Agencies were once paid a commission on the media they placed. The move away from that model was driven by the incentive it created rather than by the amount it cost.
Commission tied income to spend
Under commission, the agency earned a fixed percentage of what the client spent on media, regardless of what the work required.
That was administratively simple and it aligned agency income with the size of the client rather than with the effort involved.
It also meant a recommendation to spend more was a recommendation to increase the agency's own revenue, which clients eventually found difficult to ignore.
The incentive worked against cheaper channels
Channels that deliver results at low cost generate less commission, so the model quietly penalised recommending them.
The same applied to any recommendation that reduced spend, however sound, since the agency bore the cost of its own advice.
As lower-cost digital channels grew, the mismatch became visible in a way it had not been when most spend went to broadcast and print.
Fees moved the basis to effort
Retainers and project fees price the work rather than the spend, which removes the incentive to inflate budgets.
They introduce a different problem, since the agency now has an interest in minimising hours against a fixed fee.
Scope becomes the point of friction, and disputes move from what was bought to what was included, which is harder to specify in advance.
Fees also have to be renegotiated as the work changes, so the administrative cost of the relationship rises even where the commercial terms are settled amicably.
Outcome-based pricing shifts risk rather than removing it
Performance-linked fees tie payment to results, which appears to align both sides completely.
In practice the agency controls only part of what determines the outcome, since product, pricing and distribution sit with the client.
These arrangements therefore work where the agency genuinely controls the lever being measured and produce disputes wherever it does not.
Transparency became the larger issue
As buying moved to platforms with their own fees, the question shifted from what the agency charges to what happens to the money between the client and the publisher.
Principal-based buying, where an agency buys inventory and resells it, reintroduces a margin the fee model was designed to eliminate.
Contracts now spend more space on audit rights and disclosure than on the fee percentage itself, which reflects where the money is actually decided.