When it comes to paying for a professional service, most of us are skeptical when the bill arrives in the mail.
Even though invoices from the law firm, accounting firm, public relations company, and advertising agency itemize their services in copious detail, we still wonder if we're getting our money's worth. Are we paying too much ? Did the work really take that much time? Are the changes correct? The answers don't come easily.
To make certain that customers are comfortable with the way they are being charged, there's a movement among service-type companies-including advertising agencies-toward giving clients options at payment time. Creating a satisfactory comfort level is the goal.
The 15% commission on media placement was a primary source of agency income in the past, although clients were also charged for a variety of other services. Today, advertising agencies work with clients in one of three ways. Each one has benefits and disadvantages for the agency and the client.
THE HOURLY RATE. Traditionally, ad agencies have worked by the hour. Many remain faithful to this billing method, maintaining that it's the only way for an agency to be profitable.
Of course, an hourly rate poses difficulties. Not only does each member of the agency team have specific rates-account executive, copywriter, art director, graphic designer, public relations specialist, and clerical support -- but rates differ from agency to agency.
The problems lie in the rate itself, the uncertainty as to whether the time billed was actually spent doing work, and the efficiency of the employees. A low hourly rate may seem to offer savings-until the hours pile up and the monthly invoice goes through the ceiling.
Paying by the hour offers one major benefit to a client: It seems to stimulate agency personnel, since they can actually measure the results of their efforts. On the other hand, if the agency initially gave out an overly conservative time estimate to land the job (that is, when the hours billed are less than the actual time spent), its staff members can justifiably feel abused, and the quality of their work may suffer.
If you're working regularly with an agency and paying by the hour, make sure it understands that you want to maintain a close relationship. This should include periodic meetings to ensure that your company and the agency are walking down the same path at all times. Clients who try to save a few hours per month by skipping planning and review meetings will fail to get the most from their agency.
As a final word of caution, the actual hourly rate for each type of work can be deceptive. A low figure does not guarantee savings. It's better to pay for creative, talented people who can work quickly and efficiently than to hire mediocre employees who miss the mark.
THE PROJECT BASIS. Engaging the advertising firm on a project basis can make good sense. However, there's a downside to working regularly on a project basis: If the agency is called in only as needed, it is impossible for its staff to stay up to speed with the client. If even three months go by between jobs, the agency gets out of synch with the company's objectives. When this happens, the company's liaison with the ad agency begins to say, 'They don't really understand what we're trying to do. Maybe it's time to find a new agency.' Time and again this happens. For the most part, the agency isn't at fault, except for failing to stress the importance of a continuing relationship.
THE MONTHLY RETAINER. Some agencies prefer a monthly retainer paying for a segment of their overall services. For many clients, the retainer is a prudent choice, since no one feels the pressure of the clock running each time there's a telephone call, a meeting, or a bit of needed copy. On the other hand, clients may harbor doubts as to whether they are getting their money's worth-'Are we paying for time that we're not using?'
What does a retainer cover? The menu of included services varies, but it generally encompasses everything other than actual production costs (artwork, photography, typography, out-of-pocket expenses, and so forth). In other words, the average retainer encompasses the professional services of an account manager, account executive, copywriter, and public relations specialists.
The retainer approach offers advantages to both the agency and the client. The client is free to interact with the agency regularly, thus maintaining a close, effective working relationship. At the same time, the agency feels it's getting paid fairly for its services and is able to demonstrate to the client that its people are committed to doing the best possible job without all the 'What's it going to cost?' hurdles.
Which of the three ways is best? Simply put, the best way allows the client and agency to develop and maintain the best possible working relationship- one that is comfortable, productive, and efficient.
At times, a mixed approach serves the need. An unusual job may come up that both parties recognize as being outside the normal retainer, and which can be done by the hour or on a project basis.
Whatever the approach, the ad agency team assigned to your account should be considered. Are you meeting with the top executive while interns and entry-level people are doing the actual work? It's in your best interest to know exactly who will be working with you. You may be paying top dollar and getting a lesser level of competence. By the same token, when your agency gives you its experienced people, be ready to pay for the expertise. In the long run, you'll save money and get better work.
Finally, there's the issue of the agency commission on media placement of advertising: the famous 15% rule. The client should get the lowest possible price on ad space, but the ad agency deserves to be paid for the time, effort, and knowledge required to deliver the best possible exposure for the advertising. The solution to this dilemma is to pay ad agencies for their work-but only once, not twice. By getting rid of the agency commission and charging fairly (so as to build the client-agency relationship), ad agencies can create credibility and confidence in their significant contributions to clients' growth.