This form of remuneration is generally to remunerate the agency for managing the production process in lieu of paid head hours, but is often just an additional diversified revenue stream for the agency.
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- Mark ups on production costs is one of the most common and yet the most flawed agency fee model.
- A market up is added to all production costs, especially external costs to cover the agency management of the production.
- This is particularly common on printing and can amount to significant revenue for the agency with little or no effort or resource cost.
- It also acts an incentive counter to good business and that is it rewards the agency for selecting high priced suppliers rather then the supplier that provides the best value.
- It may also encourages a culture of additional kick-backs and secret commissions with suppliers as it is seen as a ‘way of doing business’.
- We strongly recommend to avoid production mark up and service fees.
Advantages
- Easy to negotiate as mark-ups or service fees are pre-agreed in advance.
- Where these arrangements are in place, they generally should recover the producer or production resources to service the specific project or campaign requirements.
Implications
- This is often just an additional revenue stream for the agency that does not cover specific resources, which are also often still charged on a production estimate basis.
- The value of the mark-up or fee often does not reflect the specific resource levels required to service the account based on budget.
- Often leads to juniors servicing the account to minimise cost to the agency, which can also often have a negative impact on performance or delivery.