NINA GROMAN WROTE:
> I am in negotiations with a local advertising agency.
> They are proposing a "run of the house" type agreement
> where they take 25% of our budget to cover all costs of
> our campaign...no additional costs. OR...they are
> proposing the "standard" 15% plus additional expenses.
Nina
Well, 15% plus expenses USED to be standard...back in
the 1970s. In the past 20 years, commission-based
agency compensation has increasingly become a dinosaur
in favor of fee-based advertising (in other words, you
charge me strictly on a per-hour basis, or you charge
me a retainer plus a per-hour rate). If an agency
operates on a % basis anymore, it even sometimes has to
negotiate lower than 15%.
The main reason for this is that the agency doesn't
really have the right incentive to hold down your costs
if it is getting a % of everything it convinces you to
spend. Frankly, I've never heard of the "flat 25%"
deal. That doesn't sound so great either. If it means
they are supposed to cover ALL production expenses out
of the extra 10% they have an incentive NOT to spend
that $ but to find a cheaper way to do it and use the
rest to improve their profits.
That doesn't necessarily mean don't hire these guys, if
they do better work than anyone else around. It's
fair for them to want their expenses covered, and it's
fair for them to want some kind of profit. I would ask
them "what dollar rate per hour would you want to go on
a straight fee basis?" If they won't operate that way,
the 15% plus expenses seems a lot better than the flat
25%. At least that way you will know you are getting
your money's worth on production costs.
I would be glad to be prooved wrong...anyone?
Christie Brown
Received on Fri Apr 21 2000 - 06:00:05 CDT
