Appendix B
Everything You Need to Know About
Working with an Advertising Agency
I. Working with advertising agencies:
A. Relationship should be as business partner, not adversary.
B. Recognize the business versus creative conflict.
C. Recognize that the account representative is usually not rewarded for above-average profit on the account, but for quality of account team performance and client satisfaction.
D. Involve the agency in your business:
1. Provide them with more information than they need—marketing plans, sales analyses, salesmen’s reports, lab reports—about your specific business.
2. Invite them to visit the factory, sales meetings, management conferences, trade shows; the more they know about your business in general, the better they can help you.
3. Take a writer and media buyer to lunch; get to know their business.
E. Be sure the agency is adequately compensated for the work you expect of them.
F. Pay agency invoices on time so that agency does not have to use its own funds to cover media invoices.
G. Avoid misunderstandings by having written summaries of the basis for compensation, explicit billing procedures, and normal lead times for production that, if adhered to, will avoid overtime charges.
H. Insist the agency provide conference reports on all client contacts, delivered to your office within two days.
I. When there is a problem, bring it up immediately. If not resolved to your satisfaction, go higher up in agency management chain. Annually, prepare a written evaluation of the agency; document the good, the bad, and the ugly.
J. Write letter or send an e-mail to agency management when a member of account team provides exceptional contribution.
II. Agency compensation
A. Compensation is based on many factors:
1. Number of ads prepared.
2. Number of services from agency.
3. Number of client approval levels.
4. Number of times plans and budgets changed during year.
5. Amount of information supplied to agency.
6. Detail involved in media purchases.
B. Service expectations:
1. Rule of thumb: Between 25% and 33% of agency income on an account will go to direct salaries to those working on that account.
2. Example: If there’s $1 million in billing and agency income is $150,000 (15%), then the agency would put between $38,000 and $50,000 in salaries against account.
1. Commission
a. Usually 15% of gross on media and production materials purchased. For the client, the advantage is that the amount varies with budget and is easy to compute; disadvantage is that it’s not related to amount or quality of service.
b. For the agency, the advantage is that it shares in success as the budget grows; disadvantage is if the budget is cut back at end of year when all the work is done, budget may be too small to generate income to cover services demanded.
2. Retainer
a. Monthly fee that may amount to more or less than 15% commission, but must be paid regardless of budget fluctuations.
b. For the client, the advantage is that it’s related to amount of service rendered; the disadvantage, that it must be paid even if budget is severely reduced.
c. For the agency, the advantage is an even cash flow with an assured certain income; disadvantage is they do not share benefits of increased sales and advertising budget.
3. Flat fee
a. A stated or negotiated fee for a given project or type of work. Usually in addition to commission or retainer.
b. Can be used for art direction, mechanical preparation, creative work on collateral promotion material, supervision of research projects, concept work for new products, etc.
c. For the client, the advantage is compensation related to service; disadvantage is determining appropriate fee.
d. For agency, advantage is providing income for extra services, supplemental payments can be requested if original negotiated fee is inadequate; disadvantage is that client may think the agency is charging too much.
4. Cost plus
a. Agency income is based on actual costs plus guaranteed profit such as 10%, billed monthly.
b. For the client, advantage is related to service provided; disadvantage is that it may result in more service than is needed.
c. For the agency, the advantage is the assurance it can meet client requirements and still make profit; disadvantage is it is limited to average profit, and accounting is complicated.
5. Bonus
a. Additional compensation to agency for meeting stated goal or goals.
b. Goals may be share of market, sales, and/or awareness and preference—or anything else the client and the agency have agreed on.
6. Combinations
a. Any combination of above methods may be appropriate for a given client. Some examples follow.
b. Monthly retainer plus 5% commission.
c. For industrial accounts, 15% commission plus flat fee for creative work on each ad.
d. Monthly retainer for account service, flat fee for creative work, media purchased in-house.
A. Informal evaluation
1. Several times a year you should evaluate the agency and take steps to fix problems before they become unmanageable
2. Yardsticks:
a. Are our ads better than our competitors?
b. Are projects moving ahead of schedule?
c. Does account team understand our business?
d. Is billing timely, accurate, and within estimate?
