of work reducing, find themselves still paying the high retainer fees.
A fixed remuneration budget can make forecasting budgets easier for marketers, however this can often be the tip of the iceberg for agency costs.
The disadvantages are clear:
- Agencies can earn more by wasting time on over-servicing, while producing less output. The more hours that are clocked, the greater the agency revenue.
- Transparency is lost if an Agency hides behind the Privacy Act to validate the employee salaries that form the basis of the fee.
- It is inflexible in that there can be significant delay in adjusting the fee when budgets/work volume increase or decrease.
- Dissection of a fixed fee against individual brands can be difficult especially when relying on agency timesheets.
- As marketers are uncovering the pitfalls of a fixed fee, there is a real trend to create “hybrid” models that may remunerate an agency based on a mix of % service fee and a fixed fee component.
There will never be a definitive “best” model because every client’s requirements are very different. However simplicity and transparency should underpin every successful structure.
Upfront analysis of both the client scope and historical agency service fees is invaluable in determining the right structure to be applied to the business.
A hybrid position may deliver a more efficient system where predicable elements are fixed, and variable elements linked to a scalable model such as a % fee.
In our experience, we know that as a client, you have the power to negotiate with the agency on how the agency model can work for you. Agencies are very open to considering different remuneration models. Their focus relates more to the level of anticipated revenue, rather than how it will be structured.
- If you do prefer a fixed fee arrangement, investigate how much it actually covers. Insist that it covers all agency fees and charges right down to studio costs and the last colour laser!
- Determine how much flexibility and scalability you require in your remuneration and if the fixed fee model or a hybrid is a more preferred choice.
- Consider the portability of your model should your campaign requirements change.
- Contact us to discuss your solution.