Agency Costs: New Developments & Trends

By Cliff Campeau

In theory, the fees that agencies charge their clients are based upon a combination of direct labor costs, an overhead allocation, and a desired level of profit.

Agency operating expenses, which are the combination of direct labor and overhead costs can vary dramatically from one organization and one market to the next. While there is no standard for overhead rates, which are often expressed as a multiple of direct labor costs, advertisers and agencies largely agree on the components of each of these categories. Direct labor consists of payroll and related payroll expense. Overhead covers indirect labor, space and facilities, some categories of corporate expense and professional fees.

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Courtesy of Association of National Advertisers