It Pays, and Costs, to Advertise
by Chad Rueffert

One of the most important job skills of an advertising account executive should be a comprehensive knowledge of CPR.  Why?  Because sticker shock for the costs of advertising seems to be threatening the lives of business owners everywhere.

Advertising is a matter of perspective.  Yes, it may cost $75 to place a sixty second radio spot, but in that sixty seconds you are making a sales pitch to tens of thousand of prospective customers.  A $50,000 a year sales person costs a company $75 just in salary for every three hours of work.  I’ve yet to meet the salesperson who could talk to thousands of people in three hours.

As your business grows, your clients become more sophisticated, the competition becomes fiercer and the strategies and tactics you must use to survive and prosper must grow with them.  Marketing is often the largest section of those strategies and tactics, and good, effective marketing is not cheap.

The Second Wind Network, which is an organization of more than 700 small to medium sized advertising agencies, regularly polls their members for information on average hourly rates, average project costs and average profit margins.  According to their website, their average member agency’s net profit before tax is 5%.  Advertising executives are not lining their pockets with your hard earned money.

Most advertising agencies have an hourly rate at which each employee bills their time.  Top end creative work bills at close to $100 per hour.  These are generally people with more than a decade of experience finding creative ways to communicate with your prospects, creating long-term brand images and generally determining the overall creative strategy of your advertising.  In my experience, the talent of high-end creative people in this industry more than justifies an hourly billing of $100 or more per hour.

The rest of the people in the agency, from copywriters and production artists to account service staff and PR professionals average an hourly billing of $80 to $90 per hour.  Lower level assistants and clerical staff may drop as low as $50 per hour. 

A second way agencies earn money is through mark-ups on outside purchases such as media, printing, radio and TV production and photography.  For media purchases, the markup is often paid in the form of a commission paid by the station or publication, but more and more, those commissions are disappearing and the agency is forced to either charge an hourly rate for media planning and buying or to add a markup to the purchases. 

Clients often balk when they are told that the agency adds an additional 15 to 30 percent to outside purchases, feeling that they would be better served handling those purchases on their own.  But mark-ups in this industry are deceiving.  First, most agency production managers have excellent relationships with vendors all across the country and know immediately where to go for the best vendor for a specific project.  It might take a client hours, days or even weeks to find the appropriate vendor.  Better and simpler to pay the agency a fee for their experience.  Secondly, prices for these outside services vary widely.  A print job run on the same press, the same quality paper, and delivered in the same time frame can range in cost as much as 50% here in Colorado Springs.  A good agency can help you realize a significant savings on outside services and still make a reasonable profit.

So, if agencies are not making huge profits and are actually helping clients save money even with marked-up prices, why are clients having sticker shock?  Because most advertising agencies actually want your marketing to be effective and will try to sell you a plan to make it that way.  Effective marketing requires a blend of strategy, creativity and activity.  By that, I mean that you need to put thought and research into what you are going to say, who you are going to say it to, how you are going to get them to pay attention and how you are going to get them to make a buying decision.  Good agencies want you to have up-front research and strategic planning, a creative approach to conveying your message, and enough consistency and frequency to actually stick in the minds of your customers and get them to understand and believe enough of your message to take action. 

Often, agencies who attempt to get you to spend money on research and strategy, to take the step from clip art to custom photography, or to increase your media buy from one month to six, are not doing so to increase their own profits, they are doing so because without those changes, your marketing will be far less effective.  And when your marketing is less effective, you are more likely to be unhappy with your agency and less likely to continue advertising in the future. 

Statistics show that it takes as many as 6 face-to-face meetings for a salesperson to close a sale.  And yet, many business people believe that one ad in the newspaper, a few radio spots, or a mailer to only 100 people should generate immediate response.  Customers need multiple, ongoing reasons to buy before they act.  Therefore, your advertising must reach them multiple times, and in a creative enough way that they remember it.  And then, when you want them to buy again, you are going to have to advertise again.

In terms of dollars only , it’s easy to see why business people can get sticker shock.  On average, designing a full page, full color magazine ad costs about $7500 plus the cost of the media.  A quarter page black and white ad for a newspaper will cost around $3000, plus the ad space.  Professional production of a radio spot is around $3500.  Full color brochures can cost $6,000 to $12,000 plus printing.  Writing and distributing a short press release averages around $2000.  Production of a website averages about $12,000.

Keep in mind, these are national averages and costs in Colorado Springs are usually MUCH lower.  As much as 50% lower depending upon the agency, designer or writer you use.

And also keep this in mind.  A quarter page ad in the Gazette can reach tens of thousand of people.  Same with a 60-second radio spot or 30-second TV spot.  If even a small percentage of these people become regular customers, your marketing has produced a return on investment. 

Once you begin thinking of your marketing budget as an investment and you track the return it supplies, sticker shock becomes a non-issue.  Undisciplined, unprofessional and inconsistent marketing is expensive and often produces no return.  Creative, strategic and ongoing marketing is even more expensive.  But in the long run it will produce a positive return and help you to grow your business.