Money. It’s never enough. Ad and media agencies are increasingly complaining that clients pay too little and ask too much. Agencies used to be paid around 11% commission (on media spends) for creative work and 4% for media planning and buying. The average pay-out now is 5-7% for creative commissions and 3% on media commission. Some creative agencies say they now work for a hard-scrabble 2% in fees. A sliding scale of commission often applies, or a reduction in fees as ad budgets increase.
Clients, in turn, say agencies have to earn their fees. They should become true partners and provide real value services in research, market visits to rural areas, specialist services—just about anything. Some clients seem to want agencies to be all things for very modest sums. At times, agencies provide huge brand ideas but get no royalty fees. So, why do they agree to this? asks Ravi Kiran, CEO, South-East and South Asia, Starcom MediaVest Group. Why don’t they walk away?
It’s often about ego and desperation—an unwillingness to let go, especially if the business pertains to a pedigreed brand or was won against nameplate agencies. Many agencies don’t even consider opportunity costs—some clients do not permit agencies to work on rival brands or associated categories. Agency payments,should compensate for this.
Still, why have creative agency fees dipped much more than those of media agencies? Well, media agencies weren’t getting too much in the first place. The former are still seen as providing the lowest common denominator—the same traditional advertising solutions. In contrast, costs in media have gone up since fees for specialist skills are high. Ad industry chiefs say commissions for specialist communications, such as digital, retail, entertainment, even outdoor, are easily between 15-20% since talent is scarcer. “Also, specialist spends are still relatively low, so a smaller per cent wouldn’t be feasible. And, specialist units usually provide end-to-end services, from strategy to creative and media,” says one ad man who prefers to be anonymous. As advertisers spend more on non-traditional, and specialization becomes more mainstream, these commissions, too, may dip. Ultimately, to get more, agencies need to be able to say No.
Marion Arathoon is Mint’s advertising editor. Your feedback is welcome at firstname.lastname@example.org