AP-tutorial-2-Q4 (1)

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List the 4 major methods of agency compensation and briefly describe each.:

List the 4 major methods of agency compensation and briefly describe each. Outline any advantages or disadvantages associated with each system .

1. Commissions:

1. Commissions Traditional method Around 15% of airtime fees – in flux( fluatuate ) Commisions are paid by the media Web media is all negotiated Advantage : Simple and easy to operate Disadvantages : The basis of agency compensation has no relation to either the quantity or the quality of the creative work that are provided to the advertiser client

2. Markup Charges:

2. Markup Charges Production cost + fixed % R eimburses the firm for direct and indirect costs attributable to the project plus a negotiated predetermined amount for profit (fixed-fee) Advantage : has the flexibility for increasing the amount payable through the supplemental agreement process for extra work Disadvantage : May require additional administration or oversight of the project

3. Fee Systems:

3. Fee Systems Hourly rates, or by project An agency bills for compensation based on the precise number of employee hours worked, Or negotiate a lump sum(total) to be paid for a project Advantage: Provides for better agency financial planning Disadvantage : Hard to forecast workload, therefore fees to be charged to the advertiser by the agency a year in advance.

4. Pay-for-Results:

4. Pay-for-Results Tightly-specified objectives But, who is responsible for “results” The compensation level will depend on how well it meets predetermined performance goals such as sales or market shares Advantage : More profitable Disadvantage : Higher risks

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