Why does my agency put a mark up on production? Part 3 of 3
We’ve had a look at several different compensation structure models. Some clients prefer to work under a retainer model, which allows for long-term strategic planning and an ongoing partnership that works in a proactive capacity. However, if not carefully prioritized by the client, this can also lead to liberally requested assignments that often eat up hours. We also looked at fixed-fee project estimates. With the downturn economy, clients who don’t feel comfortable with long term commitments are choosing this route.
Then, part 2 of the series explored media commission and the various ways agencies are compensating for planning, negotiating and purchasing media in an ever changing landscape. Part 3, the final installment, will cover production markup.
Once the strategic direction is set, the media is planned and the creative direction is chosen, agencies may utilize third-party vendors for the production of campaign assets as necessary. This may include TV and Radio production, collateral, printing, outdoor production, list purchases, shipping, “emerging media” production and any other tangible asset not supported internally.
All third-party services procured on behalf of the client are often billed to the client at gross rates with an agency commission (between 5-20%). In efforts of obtaining the best possible price, it’s typical that three (3) bids are obtained.
The agency commission covers time and effort spent in selecting and supervising production of all outside services associated with the development of creative. Specific tasks covered by the commission include:
- Estimating / comparative bidding
- Vendor selection
- Ensuring vendor file requirements are met
- Sending materials out to service
- Vendor communication for project success
- Quality control
- Press checks (may be multiple)
- Coordination of product delivery
So, can you go to Kinko’s and make your own brochures? Of course you can. Client’s may elect to faciliate production on their own. However, will you be able to identify issues with the spot varnish, color saturation or adjust issues from pagination? If not, the commission is well worth the quality assurance.
At the end of the day the question a client must ask themselves is are they hiring an agency for their expertise and ability to manage their account or are they looking to purchase service items off of a rate card. If it’s the latter, there are plenty of “do it yourself” resources available but 9 out of 10 times the end result will be inconsistency with other elements, delays in production, job errors, etc. Most of all, an agency looks at the overall marketing objective and strategy to make sure all components work within the designated matrix.
That’s a nice reply from Wagner, who one would imagine works at an agency. He’s quite right but more than a tad disengenuous. Agencies mark up on production (and fees) because they can. The much vaunted ‘transparency’ preached by agencies is as a direct result of their costs (and mark ups) being questioned by marketers and marketing procurement, and means that lump sums or opaque quotes simply don’t cut the mustard in these more commercially demanding times.
Agencies now produce quotes of such biblical complexity that most time-pressed marketers haven’t a cat in hells chance of deciphering them, are given less than no time to do so (the classic agency ‘time-trap’), and should they be fortunate enough to be able to call upon expert (unbiased and truly independent) external help – they are frequently shocked by how much mark up is routinely applied. Caveat emptor indeed.
Most marketers are demons for negotiation when it comes to buying their own cars, insurance or white goods, yet pull their punches when querying agency costs because they are eager not to sully their ‘relationship’ with their agencies of record. Having been on both sides of the agency/client fence I can advise marketers that we (ex) agency folk have skins like rhinos and will defend the indefensibly high prices we charge as a matter of course. Because of course it’s about the creativity. When actually it’s about making money.
My advice to anyone who thinks they’re being charged too much – you probably are. The trick is to pay a fair price (which allows an agency to make 20%) and not one penny more.
The hackneyed old agency chestnut of ‘if you cut the price the quality will suffer’ is a clever bit of emotional blackmail as most agencies wouldn’t do work of substandard creativity which could end up in the public domain. My advice to anyone spending a marketing budget is to make sure that you’re paying a fair price for everything, and watch those third-party costs like a hawk. It is the responsibility of the client to ensure they are spending their employer’s money wisely, and to treat it as if it were their own.
In my experience there’s a huge amount of better value to be gained before one gets anywhere near the ‘creative bone’ as it were. It takes confidence to challenge an agency of record on costs, and in the long run appropriate cost challenges will engender grudging respect from any good marketing supplier who will be willing and able to (genuinely!) justify how they’re spending the client budget.