Agency compensation on the interactive media side hasn't conformed well to traditional models. Underscore Marketing's president explains why, and explores the notion of getting paid for strategic thinking rather than for execution.

In pitching new business, traditional media has an advantage over interactive. A request for a traditional plan is more easily fulfilled than a request for an interactive one. In the vast majority of cases, when an advertiser requests a media plan from their agency, there's a lot more work involved in putting together the interactive portion than the traditional portion.

Why, exactly, is that?
That's a pretty bold statement, but the truth of the matter is that clients are often struggling with the role that online media play in their overall communications plans, whereas the roles of print, television, outdoor and other more established media are usually at least somewhat clear from the start. When that plan request comes through, with a tight deadline, the online media planners need to concentrate on answering a number of questions that are often already answered for traditional media. 

Among them:

• What is the role of online media within the strategic communications plan?
• Once the role of online has been decided, what are the minimum and maximum levels of interactive spending that should be considered?
• What units should be run?
• What constitutes an effective share of voice?

Sure, these questions need to be answered by traditional media planners as well, but most of the time, it's easier to answer those questions in the traditional space.

What makes interactive more complicated?
With interactive, planners are often starting with a blank canvas. It's a sometimes-overwhelming task simply to figure out what interactive should aim to accomplish. Traditional planners usually have a short list of predetermined roles that individual media can play within a media mix. (If you're struggling with that last statement, take a look at some of the media plans you've seen over the years. How many times is radio billed as "a frequency-building medium?" See what I mean?)

When you start to think not only about the strategic role of online media, but also about creative units (not just banners, but video, rich media, co-reg, affiliate program creative, et cetera), site selection, pricing models and other factors, the sheer volume of choices becomes staggering. Answering the client question of "How much should I spend on interactive?" is sometimes tantamount to trying intelligently to answer the question "How long is a piece of string?"

It's the up front work
Given all I've said above, it's easy to see how interactive planning teams need to invest more planning hours ahead of the actual execution of the eventual media buy. With so many more moving parts, the risk that a prototypical plan will never see the executional light of day is much greater on the interactive planning side.

While many traditional agencies are happy to plan and execute, taking their compensation from back-end commissions, it's much harder for an interactive agency that wants to build a stable and profitable business to do so. Of course, during the downturn years, many interactive agencies agreed to commission based models. Any port in a storm and all that…

But with the recent surge in interactive growth, fewer agencies are considering commission-based compensation as a viable way to grow their business. They prefer to be paid for the time they've invested in the form of a planning fee or retainer. Thanks to increased demand, they're getting it.

The exception to the rule is online direct response advertising, where clients often cede a good deal of control over their campaigns in exchange for performance-based pricing. In such cases, online DR agencies can keep control of their costs by limiting the number of tactics, creative units and such.

Lessons learned
Quite a few interactive agencies have sunk their businesses, especially during the downturn, by taking too many commission-based clients. Plans that never come to fruition represent a huge investment of time and effort that may never see a dime coming back in the form of revenue. For an interactive agency looking to build a stable business for growth, the commission-based model may represent too big a risk.

That's why, in today's market, many agencies are looking to limit their downside.

Hybrid models have become more popular, with some agencies asking for upfront planning fees that can be credited wholly or partially against commissions earned when the plan becomes a live campaign. And we will likely see more interesting models emerge to limit risk.

One thing is for certain: with the significant amount of upfront work that goes into developing any interactive campaign, agencies can't afford to gamble that investment in the hopes they'll be compensated after the campaign is live.

Tom Hespos is the president of Underscore Marketing and blogs at Hespos.com. Read full bio.