The Real Agency Question

I used to work at a public relations/advertising agency, so my opinions about this subject are somewhat colored. I think an agency is a good idea for any business wanting to get the most out of its advertising investment. I especially think an agency is a good idea if you’re at all intimidated by the thought of moving through that particular jungle unescorted.

Don’t get me wrong. Advertising is not rocket science but it can get complicated and a bit overwhelming. Sure, a good creative idea, properly developed, then placed correctly, at the right time and with the right media, will work every time. But an agency does at least two important things that a client usually needs. First, the agency handles the things that take up an inordinate amount of time, such as interviewing and screening anywhere from dozens to hundreds of media sales people and other marketing-related vendors. This allows you to do the things you need to do to operate your business, like sell and provide quality service. Second, the agency provides (or should provide) some necessary objectivity so you don’t make a bad decision based on only that which you know (or think you know).

THE RELATIONSHIP. In my opinion, the issue you must deal with when deciding about obtaining the services of an agency has more to do with "how" than with "if." How do you structure your client/agency relationship? This too can be a bit complicated and certainly varies from agency to agency.

Agencies traditionally get compensated for their services in a variety of ways. First, some charge a retainer. The retainer is a fee that is generally associated with the size of the account, either in terms of how much will be spent on advertising production and media placement or the amount of time the agency will devote to the client’s needs during the retainer period. A general rule is that large companies with large budgets and large advertising-related needs often pay large retainers, some of which may be offset by a "discounted" media placement commission.

Next, there are commissions and markups. The media placement commission an agency receives is usually in the form of a discount that media organizations (radio, television stations, cable systems, publications, etc.) provide to legitimate advertising agencies. It can run as high as 15 percent on most media, so media time for a $1,000 30-second television commercial (cost to the client) is billed at $850 to the agency. Agencies also "mark up" collateral production costs usually associated with printed materials and broadcast production. Traditionally, this has been computed at 17.65 percent, but that too has become negotiable.

Finally, some agencies simply charge an hourly rate for all of their services, including design, copy writing and meetings with the client. To offset this, they provide the media placement at "net" to the client, meaning that the client pays the same rate as the agency for the media placement. Remember though, under this arrangement, the client is usually charged for the media buyer’s time, along with the time of all the other people at the agency who work on the account. This can work well for smaller clients who have simple agency requirements but can be quite costly for a larger, more diverse account.

After all is said and done, the good news is that it’s pretty much a negotiated relationship, in that you, the client, can decide how much of the budget you want to go to the agency and let the numbers work themselves out. The bad news is that if you don’t know how this all works you can pay more for agency fees than you might have to, leaving less for actual advertising creative and placement.

PROS AND CONS. I like agencies for a variety of reasons. First, they deal with all of the people who want to sell us advertising and marketing products and services. This is truly an enormous time savings for us. Second, they often negotiate better rates with the media because they place advertising for other clients and as a result have some financial leverage. Third, they usually have some creative people working at the agency who have good ideas regarding how we can better differentiate ourselves from our competitors. Fourth (if public relations is part of the service package they provide), they keep us in touch with ways to get our name out other than through direct paid advertising.

Another more intangible benefit (and this comes with an enduring agency re-lationship) is that they very often provide a counterpoint to our own insular thinking. The point of view from outside looking in is usually quite different than it is from the inside looking out. It’s that whole forest and trees thing.

The only negative I can associate with the idea of using an agency is the relinquishing of control that’s so difficult for many of the entrepreneurial types who run service businesses. All of the instincts and skills you’ve developed throughout the years that have helped you build your business and move it forward are now being placed into the hands of "strangers" who don’t understand the finer points of what you do. Remember this: they usually know their business as well as you know yours. You may have a customer’s knowledge of what they do, just as your customers have some limited knowledge of

what, why and how you do what you do.

Once you reach a point where you trust your agency as much as your customers trust you, I believe you’ll find the agency relationship rewarding and mutually advantageous.