Put aside the ballyhoo about fostering partnership between clients and agencies for a moment. Let’s focus on the crux of the problem – how do we align client’s business objective with agency’s compensation? How can we create a fairer, better pricing model?
Clients stick their neck out when they champion digital. That takes courage. Why should they unfairly take the risk alone? Agencies must put their money where their mouth is, their pricing model must reflect commitment.
We hereby propose the Mitosis Pricing Model, a better method for agencies to share equity in the client’s risk and reward.
Mitosis Pricing Model: Result-Driven
Agency charges 60% of any savings achieved as a result of media optimisation (actual rate compared against benchmark/previous agency’s rate).
For example, if the client have been paying the previous agency USD 0.50 for each CPC, and we manage to drive the cost down to USD 0.20 for the same media unit, then our fees will be (0.50 – 0.20) X 60% = USD 0.18.
PRO: Accountability. The agency is aligned with the client interest, if the agency doesn’t perform; they don’t get paid. Transparency. The client have full visibility and access to the dealings between agency and media owner. Agency is rewarded when they disclose their savings and performance. I will be more than happy to share how we have achieved stellar media rates such as YouTube’s CPV 230% below YouTube’s benchmark rates (RM 0.026 vs RM 0.06 for Malaysian’s CPG), just drop me a line.
CON: Requires procurement to get on-board. The initial media plan estimates can be USD 10,000 for media spent, USD 2,000 for agency’s fee to get 50,000 conversions – but actual deliverable can be 100,000 conversions for USD 8,000 media spent and USD 4,000 agency’s fee. Procurement must be dynamic.
Existing Pricing Model 1: Spent Driven
Agency charges client 5%-17.5% of their total media spent as their fee for media planning, buying and optimization.
PRO: Suitable for rigid procurement. The amount segregated for agency fee and media spent remain the same.
CON: Media commission makes sense when media rates are influenced by economy of scale. Online media rates are influenced by optimization skills and not scale. Agencies adopting this model are rewarded when the client spend more, and not when the client achieve greater value from their spent.
Existing Pricing Model 2: Effort Driven
Agency charges client for the man-hours consumed to plan, buy and optimize the client’s digital media.
PRO: Plenty of face-time
CON: The proponent of this model would argue that you wouldn’t pay a surgeon only when the operation is successful. Online media is not surgery, it is not susceptible to many variables and complexity of a surgery. There’s far greater certainty. I would argue paying media agencies based on effort is akin to paying an architect for just showing-up, even if the house is crooked.
