Don’t you find it strange that most advertising agencies don’t divulge the cost of the different services they provide?
Back then, it was easy to gauge how advertising agencies operate. They only existed to provide clients with originality and inventiveness needed in creating ad campaigns that would stand out on TV, print, or radio. Determining the ad spend was where firms got their commission. It involved buying the media for the client and winding up with a 10 to 20 percent commission.
Let me explain with numbers: For example, a customer invested two million dollars a year on media. The agency would receive about $200 000 to $400 000 in commission.
What I have given you is just a rough estimate. Of course, this wasn’t true for all firms, but it was the basic formula they used to pattern their charges.
Why Things Have Changed
The reason this way of charging clients no longer applies to today’s advertising world is because there are more types of specialized services available these days. Clients prefer specialized media firms when in need of purchasing ads and run to a creative advertising agency to formulate a campaign.
This change in the system prompted a difference in the fee structure. The increasing emergence of companies specializing in a particular niche is casting a shadow on full-service institutions. Therefore, it’s not surprising that each advertising company charges its clients according to their services. You can still find large companies offering to work on a media basis. Their market consists of clients with large spending capacity.
However, more businesses these days prefer investing their funds in non-media based projects such as social media management, inbound marketing, signs, and websites. How do advertising agencies charge this type of client?
How Creative Companies Charge Their Clients
There are two ways creative companies charge clients who need non-media based advertising:
Fixed Amount Per Project
Some companies offer flat rates for packaged services, which work for institutions with enough expertise. They don’t factor in time and materials. Paul Rand, a renowned logo designer, infamously charged Apple’s co-owner Steve Jobs with a $100 000 fee for their NeXT Computer System logo. After pitching one design, Steve Jobs didn’t need another one because Paul Rand delivered the expected quality in one go.
Time and Material Dependent
Unfortunately, not everyone in the industry has that level of expertise. Therefore, it’s wiser for most advertising companies to charge based on the time and materials working on the project.
Now, this is where the confusion lies when talking about the standard advertising company rates. You see, hourly rates differ from one agency to another. Companies charge clients according to the accumulated time and cost of materials (supplies, printing, copies, and others) with up to 20% markup.
If you are looking to work with a freelancer, you’ll save some pretty penny because some charge as low as $40 per hour. Should you decide to go for an international advertising agency, you might need to lose your purse strings because companies usually charge about $300 per hour.
Agencies usually base their rates according to their specialists and the market rates. It stands to reason that teams comprising talented members should receive high rates because their output is always reliable and top-notch.
How To Prepare Your Budget
When planning your budget, you should factor in the services you want for your project. Sit down and make a list of your must-haves and nice-to-have. If you list social media management as a must-have, you should be willing to spend more on this department than those on your nice-to-have list.
During this time, you should talk to the firm about budgeting. Maybe there’s already a set budget prepared. In this case, you need to weed out the unnecessary costs and channel your funds on what matters. Also, make a note of restrictions. By identifying each of them, the firm might be able to develop a workaround solution that doesn’t compromise your budget.
Being upfront and honest with your budget will caution the firm not to spend your dollars on trivial things, but rather focus on maximizing your budget. Moreover, if the firm you are talking to informs you that your project can’t be done because of budget constraints, it indicates that the firm isn’t the right match.
Identify the monetary value for each task. What happens next after the firm has completed the task? It will depend on your expectations. Most businesses aim for more leads, increased brand awareness, be at the top of the search results page, etc. It’s important to know how much profit you are expecting to generate from the project. All agencies understand that every company strives for a reasonable, if not high, rate of return.
On the other hand, if your project has no return on investment. Then your budget will be purely subjective, and so will be your process of agency selection.
It’s hard to find the best ad agency for you. So when you manage to find one with adequate experience that fits your creative and business requirements, make sure you divulge your budget expectations to give the firm an opportunity to sort things out and make it work.