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Read “Where The Suckers Moon”. Seriously. Before you continue with this post, go to Amazon, add it your cart and check out. It’s the greatest book ever written about the advertising industry. Randall Rothenberg, in a few hundred pages, gives all the background you could ever want or need, to help understand why the 15% agency compensation formula was created and why it’s been so challenging to move off of that outdated model.

“Mad Men” TV series office tableau.

Is the standard of the 15% agency fee going the way of the datebook and rotary phone?
(“Mad Men” photo © AMC/Lionsgate)

In the earliest days of advertising, an agency took a straight commission for placing and buying media. That commission eventually settled around 15%. There were companies still using this model 10 years ago. Old habits die hard. That 15% commission became a defacto standard for how much an agency should be compensated relative to the media spend. If you spend $10M in media, you shouldn’t spend more than $1.5M to produce the creative needed to satisfy that media buy. Depending on who you talk to or what association you belong to, that 15% is as low as 10% for some categories or as high as 20% in others. But, the general average is STILL 15%.

The model was simple. It was clean. It enabled planning to be easier and faster, because everyone knew the compensation model. It was also a model that was born when we were only planning against a limited number of communication channels: TV (3 channels at most), print, radio and outdoor.

The model worked well for legacy media channels, because the distribution was expensive, but production was relatively cheap. Let’s take a real world example: the cost to create a commercial is roughly 600K. The media cost for a 30-second Super Bowl spot is roughly $4M. This places the ratio of agency spend to create the ad, right at 15%, which is right in line with historical averages used for the last 50 years. It’s also quite consistent with reports from major industry associations and reports.

Today, where we have such high media fragmentation this model falls apart. Marketing in a digital world, requires a completely different set of models and requires us to rethink how we’re spending our money. With digital, distribution is relatively cheap. It’s the creative that’s expensive. Those who understand and embrace this have settled between 30% and 40% for the dollars needed to support a digital driven campaign. It makes sense. The rough cost was $2,000 to create the famous 2013 Oreo Super Bowl tweet (“You can dunk in the dark,” disseminated during a power outtage in a signal moment of promotional opportunism). That figure is based on the 15 minutes it took to create and publish the image, multiplied by the list of people who were attached to the Cannes submission for the ad, multiplied by a simple conservative blended rate of $200/hour.

“Mad Men” office conga line.

New media means new rules at the party.
(“Mad Men” photo © AMC/Lionsgate)

Before we continue, let me clear, I’m not suggesting that Oreo actually paid 360i $2,000 for that tweet. I’m sure the cost to create that tweet, from an already once used image, was accounted for as part of a broader client/agency fee agreement. The $2,000 is a real number however. It’s the real dollars needed to create that tweet as a one-off piece of creative…just like the $600K is the relative cost to create a one-off Super Bowl commercial.

With that said, think about that…$2,000 for 1 tweet. What if you need 8 great tweets a day, every day for a year? Well then you’d be spending $4.38M in just twitter creative. Even with a volume discount of 50%, you’re talking $2.19M per year. AND, that’s just twitter? We know the digital patch quilt world we operate in is much larger than just twitter. We need creative and content for Facebook, Pinterest, your emails, Instagram, your website, Tumblr and so on.

But, for the sake of simplification, let’s just focus on twitter. And more specifically, let’s just focus on the cost of a 1 day twitter campaign. The most recent publicly documented cost for a promoted trend is $200K. A promoted trend can generate upwards of 90M impressions, as seen by Coca-Cola, though more is more generally in the 30M impression range. Let’s split the difference at 50M impressions for an average trend campaign.

Creative wear-out is a reality. If you show someone the same ad enough times they either take action or start tuning it out. With digital display, the rule of thumb is you need 1 creative unit per every 1.5M – 3M impressions. The variance is tied directly to the reach/frequency model you need for your category (eg auto vs. CPG). Twitter, of course, isn’t display. We check twitter several times a day. If anything you’d need more messages/creative units because the wear out would happen faster. That said, since there’s no publicly available data to substantiate that, we’ll roll with the following campaign specifics:

1 Promoted Trend Campaign
$200,000 for the cost of the trend campaign
The campaign would yield 50M impressions with creative wear-out happening at 1.5M impressions
The cost to create an award winning tweet is $2,000

So with the above, we would need 33 creative units/messages at a cost of $2,000 per piece of creative for a total cost of $66,000. At that cost and the cost of the promoted trend, we’ve clearly exceeded the 15% “rule.” We’re at 33% (I did the math for you). If we get our bulk discount of 50%, we’re at 16.5%. Based on my experience, when you consider the cost of the account coordinator to open the job # to the Chief Creative Officer to sign off on the job, the cost is going to be more than $750.

Don Draper does a board presentation for Jaguar on the TV series "Mad Men."

Old paradigms die hard.
(“Mad Men” photo © AMC/Lionsgate)

Keep in mind, our example is limited to twitter. We haven’t even started looking at the costs to then produce creative unique to Facebook, Instagram, Pinterest and other large social platforms, across the very fragmented digital landscape.

Screens are getting smaller and more varied. The number of “media” channels consumers are flocking to is exponentially increasing. Consider that Vine, Jelly, SnapChat, Medium and so many others didn’t even exist a year ago. We’re adding more and more places to visit every day…yet the time we’re spending at those places is becoming more and more fleeting. To me, this means we, as marketers, get even less time to make an impact with our consumers. And that’s why you need award winning level creative every single time. You can’t deliver C-level creative experiences. They all need to be A-level. Creating A-level creative, means making your creative unique to each publisher, placement, consumer segment and person.

For years, traditional marketers have taken issue with a “shotgun” approach to marketing. The argument is that it’s too broad and not focused. Some I’ve worked with, favor a “champagne pyramid” approach to marketing, where you fill up the top glass (usually TV) and only delve into another marketing channel, after the first glass is full. This trickle down approach to marketing spend simply isn’t consistent with today’s digital world; it’s antiquated, but easy to manage.

Is it any wonder that people who cling to a champagne pyramid approach to marketing, still cling to the 15% rule; something created over 50 years ago?

I can’t tell you if the right percentage is 20%, 30%, 50%. But, I can tell you the 15% rule has no place in today’s digital world.

Adam Kmiec is the Senior Director, Social Media and Content, for Walgreens. Prior to that he ran global digital strategy for the Campbell Soup Company. Read more of his ramblings on “All Things Media” at TheKmiecs.com.

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by Brandon Gutman
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Brandon is an expert connector and seasoned business development professional. As Principal of Brand Approved, he's led the advisory to become the bridge between brand marketers and best of breed service providers that are reshaping the industry.

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