Agencies were historically paid a percentage of the media they placed. Most large relationships now run on fees instead, and the change altered the work as much as the invoice.
Commission tied income to spending
Under the older model, an agency earned more when its client spent more, regardless of whether the additional spending produced anything.
It also earned more on expensive channels than on cheap ones, which created an interest in recommendations that clients could reasonably question.
The conflict was tolerable when media buying was the bulk of the work and channels were few, and it became untenable as both changed.
Digital work stopped scaling with budget
A small search campaign can require more management than a large television buy, because the work is in structure, testing and optimisation rather than in placement.
Commission on such a campaign produces income unrelated to the effort involved, which is unsustainable for the agency rather than merely unfair.
Fees based on the resource committed resolved that mismatch, and they made the cost of servicing an account visible to both parties.
Transparency pressure accelerated the shift
Concerns about undisclosed rebates and arbitrage in media buying pushed large advertisers towards contracts specifying exactly what the agency earned.
A fee is straightforward to audit, while a percentage of a spend that passes through several intermediaries is not.
Contracts became correspondingly detailed, specifying named staff, hours committed and the treatment of any value received from suppliers.
Fees created their own incentive problem
Paying for hours rewards time spent rather than results achieved, which discourages exactly the automation that would make the work more efficient.
Agencies improving their own productivity under this model reduce their own income, which is a poor arrangement for both parties over time.
Output-based fees, priced per deliverable rather than per hour, are the common response, and they require a level of specification many relationships struggle to reach.
Performance components sit on top
Many contracts now attach a bonus to agreed outcome measures, with a base fee covering the cost of the team.
The difficulty is agreeing measures the agency genuinely controls, since the outcomes that matter also depend on product, pricing and demand.
Arrangements that work usually tie the bonus to things the agency can move directly, and treat the wider business result as context for the annual review rather than as the payment trigger.