Why Outcome-based Agency Remuneration Is Having A Moment & What Marketers Should Know

Outcome-based agency remuneration pays an agency based on agreed outcomes rather than labor-based charges such as salaries, overheads, and margin. Sales is the most commonly referenced outcome, but outcomes can also include leads, downloads, or improvements in brand health metrics. The approach is not entirely new, since some agencies have already placed part of their fee at risk against sales targets, and affiliate businesses have operated on outcome terms for years. The shift is accelerating because AI increases agency delivery efficiencies, leading marketers to demand that savings be shared. Public holding companies are positioning outcome-based remuneration as a way to address existential pressure on legacy agency business models.

"Outcome-based agency remuneration is when you pay your agency based on an agreed outcome they deliver for you rather than using the conventional labour-based model of agency remuneration i.e. salaries + overheads + margin. The most commonly referenced outcome is sales, but the outcome could be other things as well, like leads, downloads or lifts in brand health metrics."

"The concept isn't entirely new. It's not uncommon for an agency to put a smallish portion of their fee at risk subject to a sales target and agency-adjacent businesses like the affiliate finder.com have been operating on an outcome basis for years. What is new is the idea that all of an agency's fee might soon be tied to outcomes. That would indeed be a very significant shift."

"It's having a moment because the traditional labour-based agency business model is under increasing pressure from AI. As AI creates efficiencies in service delivery for agencies, more marketers are asking to see those savings passed on to them. The problem for legacy agencies is that if they pass these savings on, their business model starts to evaporate. Legacy agencies don't want their business model to evaporate."

"New WPP global CEO Cindy Rose told investors in February: "A commercial model that is more closely linked to client outcomes will enable us, over time, to move away from time and materials.""

Read at B&T