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Agency Compensation Model (FTE Billing)
An agency compensation model is the contractual basis on which the agency is paid: staff time (FTE billing), a commission percentage of media spend, or a fee tied to deliverables/output. Under FTE billing specifically, the client pays for the modeled cost of the full-time-equivalent staff allocated to the account, calculated from each role's loaded cost and the percentage of time devoted to the account, not from a simple headcount.
Formula
Worked example
An agency staffs the account with a media director on a €96,000 fully-loaded annual cost at 25% allocation, a planner on €60,000 at 50% allocation, and a buyer on €48,000 at 50% allocation. Monthly cost = (96,000/12 x 0.25) + (60,000/12 x 0.50) + (48,000/12 x 0.50) = 2,000 + 2,500 + 2,000 = €6,500/month, or €78,000/year. That figure is the client's fee regardless of how much media the agency ends up placing, so the client is buying dedicated capacity, not a percentage of spend.
How it is used
Agencies submit an FTE grid, listing each role, its loaded cost, and its % allocation, which the client approves at the start of the contract year and which becomes the basis for monthly billing. Clients who use this model are expected to audit allocations against real timesheets or activity logs at least quarterly, since the grid is a modeled estimate, not a metered fact. The recurring failure is that agencies list senior titles at small percentages to raise the perceived seniority of the team without the client checking whether that senior person actually spends the billed hours on the account.
The common mistake
Approve the FTE grid once and then never reconcile it against actual timesheets, letting billed allocations drift away from real time spent.