B. Formal evaluation
1. Objective: improve advertising.
2. Danger: discourage or alienate agency personnel.
3. Essential: perspective on relative importance of factors being rated; for example, creative quality is more important than timely conference reports.
4. Develop checklist of factors of performance related to your needs. If rating scale used, also provide for statements why high or low ratings were given, as well as providing an overall evaluation of strengths and weaknesses of the agency.
5. Get input from and review evaluation with your management concerned with agency performance.
6. Review written evaluation personally with head of agency and account representatives. Request written response from agency in two weeks.
IV. Letter of agreement
A. Services to be performed by agency.
B. Compensation based on:
1. Media space.
2. Media production.
3. Creative fees.
4. Sales promotion.
6. Printing.
7. Agency travel.
8. Other compensation.
9. Items billable without compensation.
C. Agency legal liability/indemnity for ad content and product performance.
D. Right to review pertinent agency records.
E. Financial working procedures.
1. Terms of payment of invoices.
2. Billing of production and sales promotion on completion or monthly as accrued.
3. Cash discount.
4. Estimates for expenditures over $200 with revisions if they are exceeded by 10%.
5. Client approval procedures.
6. When competitive bids are required.
7. Media invoices submitted no more than 30 days prior to being due to media; client allowed 10 days to pay agency.
8. Non-media invoices supported with copies of invoices from outside suppliers.
F. Termination.
1. Must give 90-day notice.
2. Compensation provided during 90 days.
3. All materials and information to be returned.
V. Terminating the agency
A. Give three months to perform to your satisfaction.
B. If no improvement, give notice of termination with compensation to continue for 90 days or as stated in letter of agreement.
C. Work out dates when termination will be announced to agency personnel, client personnel, and to the press.
A. Determine your criteria for a new agency.
1. Services required.
2. Size of agency relative to your budget.
3. Agency experience in your business.
4. Local versus out of town.
5. Preferred amount and method of compensation.
B. Select ten or twelve contenders.
1. Agencies doing ads you admire.
2. Suggestions from other ad managers.
3. Yellow pages.
4. Red Book (standard directory of agencies).
5. Ad Club, BPAA.
6. AD AGE billing issue.
7. Media representatives.
8. Consultant.
C. Contact contenders.
1. Letter or e-mail to agency head
a. Ask if interested and if any conflicts.
b. Tell them who you are; send products, budget, annual reports.
c. If they are interested, ask to visit office for a one-hour tour and conversation.
d. If they aren’t interested, ask them to recommend other agencies.
2. Visit agency office to check for:
a. Chemistry/personalities.
b. Number of employees.
c. Atmosphere.
d. List of current clients.
e. Permission to contact certain clients.
3. Cut down your prospects to between three and five and ask them for formal presentations.
1. Have ready response to the press and to agencies not on contender list.
2. For press, “no comment” or prepared statement with optional facts, such as:
a. List of contending agencies.
b. Why the former agency was terminated.
c. Whether additional agencies will be considered.
d. Amount of advertising budget.
e. When decision on new agency will be made.
3. Set up a system to handle agencies who call.
a. Send information on company.
b. Send questionnaire on their list of clients, billings, number of employees, sample of print ads, why they might do a good job for you.
E. Formal presentation
1. Length: three hours. Portion of meeting to cover set questions, content of the remainder of time should be left to the agency. Provide written guidelines. Allow three weeks preparation.
2. Set questions to be covered:
a. Agency history.
b. List of clients.
c. Selection of ads done by creative people still at agency.
d. Background of key people.
e. How they plan to learn your business.
f. How they typically develop a campaign.
g. How they typically develop a media plan.
h. How they charge for services.
i. Special services you may require.
3. Specify in advance whether or not you will look at speculative creative work and if the agencies will be compensated for same.
4. Specify that any ideas advanced to you may be used by you with no, or specified, compensation to the agency.
F. Implementing the decision.
1. Make decision within 24 hours.
2. Make sure compensation arrangements are clear.
3. If the agency is small, check its credit rating.
4. Call losers personally and follow with thank-you letter.
5. Send a case of champagne to agency on the same day that you notify them of their appointment.