Which Advertising Agency Compensation Structure Is Better For Me? Part 3 of 3 (Production Costs)

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.