A June study from Mediasense found 85% of agency leaders expect to increase their use of outcomes-based pricing over the next two years. For more than half of agencies, outcome-based arrangements still account for less than 30% of client relationships, and pure outcomes-based remuneration, the consultancy found, is “exceedingly rare.” AI and automation are part of the push, cutting the time needed to plan and execute campaigns and with it the logic of billing by the hour.
“There is absolutely a definition problem,” said Tracey Shirtcliff, CEO of Scope Better, which helps professional services businesses manage pricing. What agencies usually land on is a hybrid — an output-based fee with a performance measure layered on top. “I’ve almost never seen anything that is purely outcomes-based,” she said. Dentsu’s iProspect describes itself as “very open” to putting its entire fee at risk but has no clients on a fully outcomes-based model.
Tying compensation to business outcomes is hardest for agencies handling one piece of a client’s marketing. WPP’s remit with Jaguar Land Rover spans creative, media, production, customer experience and strategic counsel, and the majority of its fees there are at risk on performance. Minneapolis independent Broadhead has one performance-linked contract, for a direct-to-consumer client, with 15% of fees riding on how many people it drives to the client’s site; it avoided tying compensation to sales because it did not design the site. Sixty-nine percent of agencies surveyed called agreeing on an attribution methodology a critical or strong barrier to adoption, and 68% cited insufficient access to client data.
WPP CEO Cindy Rose said the company would not lose money on outcomes, citing “ceilings and floors” in the JLR deal, and WPP is allowed to buy a share of JLR’s media on a principal basis — purchasing and reselling inventory, often at a markup. Acadia caps how much it can earn on performance deals and uses a reverse-tiering structure in which its percentage rate declines as performance climbs. Procurement is the other brake: 69% of agencies named it a critical or strong barrier, and the report found outcomes deals often get “diluted until they fundamentally resemble more traditional fee structures.” A full transformation, Mediasense concluded, “still seems to be in the distant future, if it is to happen at all.”
Read more at Ad Age.