Advertising Agency Costs Demystified
For many businesses, there has been apprehension about working with an advertising agency. The biggest fear is typically the cost, and who can blame them? When you see the big agencies in their fancy skyscrapers with pingpong tables and pinball machines, who wouldn’t be worried about their fees?
Add to this the complicated world of media today. Back in the ‘old days’ of advertising when newspapers, radio and television were the main advertising outlets, many of the advertising agency fees were absorbed within the media buy. Typically 15% of your media budget flowed back to the agency to pay for their creative services. But today’s media landscape is much more fragmented, with many different digital media options to choose from in addition to traditional media outlets.
While billing methods vary, the popular model today is for the actual media buy to be direct-billed to the client, while the advertising agency is paid directly for their creative services. This may be negotiated as an hourly rate, or you may agree to a project-based quote. Other arrangements may include a monthly retainer that hourly work is billed toward.
But the reality is that ‘How’ an agency gets paid is not nearly as important as ‘Why’ they’re getting paid. The number one reason to hire an agency is to get RESULTS!
The basic question any business owner asks about any investment is, ‘What is my Return on Investment?’ If you add a new location, how much capital will it require, and how much more money will you make in return? If you add delivery, how much more will you earn? And the same goes for an investment in an advertising agency. What is your return on investment?
With an advertising agency you are paying for experience, knowledge and creativity. It’s very similar to paying for any other professional service, whether it’s a lawyer or a plumber. You choose to hire them because they have expertise in an area that you need for your business. In that case it may be writing contracts or fixing a broken pipe, but for the advertising agency it’s to provide more effective results for your marketing and advertising efforts.
To look at it in simple math terms, you may spend $10,000 a month on advertising and find that it returns $20,000 a month in sales. But if you engage with an agency, spend the same $10,000 a month on advertising plus $2,000 for agency creative services and find it returns $30,000 a month in sales, your return on investment is much larger for a minimal investment.
The bottom line on choosing to use agency services is this: will it improve your business's bottom line? If partnering with professionals to improve your advertising and marketing and improve your return on investment, it’s a move that is worth investigating.
There are three essential actions you can take the next time you seek to hire a creative agency for either a single project or an ongoing relationship.
Share honestly about your budget. There are so many variables as to how a creative project can be produced, that the question ‘What’s it going to cost’ often leads to frustration when you don’t get a simple answer from the agency. For example, let’s think about producing a video. It could be shot on an iPhone camera, or it could be a large Hollywood production with camera cranes and film cameras. If you begin by sharing the budget that is realistic for your business, your agency can use their creative magic to do everything they can within that budget to produce the results you are seeking.
Start with the end clearly defined. What are you trying to accomplish with this project and how will success be defined? Are you looking for a specific number of new leads or customers? Are you seeking a specific sales increase? Do you have a goal in mind that will determine success or failure? Share this information with your agency as the end goal will guide how they approach the entire project.
If the project is a creative endeavor and not driven by a need for return on investment, you can still provide a definition of what success will look like for you. Agreeing on foundational elements like the look, the scope, and the timelines for the project will help the agency meet your expectations as they work within your budget.
The client-agency relationship is just like any personal relationship where the key to success is communication. The more you share about your needs and expectations, the easier it will be to build a trusting and successful relationship. It all starts with, “Hello!”