How Much Does It Cost to Use an Advertising Agency?

Advertising Agency Costs

Advertising and Marketing agencies can work on many different types of rate structures. Often there is confusion on the difference between an advertising agency and a marketing agency. Our goal with this article is to help you understand the difference between the two agencies and supply you with some expectations on advertising agency costs.

It is important as a client that you understand what service your business needs prior to selecting a media and/or marketing partner.

Difference Between Advertising Agency and Marketing Agency

Business owners who have a desire to increase revenues can choose between a marketing agency or an advertising agency.   Each of these companies can provide solutions, but each might take a different approach, therefore providing a different result.

A marketing company might dig deeper into your business strategy, analyze the consumer experience, products and services and deep dive into every element of your company. Marketing companies generally would offer a broader, consultative approach to help develop marketing strategies.   The choice of a marketing company could be dependent on what kind of internal resources that are within your organization.  The employees that work within a marketing agency typically would have a background of working in company marketing departments where they gained experience at marketing research, strategy, and product development.  A marketing company would be helpful if your form of communication would be exhibitions, seminars, and customer relationship programs.

Advertising agencies specialize in communication programs such as advertising and direct marketing.   Many times, advertising agency teams include people with media planning, creative, and design skills who are experienced at the delivery and communication of messages to your current and potential customers.  An advertising agency would be your first choice if you want to communicate with customers through press releases, broadcast, digital, social media, out-of-home, and influencer marketing tactics.

The financial investment in either option will vary depending on the talent of each of the company, the services they might provide and the level of experience.   Fees could come in the form of a retainer (a bank of hours that would be available to your company) or an hourly rate.

Advertising Agency Costs and Fees

The rates that an advertising agency charges for their services varies greatly.   Below are some “sources” of income that could be considered when reviewing the process of how much you will spend on having an agency as a business partner.

  • Hourly rates for services – these can come in the form of a “flat fee” across all services within the advertising agency (creative, account service, media planning, clerical, etc.) Some agencies bill clients based on the experience and skill sets of the specific individual working on your account.   The most experienced, highest-level employees will bill more than junior and entry level employees.
  • Agency commission – these agency commissions are paid to the advertising agency by traditional media vendors (magazines, television, radio, outdoor.) This commission works much like it did back in the days of the travel industry, where airlines paid travel agents a commission for their business.   The standard agency commission is 15 percent.   If the advertising medium does not offer a commission, an agency commission-based fee of 15 percent could be added to the net charge of the vendor.   The formula is net dollar amount x 1.1765 will provide you with the gross figure for the advertising.   However, there are no set “rules” for the amount of agency commission “markup”, and these can range from 5 percent to 50 percent, so it is smart to discuss prior to engaging the ad agency.
  • Mark-up on outside expenses – if the agency works with outside professionals – printers, photographers, production companies they might charge a fee for the coordination of these services. Many times, it is in the form of a “mark-up” which can range from 1 percent to 30 percent.
  • Retainer – this fee would be a flat monthly fee to handle the business. It could include account service, creative, design, handling social media such as Facebook, Instagram, TikTok and   It could also include services like Search Engine Optimization (SEO) and writing Blog content for your website.   Generally, this fee is calculated by the agency based on the estimated number of hours (time) your account will need for their team to spend monthly.

As you can see, these are just a few of the ways that agencies can structure their fees.  It is important that the agency who works with your business is transparent and there are no surprises when you receive your billing for each project.  As the client, you must decide which compensation would be better for your business and work with the companies that are pricing their services at a level that works best for your campaign.

Advertising Agency Contracts

Annual contracts are common with Advertising Agencies, especially when it comes to government contracts that are based on a bidding process.  The contracts are a formal way to the compensation for services is outlined in detail.   While we don’t necessarily believe that contracts are “bad,” Copp Media Services does not require a commitment from a client for a specific period.   We believe that if you are happy with our services, you will continue.   And, if you are not, we should not force you to continue working with our company.  The only exception to this would be for Search Engine Optimization that would be flat billed over a year.  When we discuss optimization of a website with clients, it is understood that a large amount of work happens within the first few months of the project.   We can either flat bill the total year based on total estimated hours, or we can bill as the work happens on the account.   Most of our clients prefer that that investment be spread over 12 months, so that they can know what the monthly costs will be.

How Do Ad Agencies Bill Clients for Cost and Fees?

As stated earlier, this fee structure can vary on how much money you will pay for an advertising agency.   Copp Media Services generally will work based off a 15 percent agency commission.   Hourly and fee-based items would include handling social media platforms and Search Engine Optimization.   We also work with outside vendors to fulfill the creative, design and production elements and we do not mark-up those outside services but bill clients what the vendor bills us.   We do not charge for meetings, media planning, media placement for campaigns, reporting, traffic, or clerical.

5 Tips for Hiring an Ad Agency?

  1. Know what ad agencies do (and don’t do).
  2. Make sure the agency understands your company goals.
  3. Determine the advertising budget together.
  4. Be prepared to discuss your past business and advertising results.
  5. Ask the agency about establishing goals for your business.
  6. Know what level of experience will be assigned to work on your account
  7. Know if they have experience in your industry

These are just a few of the tips, and they are meant to get you started thinking.   So if you are considering hiring a marketing or advertising company, we would be more than happy to discuss our services and capabilities with you.