Marketing and Business 101

Money and the Ad Agency

How do agencies charge? There are as many ways as there are agencies. Almost all have a flat hourly rate that they charge for their services, and then add a higher rate for specialized services or their top people. In this area the flat rate runs from $50 and up per hour. Many will charge you for all time they spend on the phone talking with you -- just like many lawyers or CPA's -- some just charge for significant conversations.

I think everyone charges for face-to-face meetings, whether at your place or theirs, and some will charge you if you keep them waiting for an appointment with you. If you and the agency rep are going somewhere together, such as to look at billboards, you might very well get charged for all the drive time together. (I know one individual who insists on driving their customers around to view all the billboards, and will probably take them to lunch too. And it's all on the clock at $75 per hour.)

If they hire a crew or other company to produce your ad, most will add a percentage (15% is common), to that and then bill you in turn. That means if they get billed $2,000 to produce an ad, they will bill you $2,300. If they are present when the commercial is being produced - which is wise, it insures that it gets done right the first time - they will most likely bill you for that time. When they place that ad on the air, the radio or television station may charge them less than they would charge you if you had walked in off the street with the same commercial. So they have charged you for their time, added 15% to production, and received a discount when placing the ad, (which they may or may not pass on to you).

Now that you know just about every way you could be hit, here is what is fairly common:

(a) A flat hourly rate for their time spent on your projects;

(b) Billing you their net cost +15% for outside contractors that work on a project; and,

(c) Taking any media discount without passing it on to you.

Most are completely fair and reputable, a few aren't; unfortunately you may not find out which is which until too late. Feel free to ask specific questions about their billing practices in your first meeting, they shouldn't be offended.

Always insist on receiving an itemized bill from the agency. While it won't protect you from over billing, it will allow you to get some idea as to where your money is going. And it is your money. I know of one company that paid an agency over $10,000 and had not seen the first ad, even though they received itemized bills. The sad thing is that they spent almost $30,000 before taking action and firing the agency.

At first you might think about changing careers. I assure you that most agencies earn every penny they charge. This is one of the most brutal, high pressure careers anyone could pick. You operate under the constant pressure of someone else's deadlines. You can invest a fortune in new or upgraded equipment to satisfy the needs of one client, only to have that client fire you the next day. You are always subject to criticism from the client, and when they don't like something they usually can't pinpoint what it is "exactly" that they don't like. If you only have one client it can be difficult, when you have several clients it can be . . . unique.