Advertising Agency Costs Simplified

Don Draper may have been an enigma, but his billing structures were anything but. And in the heyday of the Advertising Agency Mad Men, the typical creative campaign was simple. Find your client a specific look and feel. Then pull that concept through ad campaigns of television, print, and radio.

But with the complex changes we’ve seen in media channels, we find that the billing has followed suit. No longer do we see agencies being able to use a simple cost-plus model.

One where they would purchase media on behalf of their client and charge a 10-20% commission (which would include the cost of creative services). Just because channels have become complex, doesn’t mean billing structures have to follow suit.

Advertising Agency Cost

These days, agencies provide a multitude of specialized services that don’t include media spend. To complicate the matter, marketers can leverage multiple agencies for a single campaign. One for media purchases. One for creative design and development.  

This has changed the basic fee structure for many agencies. The new focus is now a model that charges for time and materials. And as the industry moves to providing these niche services vs. full service, this is coming more commonplace.

The caveat is that there are many agencies (large/holding companies) that will continue to work on a media basis for clients. With large media budgets.

But what about the marketers that don’t necessarily invest in Outbound advertising?  Those who don’t use the services of an agency for collateral, website, signage, inbound marketing and other non-media based projects?

Advertising Hourly Benchmark Costs

Moving into the hourly billing industry, services are provided much like they are by other industries like lawyers, auditors, or consultants.  When the services are provided, time is accrued by the agency. 

Then the agency bills on an hourly basis for the time. The remaining materials cost such as proofs, supplies, copies, or print will be passed on to the marketers with a 15-20% fee.

On one end of the spectrum, you can find an at-home freelancer for $40/hr.  At the other end of the spectrum, you could easily pay $300/hr. for Creative or Strategic Direction with a Global Agency. And in western Canada, a typical agency rate band will be between $100 – $175 per hour for services ranging from project management to graphic design, illustration, programming or creative direction. 

The most talented teams will and always command the highest prices.  And the old adage ‘You get what you pay for’ holds true.  The costs may be high, but the results always far surpass what you’d see at an average agency.

Per Project (Flat Marketing Costs)

There’s always the alternative of just paying a flat rate (total cost) for a single project. So regardless of the time it takes or materials they may use, you pay one single agreed to amount.

With this, you must have a defined scope with an agency to deliver a set of tactic(s) – Brand Identity package, website build, etc.

In 1988, Paul Rand, one of the worlds most well known ‘logo’ designers, famously charged Steve Jobs $100k for the development of the ‘NeXT Computer’ logo. They were given one idea and one only. For 100k. Let that sink in for a moment.

There was a tremendous amount of value earned from the very fact that it was from someone seen as an industry elite, and despite the ‘quantity’ being only one.

Budgeting – Best Practices

When prioritizing brand tactics for the year, it’s good to have a few key guidelines to go by.  Here are a couple to consider.

1. Be upfront if you have a limited/fixed budget. Know exactly what you need to accomplish and make it the focus of the conversation. This can cut out the “wrong” agency, especially if there are unwanted surprises later down the road.
2. Know what the focus of your project is (want you to get out of the project). Ex: More leads, brand awareness, market share, etc.  You are going to be able to figure out what ROI you want to achieve if you know what the value is to your company ahead of time. 

If there is no specific financial outcome or ROI (a corporate art installation in a lobby), then you will likely be searching for pure talent. With this type of project, the criteria should be subjective, not financial. If you are looking for Picasso, don’t settle for knock-off based on pricing.

Last, use the table below to help you figure out what marketing agency project cost types are the most appropriate. By picking the right type of costs, you can ensure a reduction in scope creep, change orders and a multitude of other issues don’t arise.