LIST ROUNDTABLE: Time to pay brokers differently?

Is the traditional brokerage commission structure outmoded? The most recent Catalog Age benchmark survey on lists shows that more respondents than ever pay commissions of less than 20% (once the standard compensation) on their list orders – but at the same time, today’s brokers are routinely offering their clients more services without increasing their fees. Meanwhile, some mailers have long avowed that they believe brokers should be paid for the quality – not the quantity – of names they find.

But will the traditional compensation structure really ever change? Many are doubtful.

Mary Ann Kleinfelter is vice president of sales and marketing of Delta Education, a Nashua, NH, catalog of home-schooling materials.

The current compensation system rewards brokers on tonnage. When catalogers were really mass marketers, that system made sense. Now that we’re targeted marketers, more isn’t necessarily better, but the way we pay brokers doesn’t reflect that. If a broker could find me 80,000 names that could bring the same sales and profit that 100,000 names would, she’d get paid less for the effort. But if I found a way to mail fewer pieces and come up with better results, I’d be a hero. So I’d like to find a way to pay for quality, not quantity.

Ideally, I’d tell my broker what I need to achieve. I would pay a retainer fee, and create a bonus plan to reward him if he helped me reach my goals. The problem is that many clients aren’t willing to share results or marketing strategies with brokers. What happens when a mailer gets five recommendations to test, and simply tells the broker that none of them worked?

Also, there’s still a tendency for large mailers who buy huge volumes of names to try to drive down commission percentages. There’s no reason for them to change the way they pay their brokers. But the rest of us need to create an incentive to help us mail smarter.

Jay Schwedelson is corporate vice president of Boca Raton, FL-based list firm Worldata.

In an age where added value is king, whoever supplies the most value wins. We would never encourage a higher compensation for brokerage services, but we recognize that the broker’s role has increased. As a mailer, if you’re not getting a lot of added value, you’re not using the right broker.

I don’t believe in compensating list brokers on a performance basis. We, as an industry, have come up with a compensation model that’s worked for years. Today, mailers are benefiting because we have to throw in so much added value service. But that’s fine with us, because mailers are happy with our service and they keep coming back. If these services were priced on an a la carte model, the mailers would suffer; prices would go up. This is a very competitive marketplace, and equal pricing across the board is important. It’s what you do for your commission that separates you from your competition.

The other problem with performance-based compensation is we broker media and ideas, but that’s only part of a successful marketing program. Is the offer good? Is the pricing right? Is the mailer reputable? Those things are out of our control. If compensation is tied to the success of a campaign, brokers would need to play an active role in all the elements that make it work. Marketers aren’t willing to include brokers in decisions about the message, customer service, or fulfillment. And brokers don’t necessarily want to be in that business.

David O. Schwartz is a president of 21st Century Merketing, 1 list firm based in Farmingdale, NY.

At the end of the day, both the mailer and the broker will typically take a look at the cost of the relationship. The broker looks at the cost of servicing the account, the staff, the time required, and at how much product he’s moved. He then looks at the 20% he’s made, and calculates what his flat fee might have been to see whether he would have made more. The mailer does the same, to see if he could have paid less.

The bottom line is that we could try to find different methods of computing our value, but brokers aren’t going to erode their compensation at a time when mailers are demanding more services for the same money.

As for creative compensation solutions, these ultimately would come down to blending some combination of elements: Enough flat fees to cover staffing, analytical, or marketing talent from the outside, but enough of a volume-based structure to reflect a savings for the mailer concentrating its business with a single broker. But I’ve yet to find someone so brilliant as to craft such a creative compensation arrangement.

The only win-win situation is a relationship in which a knowledgeable broker and mailer agree on the level of service provided. For example, a mailer might tell a broker, “All I want you to do is place orders, like a clearinghouse; so I’ll only pay this discounted rate for your services.” That’s fine. But on the other hand, if you’re designed [as a brokerage] to provide high-end, added-value service, you don’t want to be just a clearinghouse. A mailer can find the level of service he wants, but you pay more for more service, regardless of how the broker compensation is structured.

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