DIY Marketing Budget -Part III: Why to Pay Agencies a Fee
By now, you’ve read about estimating media costs in Part I and setting accurate expectations for production costs in Part II. Now it’s time to tackle the notion of paying an advertising agency for its time.
Agency fees can be a confusing concept for clients who are new at building budgets. Many agencies charge their time separately from hard costs. It used to be that agencies worked on media commissions. They would charge companies the “rate card” rate for media, and then keep as their fee the difference between that rate and what they can truly negotiate with media partners. As marketers became more independent from agencies, they wanted to track the real cost of media, and hence separate agency fee contracts were born.
Some clients scoff at paying an agency a fee above and beyond the work they create. The reality is that a good agency can be your business’ best strategic partner. You can get the thinking of a Big 5 consulting firm for a fraction of the cost. Today’s agencies are more than souped-up design; good agencies will be interested in building your business, and have ideas for you that extend way beyond words on a page.
Agencies charge for their time managing, strategizing, and partnering on their clients’ businesses. The typical cost structure is staff costs plus overhead plus a reasonable markup, for the time the agency estimates it will take to execute the specific scope of work you mutually agree on. Large agency networks dictate a markup of at least 20%, so a well-negotiated price from an agency will be less than that… but don’t forget to compare agencies’ overhead ratios, as some agencies have tonier office space and more extraneous expenses, so total cost will be higher. It might be fun to go to a slick office building for meetings and be wined and dined by agency principles… just know in advance that you are helping to foot the bill in the name of overhead!
A final word of advice: don’t let the process of budgeting intimidate you. You are capable of determining how much you can and should spend on marketing. Most companies spend 5-10% of annual gross sales, but you can meet your goals on far less, depending on what those goals really are. Once you have a rough idea, an agency can help determine how much their negotiating power can save you in media and other factors that will help you fine-tune that number. Good partnerships are marked by disclosure on both sides of the table, so share as much as you can with your agency.
Agency fees can be a confusing concept for clients who are new at building budgets. Many agencies charge their time separately from hard costs. It used to be that agencies worked on media commissions. They would charge companies the “rate card” rate for media, and then keep as their fee the difference between that rate and what they can truly negotiate with media partners. As marketers became more independent from agencies, they wanted to track the real cost of media, and hence separate agency fee contracts were born.
Some clients scoff at paying an agency a fee above and beyond the work they create. The reality is that a good agency can be your business’ best strategic partner. You can get the thinking of a Big 5 consulting firm for a fraction of the cost. Today’s agencies are more than souped-up design; good agencies will be interested in building your business, and have ideas for you that extend way beyond words on a page.
Agencies charge for their time managing, strategizing, and partnering on their clients’ businesses. The typical cost structure is staff costs plus overhead plus a reasonable markup, for the time the agency estimates it will take to execute the specific scope of work you mutually agree on. Large agency networks dictate a markup of at least 20%, so a well-negotiated price from an agency will be less than that… but don’t forget to compare agencies’ overhead ratios, as some agencies have tonier office space and more extraneous expenses, so total cost will be higher. It might be fun to go to a slick office building for meetings and be wined and dined by agency principles… just know in advance that you are helping to foot the bill in the name of overhead!
A final word of advice: don’t let the process of budgeting intimidate you. You are capable of determining how much you can and should spend on marketing. Most companies spend 5-10% of annual gross sales, but you can meet your goals on far less, depending on what those goals really are. Once you have a rough idea, an agency can help determine how much their negotiating power can save you in media and other factors that will help you fine-tune that number. Good partnerships are marked by disclosure on both sides of the table, so share as much as you can with your agency.
By now, you’ve read about estimating media costs in Part I and setting accurate expectations for production costs in Part II. Now it’s time to tackle the notion of paying an advertising agency for its time.
Agency fees can be a confusing concept for clients who are new at building budgets. Many agencies charge their time separately from hard costs. It used to be that agencies worked on media commissions. They would charge companies the “rate card” rate for media, and then keep as their fee the difference between that rate and what they can truly negotiate with media partners. As marketers became more independent from agencies, they wanted to track the real cost of media, and hence separate agency fee contracts were born.
Some clients scoff at paying an agency a fee above and beyond the work they create. The reality is that a good agency can be your business’ best strategic partner. You can get the thinking of a Big 5 consulting firm for a fraction of the cost. Today’s agencies are more than souped-up design; good agencies will be interested in building your business, and have ideas for you that extend way beyond words on a page.
Agencies charge for their time managing, strategizing, and partnering on their clients’ businesses. The typical cost structure is staff costs plus overhead plus a reasonable markup, for the time the agency estimates it will take to execute the specific scope of work you mutually agree on. Large agency networks dictate a markup of at least 20%, so a well-negotiated price from an agency will be less than that… but don’t forget to compare agencies’ overhead ratios, as some agencies have tonier office space and more extraneous expenses, so total cost will be higher. It might be fun to go to a slick office building for meetings and be wined and dined by agency principles… just know in advance that you are helping to foot the bill in the name of overhead!
A final word of advice: don’t let the process of budgeting intimidate you. You are capable of determining how much you can and should spend on marketing. Most companies spend 5-10% of annual gross sales, but you can meet your goals on far less, depending on what those goals really are. Once you have a rough idea, an agency can help determine how much their negotiating power can save you in media and other factors that will help you fine-tune that number. Good partnerships are marked by disclosure on both sides of the table, so share as much as you can with your agency.
Agency fees can be a confusing concept for clients who are new at building budgets. Many agencies charge their time separately from hard costs. It used to be that agencies worked on media commissions. They would charge companies the “rate card” rate for media, and then keep as their fee the difference between that rate and what they can truly negotiate with media partners. As marketers became more independent from agencies, they wanted to track the real cost of media, and hence separate agency fee contracts were born.
Some clients scoff at paying an agency a fee above and beyond the work they create. The reality is that a good agency can be your business’ best strategic partner. You can get the thinking of a Big 5 consulting firm for a fraction of the cost. Today’s agencies are more than souped-up design; good agencies will be interested in building your business, and have ideas for you that extend way beyond words on a page.
Agencies charge for their time managing, strategizing, and partnering on their clients’ businesses. The typical cost structure is staff costs plus overhead plus a reasonable markup, for the time the agency estimates it will take to execute the specific scope of work you mutually agree on. Large agency networks dictate a markup of at least 20%, so a well-negotiated price from an agency will be less than that… but don’t forget to compare agencies’ overhead ratios, as some agencies have tonier office space and more extraneous expenses, so total cost will be higher. It might be fun to go to a slick office building for meetings and be wined and dined by agency principles… just know in advance that you are helping to foot the bill in the name of overhead!
A final word of advice: don’t let the process of budgeting intimidate you. You are capable of determining how much you can and should spend on marketing. Most companies spend 5-10% of annual gross sales, but you can meet your goals on far less, depending on what those goals really are. Once you have a rough idea, an agency can help determine how much their negotiating power can save you in media and other factors that will help you fine-tune that number. Good partnerships are marked by disclosure on both sides of the table, so share as much as you can with your agency.
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