I want to share a cautionary tale about working with advertising agencies. Not all agencies are created equally, and if you’re not careful you can be taken advantage of without even knowing it.
A buddy of mine called me yesterday asking for advice. He took a job with an zoo on the west coast a few months ago and was driving to meet with the zoo’s ad agency, which bought all the zoo’s advertising, for the first time. He was looking for some advice on how to approach the meeting. First thing he asked, “how does an advertising agency make money?”
I replied, “typically, the ad agency is paid a 15% commission by the media outlet. So, if you’re buying $1,000 worth of local cable television advertising, the agency makes $150. The cable company bills the agency for a gross of $1,000 – an amount the agency bills the client – and a net of $850 that the agency pays to the cable company.”
My friend then explained that the zoo has been placing around $5,000 a month worth of media buys through the agency – for which the agency is paid $750 from the media outlets – but that the agency is charging an additional commission to the zoo on top of the $5,000. It doesn’t end there. The agency is also charging the zoo a monthly retainer for placing media buys, as well as fees for producing creative (the actual television commercials that run on tv).
Now, I’ve heard of agencies charging a retainer and taking the commission from the media outlets. It’s also customary that a client will pay the agency for creative to be produced. But I’ve never heard of an agency also charging a client an additional commission on each media buy. Essentially, the zoo is being triple dipped for placing media buys through that agency.
My advice to my buddy? Figure out the exact amount of money he will save the zoo by pulling all the media in-house then ask his boss for a raise.
If you’re using an agency, even if the relationship is rock solid, ask questions about what you’re buying and what, exactly, you’re receiving in return. The zoo hasn’t asked those questions and is subsequently being ripped off. Not all agencies are bad, and in some cases, using an advertising agency can make sense. But, if you have the savvy to place your own buys, you can save money. Most media outlets aren’t fans of paying the 15% agency commission and would rather work with clients directly. More often than not, if a client calls them and wants to become a direct client – no agency involved – the media outlet will give them as good a deal, if not better, than they were giving the agency.
Just like any other decision regarding business, it takes being vigilant and asking the right questions to avoid getting ripped off.