Answer to Question 1
Commission system: The traditional method of agency compensation is the commission system, which is based on the amount of money the advertiser spends on media. Under this method, 15 percent of the total amount billed by a media organization is retained by the advertising or promotion agency as compensation for all costs in creating advertising/promotion for the advertiser. The only variation is that the rate typically changes to 16 percent for outdoor media.
Markup charges: This method of agency compensation adds a percentage markup charge (sometimes referred to as cost-plus) to a variety of services the agency purchases from outside suppliers. In many cases, an agency will turn to outside contractors for art, illustration, photography, printing, research, and production. The agency then, in agreement with the client, adds a markup charge to these services.
Fee system: A fee system is much like that used by consultants or attorneys, whereby the advertiser and the agency agree on an hourly rate for different services provided. The hourly rate can be based on average salaries within departments or on some agreed-on hourly rate across all services. This is the most common basis for promotion agency compensation.
Pay-for-results: Many advertisers and agencies alike have been working on compensation programs called pay -for-results or incentive-based compensation that base the agency's fee on the achievement of agreed-on results.
Answer to Question 2
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