How do Media Agencies Charge for their Services?
If you are an advertising or marketing agency and you are looking at adding media planning and buying services to your offerings, the first thing you will need to determine is exactly how much you should charge a client for those services.
This blog post is not intended to be a short and sweet post but rather a detailed breakdown of what any small agency owner might want to know about media planning and buying fees from a detailed perspective. So if you have a zoom meeting about to start, better to skip this read for now and come back later.
Regardless of if you just won your first $250k media account or perhaps you have grown your business and will need to support a $10 million media buying account, the following information should help you understand how to build a fee structure to help run your media business profitability.
The first thing to consider at an agency level is that the total fees which will ultimately be charged back to a client are not just media related items but also cover off on several other areas within your business such as:
· Client services and account management
· Creative teams
· Finance
· Legal
· Technology
· Analytics
Typically, an agency will not cover off on these costs within a Media Services SOW but rather within other SOW related to those agency disciplines. Before we get into the media fee structure part, let’s start with the ancillary groups.
Client Service Fees
Ideally, your Client Services team will manage all aspects of daily communications with a client as it relates to media and only pull in media team members to address specific needs, questions or provide to provide the necessary presentations and summary reviews. The client services team will be responsible for managing and coordinating the overall media campaign project with the client while coordinating the creative deliverables or technology teams if there are website development requirements to support the campaign.
In terms of fees related client services, this is difficult to determine the appropriate amount but as a starting point, I often recommend that you at the total estimated media management and planning fees you are charging and assume that their time will require about 25% to 30% of that total. So, if you are charging a $100,000 in media planning related fees, you will most likely need another $30,000 just for client services.
Creative Development Fees
Creative Development Fees for a media campaign can vary greatly depending on the needs of the client.
In some cases, your creative team may be developing an entire brand look from the ground up while in other cases they are simply creating multiple variations, ad sizes and formats to accommodate a specific media campaign.
If I were to put an average out there, I have seen creative costs typically come in around 10% to 15% of the total media spend. However, if all that is required is basic versioning of existing creative, those costs can come in at 5% or even lower depending on the nature of the creative type. For example social posts are far easier and cheaper to create compared to video assets.
In the modern digital programmatic environment where creative versioning and personalization will always be the deciding success point of any media campaign, this is an area where an agency should never skimp on. If anything, there will be greater return for a client when they invest in more creative development pulling funds from working media dollars as necessary.
Finance Costs
Generally, agencies do not charge clients for the support required to manage payment of media invoices to media vendors. But with that said, at a management level you should always plan for the additional support required to manage payment of those invoices and the necessary accounting requirements from an operations level.
Legal Fees
Although far less required than in years past, there will always be vendor contracts, Terms and Conditions which need review not to mention agency related contracts. Once again, agencies do not charge for these services, but you should plan for these costs at an operations level.
On the plus side, most media purchased through large platforms such as Facebook and Google do not negotiate terms and advertisers are simply forced to agree to routinely changing terms through the media platforms. Most traditional forms of media have standard industry agreement terms and the IAB is always an excellent source to simply copy/past terms for your contracts since they are pre-agreed industry level legal language. But there will always be something which comes up and requires legal review.
Technology
All media campaigns will require some level of landing page development, implementation of tracking code on website, analytics integration with mobile apps and websites and so forth. While a skilled media buyer will also have fundamental expertise in organizing and implementing the necessary points of code integration, they typically will supply that back to a developer for implementation.
So, if your client is lacking the necessary internal tech support, you may need to plan for hours allocations to ensure proper page setup and implementation of tracking code.
Analytics and Reporting
Historically, a media team should provide a brief monthly summary report to the client consisting of high-level metrics and notations of optimization/campaign changes and performance insights. Typically, 1 to 2 pages long with basic insights or a summary report provided with a digital dashboard if available. An end-of campaign wrap-up report which highlights key learnings and outcomes should also be expected from the media team.
However, some clients will desire weekly reports, integration with offline data, custom dashboards or greater analysis combining not just media inputs but marketing data from email, website organic traffic, in-store visits, sales data, and social organic data. In this case, I would suggest developing dedicated analytics supports which would be billed outside of media.
Media Planning and Management Fees
Now that we have covered the ancillary fees, lets focus on how much you should plan on charging for media related services.
For media services, there are a total of 5 potential categories that could be charged back to the client which are as follows:
· Digital Media Strategy
· Digital Media Planning
· Digital Media Management
· Media Setup Fees
· Technology Fees
These media service categories are not always applied or used but you should review and check off each depending on the scale of a campaign.
