In a bygone era of advertising, ad agencies thrived off 15 percent commissions from multi-million-dollar advertising accounts. Today’s advertising market isn’t so lucrative. Or simple.
For the past 10+ years, commissions have yielded to fee-based pricing models, where agencies are paid for the work they put in. For years this has been widely accepted as the norm. The amount of these fees is determined by the amount of labor involved in an agency’s proposed marketing mix.
But today it seems that the new world of social media, SEO and all of digital marketing doesn’t fit into this model — according to many clients. In the pre-social media era, clients were okay with “agency fees” for creative, branding, research, etc. because they were one-time projects or campaign creative that only occurred 3-4 times a year.
Enter social media and that thought process is flawed. When an agency proposes that a client market via digital and social media, it is just that — another media in your marketing plan arsenal. But, because this media requires ongoing labor vs. an ongoing media placement, it somehow is being considered an “agency fee.” Yes, it is a fee that is paid to an agency, but it is a committed monthly media that is no different than a radio buy except for the absence of an insertion order.
So here in lies the problem… when social media is considered an “agency fee” vs. a media expense, the big picture may show an agency’s total “fees” as 20-25% of the overall marketing budget. When a marketing director looks at it this way, based on the old adage, it’s a percentage that is certainly cost prohibitive. Mind you, if this social media hard cost was going to an outside vendor to execute, it would probably once again become a media expense and all would be right in the world of agency fees and percentages. But, no one is going to know a brand better than the agency that serves and represents that brand’s entire marketing campaign. This is why good agencies have added social media, SEO and all digital media management as a service to their clients.
From an agency perspective, the digital revolution is the best of times. Never before have we had access to such targeted media and unique, measurable ways to reach consumers. And yet it’s the worst of times because billing and compensation practices have not evolved in a client’s mind. Although it is no longer the 60’s, the 15 percent in agency fees yardstick of those days seems timeless.