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Overhead Rates in Cost-Based Compensation: Perception vs. Reality

In the realm of client-agency agreements, confusion persists regarding the significance of agency overhead rates in cost-based compensation models. Clarifying misconceptions around overhead rates can foster more productive negotiations. Explore the true value and interpretation of overhead rates to enhance efficiency and transparency in client-agency relationships.

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Overhead Rates in Cost-Based Compensation: Perception vs. Reality

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  1. Why This Topic Matters • Cost-based compensation agreements are still the norm with clients and agencies. • Confusion exists about what can be determined from an agency’s overhead rate. • Many people incorrectly believe overhead rates are indicators of efficiency. • Simple and effective ways of correcting the misperceptions will encourage more productive negotiations. 1

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