Digital Media Strategy Fee
For large campaigns that are exceeding $1 - $2 million in size, it is often necessary to create a topline Digital Media Strategy. This is typical when a client is in the very early stages of planning out a campaign and items such as budget, targeting, timing, creative development and media channels as well as types have not been defined. In other cases, the client may be planning on developing multiple campaigns which will run over the course of the year.
Developing a Digital Media Strategy is a holistic approach providing several potential recommendations to support a campaign, budget options, vendor channel recommendations, performance pro-forma, media cost estimates, measurement strategies, audience targeting approach and flight windows.
The purpose of a Digital Media Strategy is to get client and team alignment on exactly what they wish to do over the calendar year.
Fees related to developing a Digital Media Strategy can vary greatly from a low end of $12k for a smaller $1 to $3 million campaign up to $50k for complex year-long program with multiple campaigns and flight windows. I have seen Digital Media Strategy work for very large programs involving complex technology integrations and data uses drive up to over a $100k though this is rare and usually not repeated beyond the first year of application.
Digital Media Tactical Planning Fees
For smaller campaigns, developing a dedicated Digital Media Strategy is typically not required and any strategy work can be incorporated in at the Tactical Plan level.
A Tactical Digital Media Plan is really to serve several purposes. Develop and finalize vendor pricing, RFPs, ad placements with vendors, develop a detailed audience targeting strategy for social and programmatic and detail out media flight windows and their final channel sections.
For Paid Search marketing this will include Ad Group and Keyword development along with any landing page recommendations and SEO based elements for the landing page copy.
A Tactical Media Plan should also include the expected user click-path diagrams, measurement strategy, optimization approach, bid management strategies and any necessary recommendations as it relates to campaign setup or in some cases a gap analysis to highlight any missing components within the overarching campaign.
The development of a Tactical Media Plan will require more work than a Digital Media Strategy but here are some good baselines to go buy based on budget size:
$10k - $50k in Media Budget: $1,500 to $2,500
$100k- $250k in media budget $5,000
$500 - $1 million in media budget $10,000
$1 - $3 million $15,000
$3 - $5 million $25,000
$5 - $10 million $50,000
Media Management Fees
In years past, Media Management Fees using to refer to the media buying commission back when such commissions were about 15%. Neither the term “Buying Commission” or a fee of 15% carrying any sort of relevance today for several reasons.
First, Media Buyers are really managing the execution of the media which is ongoing weekly if not daily requirement of programmatic, social, and search-based campaigns. So, the term of “Commission” is not applicable.
Second, the 15% use to apply to the entire planning and buying process of an agency for simplicity’s sake. However, overtime the 15% was eliminated as clients required greater transparency and 3rd party technology partners began to consume their percentages which the agency never benefited from.
Most agencies still do apply a percentage for managing the actual execution of a media program though it is more for simplicity’s sake than based on a strict formula.
Media management fees often working on a slide scale with larger media budgets requiring a smaller percentage of fees vs. the total budget and smaller campaigns requiring a hire percentage.
For example, a small social campaign of only $40,000 to a $100,000 will often require a media management fee of 10% while a $10 million campaign may only be 3.5%. This is because a $40,000 paid social campaign can take just as much work to manage as a $150,000 media campaign in terms of hours and time spent.
Most agencies have pricing models that follow a similar Media Management fee structure though it is not unusual for there to be varying percentages between different media channel types such as TV or Search Marketing.
$10,000 - $1 Million 10%
$2 - $5 million 7%
$5 - $10 million 5%
$10 million + 3.5%
While these are just averages, they seem consistent and once you hit $10 million in spend it is unlikely to ever get much lower than that. I would go as far as saying that only the largest agencies and their holding companies will get down to the 3.5% range but they are usually accompanied with aggressive client service and planning fees to offset those rates.
Media Setup and Tech Fees
Now there are two other categories of fees that pop-up from time to time in the form of a Media Setup Fees and Media Tech Fee.
Media Setup Fees are typically one-time setup fees for a particular type of media or tech platform required to support that media. For example, it is not uncommon for there to be a one-time setup fee for paid search programs amounting to about 2%-3% of the total estimated first year spend. This fee is often required to cover all the hours associated with setting up a new account and building out the necessary account ad group structures, key word research and analytics integration.
I have also seen several times where a tech platform may charge a one-time setup fee for a new account which will be using their proprietary technology to manage media for a client or even for the creation of dashboard reporting.
Then finally there are pass-through media costs which are deducted from the working media dollars or baked into the ad CPM by vendors. This may include such things as ad serving, data and data management fees, dynamic ad creative platforms, ad verification tools and the like. These costs are only billed back to a client as a pass-through cost and typically marked up or considered to be an agency fee.
So hopefully this helps and if you find out that you still have questions or would like help to building out your pricing model, reach out to us as we would be more than happy to help.