Rate cards, price bands and benchmarking. How do you find the right price for your ad agency engagements?
So, how does an ad agency price their services?
The answer is a bit like how long is a piece of string – as long as you need it to be.
There are several elements to how an ad agency price is structured, and each one is influenced by elements like markets, project size, scope, location and sector, among others. As a brand looking to procure an ad agency, you will need to assess each of these factors carefully and find smart ways of negotiating the right price for your brand and campaigns.
On the other side of the fence, there are some key considerations that will likely influence an ad agency rate card and how they established their pricing models. These include:
- Margins – ensuring that the ad agency doesn’t undercharge for work
- Scope – poorly scoped work resulting in unpaid work or extra work that isn’t included in the original costing
- Talent – securing the right talent to handle the campaign and the client
- Competitors – rate cards built on competitor pricing models that may be either too high or too low
Then there are the different types of models for an ad agency price…
The fixed fee pricing model is exactly what it says on the tin- a set fee for a collection of services. This is generally used as part of a retainer or ongoing engagement that allows for costs to be offset and managed across different months and campaigns.
The project-based pricing model is also pretty self-explanatory and tends to be a once-off cost for campaigns and projects that are scoped right to the edge. Every detail and element costed to ensure the agency and the brand get value for money.
The value-based pricing model which is complex to manage and price and can end up delivering less value for both agency and brand if not managed correctly. In a nutshell, this type of pricing platform is focused on what the brand believes the agency delivers in terms of value.
The performance-based pricing model which is often confused with the value-based model. This model is based on the actual output of a campaign.
The retainer-based pricing model is similar to fixed fee pricing in that it is a set fee on a regular basis, only in this case it is monthly and contractually paid for a set period of time or a set number of deliverables.
Then there is the Rate Card
Agency rate card prices differ as much as fish in the sea. An ad agency price will differ for each of their clients, there is never a ‘one size fits all’ approach. Looking at the different factors that go into an ad agency prices, you can see how one agency may have different complexities and considerations when building its pricing compared to another ad agency.
For marketing procurement, this makes the pricing situation complicated. How do you choose? You could just choose the first agency to provide you with a quote that fits your budget, or you could spend hours sifting through every single rate card trying to figure out which one is the best value without compromising on quality. After all, most people know that often cost is aligned with quality and that a low initial expense can end up being a false economy when you have to redo a campaign or spend more money to fix the problems.
The thing is, an ad agency’s rate card doesn’t offer much clarity into what you’re actually paying for the work. There isn’t a lot of visibility into the value that the rate cards claim to cover such as idea generation, strategic guidance and senior creative talent management. There is also limited insight into why one agency in the same market for the same campaign charges less than another that appears to be operating within all the same variables.
The best way to resolve this conflicting morass of information is to benchmark each ad agency price.
Look to benchmarking realistically
Benchmarking can be of immense value when looking at your ad agency price, and your own planning and pricing strategy. But, only if it is done with negotiated rates across a broad spread of agencies, markets and sectors. Using a wide net, will deliver far more meaningful results from comparing ad agency price benchmarking, using live market data that has been externally sourced and compiled from across global markets and agency disciplines.
RightSpend’s benchmarking platform does exactly that. It uses external and live market data complied from more than 75 global markets and 10 different agency disciplines and provides you with the information you need to have meaningful conversations about the ad agency price and nuances that differentiate each agency.