Understanding the “value” of value-based agreements

Recently, our agency was asked to participate in an RFP with a technology company that was looking for a partner who would be willing to enter a risk/reward (or value-based) agreement to win the business. While such RFP requirements are not new to us as we see similar requests with growing frequency in the industry, it did get me thinking about the real value of such agreements for both parties involved.

In theory, a value-based agreement has benefits for both the client and agency when executed correctly. From the client side, they receive some assurance that the company they are partnering with has enough confidence in their work to risk some of their compensation. By nature, this type of agreement also creates a more open environment for the exchange of information and the mutual commitment to achieving agreed upon goals.

For the agency, value-based agreements demonstrate their willingness to share the risk for the work they are developing. It instills a genuine focus on creating and executing a strategy that achieves success, although any agency worth its while should maintain this position with all its clients. It also makes the agency feel more like they are part of the client’s team – working together to produce measurable results.

For the client, value-based agreements offer a way to evaluate the commitment of the agency they are considering employing. Beyond a screening mechanism, value-based agreements also provide an added level of confidence regarding the investment being made not only in the agency but also in the project or initiative under development.

Regardless of which side of the equation you are on, both parties should expect to receive as much in return as they risk.

Financial incentives aside, the most important consideration for all involved with value-based agreements is the measurement process. But how do you measure the success of a campaign, program, ad, etc.?

Our experience with such agreements has shown that there are key factors that must be in place for such agreements to be successful including:

  • Mutually Defined Measurable Goals
  • Quantitative Baselines for Benchmarking
  • A Means to Empirically Track Performance

If the proper measurements are in place and there is complete transparency on the part of both parties, then value-based agreements can represent the start of a wonderful and lucrative partnership for both the agency and client.

 Peter Steve, owner and chief creative officer

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