edition 58 august 25, 2006

understanding agency billings

 

Most agencies still talk about billing when indicating how big their agency is. But is the traditional media billing measure relevent or more importantly accurate as a measure of an agency’s size or performance.

In this edition of P3-news, we look at the issues around media billings, and try to make sense of what can be a very confusing subject.

In this P3 e-news…
the bull about agency billings
– 
get your relationship right
– insights presentation
innovation in procurement

what’s all this bull about
agency billings?

Many people in the media use media billings to indicate the size of the account or the size of the agency. But these media billing measures are increasingly irrelevant and misleading when discussing the size of accounts or the size of creative agencies. So why, when there are more relevant measures in the industry, are the media still obsessed by media billings?

Media billings

Before the dismantling of media accreditation, advertising agencies provided media and creative services and were largely remunerated on a combination of media commission of 10% and a service fee of 7.5%.

Therefore when discussing agency remuneration or the value of a particular advertising account the media billings was an indication of not only the total turnover for the agency, but also the revenue based on the “standard” commission and fee.

Of course, even in those times, the advertising industry, like the movie industry, was prone to exaggerating budgets as a way of talking up the significance of a win. Or deflating the billings to deflate the significance of a loss.

Non-media billings

Before the dismantling of the media accreditation system, there was a move away from the mark up for print and electronic production. Retail clients were the first to start remunerating their agencies on page rates for catalogues instead of the costs plus mark up.

In fact one prominent retail agency at the time generated more revenue from catalogue production than they did from media. When asked to provide their billings they would take their print revenue and multiply it by 5.7 times to project it as media billings and then add it to their actual media billings.

Therefore a media budget of $10 million and a print production budget of $2 million would multiply up to be $24 million in billings. Or what about a direct marketing client who spends $10 million on direct marketing and less than a million on media, and is declared to have media billings of $58 million?

Misleading the market and themselves

How many times have you read in the trade press where an account moves from one agency to the next and the incumbent declares a significantly smaller loss than the winner declares as their gain. Or how many times do you read that an account is worth millions of dollars in media billings when the AdEx media spend for that brand is significantly less.

Now most advertisers would prefer that no-one knows the financial details of their activities. But this doesn’t stop the advertising agencies and the media obsessing about it, even though it rarely reflects reality. In fact some people have made a career doing little more than counting these billing wins and losses.

Retainer based on resources

Today most agencies, media included, are remunerated on resource or direct salary costs, multiplied by overhead and a profit margin rather than the budget or spend. Perhaps a better measure of an account size is the number of resources of FTEs? (Full time equivalents).

This is a direct measure of the costs and complexity of an account and their advertising. That’s why when negotiating an agency contract we spend so much time and effort getting the resources and associated costs right.

So if you are interested in knowing how big a particular agency is, don’t ask them about billings, as you never know what you will get. Instead ask about the number of employees. From this you can fairly accurately project their revenue and profitability.

If you are looking for the sized agency for your business, contact P3. We have Australia’s most comprehensive online database of media and creative agencies in Australia. For more information email biz@p3.com.au or call Sydney 02 9279 4997 or Melbourne 03 9682 6800.

get your relationship right

 


P3Biz helps major advertisers get the best financial relationship with their advertising suppliers. Our services include:
* Financial Reporting & Assessment
* Supplier Remuneration Assessment
* PBR Advice
* Supplier Contract Negotiation
* Scope of Work Resource Calculator
* Dispute Resolution
* Job Cost Reconciliation

Take a look through www.p3biz.com.au or contact P3 to discuss any remuneration issues on biz@p3.com.au or call Sydney 02 9279 4997 or Melbourne 03 9682 6800.

 

insights presentation
booking fast

 

 

“The 10 most common mistakes made by advertisers, and how to avoid them.”

Darren Woolley, recently named in Adnews’ 50 Most Powerful People in Advertising, has compiled this insightful presentation from his years of experience consulting to Australia’s largest and most successful marketing teams.

The FREE 45 minute presentation is made in-house to your marketing team, and is aimed to inspire, encourage and enlighten.

Email georgia@p3.com.au to discuss your booking.

   

innovation in procurement

 
 

Involved in procurement, purchasing & supply? Then look out for the Chartered Institute of Purchasing & Supply Annual Conference, Innovation in Procurement, Crown Promenade 17/18 Oct 06.

P3 will be at Booth 30 where you can pick up the very latest tool in “Marketing Negotiations for Procurement Professionals” as well as our latest Top 10 in Procurement.

Darren Woolley will also be speaking on ‘Buying from Advertising Agencies’ – Day 1, 2-3pm. Book now at www.cipsaconferences.com.au


P3 – helping people achieve commercial purpose through creative process

Share this with a friend or colleague by clicking on the link below or
add them to the ‘p3 news’ mailing list, by emailing their details to
news@p3.com.au

Check out the new P3 blog at http://www.p3.com.au/blog/