Advertising agencies can be compensated in several ways: 1) The traditional commission system pays agencies 15% of media spending but is becoming less common. 2) Fee arrangements involve agencies and clients negotiating a flat fee for all work. 3) Cost-plus agreements base fees on costs plus an agreed profit margin, used when media spending is low but agency work is high such as for new products. 4) Incentive-based models tie compensation to predetermined goals like sales targets or creative work quality.

1. ADVERTISING AGENCIES
METHOD OF COMPENSATION
JOBUSH MATHEW
NO. 30

2. Advertising Agency
• Independent business organization
specialized in advertising works
which undertakes the work of
planning, preparing and executing
advertising campaign for its clients.
• Body of experts who specialized in
advertising.

3. Compensation Methods
• The Commission System
• Fee Arrangements
• Cost-Plus Agreements
• Incentive-Based Compensation
• Percentage Charges

4. The Commission System
 Traditional method
 Agency usually receives 15 percent
 Commissions are paid by the media
 Commission system is controversial
 System is becoming less common
 Simple and easy to operate

5. Fee Arrangements
 Fixed fee method
 Client and ad agency negotiate a
flat sum to be paid to the agency
for all work done.
 Agency estimates cost
 Client either accept or negotiates
for a lesser amount.

6. Cost-Plus Agreements
• Fee basis on the cost of its work
• When media billings are relatively low and a
great deal of agency service is required by the
client.
• Happens in case of industrial products and
introduction of new products.
• Client agrees to pay the agency fee based on
the costs of its work plus some agreed on profit
margin.

7. Incentive-Based Compensation
• Many clients demanding to their agencies.
• Agencies ultimate compensation level will
depend on how well it meets predetermined
performance goals.
• Goals include sales or market shares
• Evaluation of the quality of the agencies
creative work
• Compensation through Media commission,
fees, bonuses, or combination of these
methods.

8. Percentage Charges
• Agency purchase service from
various outside providers.
• They will not allow the agency a
commission, administrative cost
and reasonable profit for agencies
work.
• Such all is added to the bill.

9. References
• B.S. Rathor, advertising
management,Himalaya publishing
House.
• www.wikipedia.com

10. THANKYOU