3 Steps to Benchmarking Advertising Agency Fees

For many advertisers, their expenditure on Marketing Agency Fees represents a significant investment. They, and other stakeholders like procurement and finance, want to know that they are paying a fair amount for the services the agency is contracted to provide i.e. They want to be able to benchmark their agency fees to ensure they are good value.

Benchmarking agency fees may be very valuable; we often see overall improvement in fee value, for the same scope, of between 10-25%.

The sorts of questions many advertisers want to know are shown below:

• How many hours a year should an FTE member of staff work?
• What is the right day rate for each level of staff?
• What is a fair overhead?
• What is a fair profit mark-up?
• How has covid and resultant flexi-working impacted overhead?
• What is the difference in rates between markets?
• What is the right mix of account management versus other disciplines?
• What is the right mix of seniority?

These sound like reasonable requests and simple tasks, and they can be, but many advertisers get it wrong. This short article explains some of the pitfalls and the Agency fee benchmarking services that Flock offers, that prevents missteps.

1. An advertiser must be able to compare their rates to an ad agency fee benchmark sample of other rates. The benchmark must be robust. Some consultancies purport to offer agency fee benchmarking but their data is poor.

• Flock agency fee benchmarks are comprised of over $1billion of agency fees. We cover 38 global markets, and all major sectors like Automotive, CPG/FMCG, Financial Services, Professional Services etc. This scale gives good normal ranges of data. Unlike some other consultancies if we don’t have robust data for a sector, or a market we are 100% transparent.
• Our agency fee benchmarks are all negotiated rates, not surveyed. There is a significant difference between “rate- card” or survey data and negotiated data. Some companies use non-transparent “survey data” or try to extrapolate from data like Glassdoor, which is not the same as negotiated fee data.
• Our data is consistent. We capture data in a 100% consistent format that allows for comparability “apples to apples” on topics like working hours, overhead, mark-up, mix by discipline mix, seniority mix, and mix by job type.

2. Avoid benchmarking the absolute number hours for scope items

• How much does it cost to create a TV ad? Or, how many hours does a competitive analysis take? These are dangerous questions that sadly some consultancies say that they can “benchmark”. Each client is different in the way it works (global/local, internal processes, approach to research, levels of integration between departments, budgets etc.).
• Flock will consider how the client works before giving guidance on the nature of the team, hours, and costs. We will NOT give you a “normal” averaged cost for an activity as this can be hugely misleading. Take these two examples of making a “TV ad”:
  • Advertiser A uses existing footage which required a simple edit and a new voiceover. One client oversees the project, has no research processes, and can approve the work directly. No versions are required. It takes the agency very little time and costs very little money, comparing to a “dumb average benchmarks” would be misleading.
  • Advertiser B is making a new commercial, from scratch, for five markets, and they need to address two different audiences, so need different versions for each audience. The script calls for live action so voiceovers do not work well. The campaign is part of an integrated campaign so other assets need to be created at the same time. The client has a strict pre-production research methodology that must be applied and the client needs each market to approve the work, a divisional direct and the managing director. This “TV Ad” would take a lot of time and cost for the agency, and comparing it to a “dumb average benchmark” would be misleading.

3. An advertiser must be able to understand and interpret the data for their own reality

• If you don’t know about how agencies work, or don’t have knowledge of how many hours it takes to perform different tasks, or what the implications of your own internal processes are, seek help.
• Flock consultants have over 250 years of active, live, experience creating and managing agency teams. It is important any company offering benchmarks can consult on what the data “means” and what are its implications. Because we run pitches, almost every day, we get the very latest insight into agency fees, and their ways of working.
• We often find scopes where the client should be paying more, or should add staff, to ensure a great product. We know how to get great work from agencies and to interpret the data.
• Some agency fee benchmarking companies have far less experiences and cannot interpret the data, and not surprisingly many agencies really dislike working with these companies and the use of “dumb data and benchmarks”. A bad benchmark can cause more problems than it solves.

If you have any questions about Agency Fee Benchmarking or would like to find out more about Flock’s Agency Fee Benchmarking service please fill out the box below.