Did you know brands spend over £150 billion on advertising media worldwide annually?
With such vast sums at stake, it’s imperative that brands and media agencies align goals through smart contracting.
This is where a well-designed Performance-Related Fee (PRF) model can work wonders.
What is a PRF?
Put simply, a PRF model (also known as a PRIP) ensures that a media agency's remuneration is tied to the success of a campaign, rather than just the number of hours worked or the amount of media investment.
This creates a strong incentive for agencies to provide maximum value to the advertiser.
While PRFs have been around for a while, it's important to note that not all PRFs are equally effective in achieving their goals.
Benefits of using an Effective PRF
- Competitive Media Pricing - A well-designed PRF aligns an agency's incentives with getting the lowest possible media pricing. This can lead to significant cost savings for advertisers, especially when taking into account the substantial price variations that exist.
- Access to Top Talent - PRFs allow you to attract the best agency talent to work on your account by rewarding their performance. This drives better results.
- Transparency into Media Operations - With PRF, agencies must clearly report on undisclosed revenue streams such as AVBs, as well as providing visibility into inventory media, proprietary media, and unbilled media.
- Exceptional Service - PRF keeps agencies on their toes, motivating them to provide five-star service that boosts performance. You become the priority client.
- Innovative Media Strategies - Agencies will pull out all the stops to earn their incentives, leading to clever, results-driven campaign ideas tailored to your brand.
What makes a PRF Effective?
If your current Performance-Related Fee (PRF) isn't living up to your expectations, don't worry. Here are some valuable tips to help you revamp your PRF and achieve the desired results:
- Base it on your unique KPIs – Ensure your PRF is designed around the specific key performance indicators (KPIs) most relevant to your business goals, not generic metrics. This keeps the focus on outcomes that truly matter to you.
- Implement Balanced Bonus/Penalty Mechanisms – Include both bonuses that reward agencies for exceeding targets and penalties for underperformance. This incentivises agencies to go above and beyond, not just meet expectations.
- Make PRF a Significant Portion of Compensation - For maximum impact, PRF should represent a meaningful percentage of the overall payment structure, not an afterthought. This motivates agencies to prioritise PRF-related goals.
- Outline Details Clearly in the Contract - The PRF agreement should spell out all details, from metrics to bonus/penalty calculations. Ambiguity leads to disputes down the road.
Conclusion & Next Steps
To see the power of PRF, consider this example. A UK e-commerce brand faced lacklustre growth despite hefty media investments. After implementing a sales-focused PRF, within months they saw improved performance and lower media costs.
That's how powerful an effective PRF can be. If crafting an effective PRF seems daunting, don't hesitate to enlist an experienced consultant. Their guidance can pay dividends.
So. Are you ready to transform your agency relationships? Let's connect to explore if a customised PRF model is right for your brand.
With the proper PRF makeover, you can incentivise excellence and save money. It's time to revolutionise the client-agency dynamic.
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About the Author
Philippe Dominois is co-founder and CEO of Abintus Consulting, and Head Coach at the Abintus Academy. He has over 25 years of international media experience, having worked on the media agency side, client side, and media auditing side throughout his career. Philippe has authored hundreds of articles over the years that focus on media management best practices.
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