Are You Sharing Your Production Budget With Your Agency?
The APR Innovations Team, May 12, 2017
It’s not uncommon for budget and bidding best practices to evolve in the advertising industry, especially given the issues around transparency. We’re frequently asked, “should brands be sharing their production budgets with their agencies and if so, when is it appropriate?”
We decided to ask our clients at APR and we’ve found approximately 90% of our clients share their production budget on a consistent basis with their agency. The other 10% do so occasionally, but not consistently. While EMEA is on par with North America (90%), the percentage is lower in Asia Pacific (60%), and Latin America (50%) where APR has helped our client to decouple financial responsibilities.
The consensus is that it is a best practice for brands to communicate production budgets to their agencies at the briefing stage and hold back 10-20% for additional needs that may arise. The budget should include parameters related to the production of deliverables across all media types and any specific requirements in detail (i.e. talent residuals or usage, music or software licensing, celebrity talent or influencer costs, etc.). It’s important that the agencies know if the budget is all-inclusive or only for the production costs.
We’ve outlined a few ways to approach this:
Communicate the Budget:
Saves time as the agency does not spend time developing concepts the client can’t afford (i.e. Off-strategy and off-budget concept development is a waste of time.)
Focuses the agency creative process on concepts that fall within the client’s budget.
Hold Back 10-20%:
Drives the agency to think creatively about the most efficient ways to produce a concept. (Holding back 10-20% usually will not impact the quality of the creative.)
Allows for unforeseen overages and client needs (late changes in direction from stakeholders, additional deliverables, addition of a celebrity contract, etc.).
In the event the 10-20% isn’t needed the funds can be rolled over into a new project. (This strategy only works if Finance doesn’t take those funds back if they go unused.)
Some Things to Consider:
When your agency is presenting concepts they should provide a ballpark budget or indicate whether production is on or over budget. It’s okay for your agency to present concepts that are over budget as long as it is clearly communicated and there are alternative concepts provided within budget.
The less you know about the project going in (number/type of deliverables, stakeholder buy-in, etc.) the bigger your budget will need to be. The more you know, the better you can manage to a tighter budget.
Timelines often impact budget; less time usually equals bigger spend.
Some clients communicate a budget range while others share a “not-to-exceed” budget number.
Some clients do not hold anything back because agencies are required to stay within budget.
Some jumping off points for determining a budget range include:
Importance of this campaign in overall marketing mix
Type of production: Stand Alone or Integrated
Average cost per deliverable type (client historical data and APR Index™ Benchmark)
Experience level of vendor, director, or photographer
Deliverable usage (length of buy, regions, localization needs, etc.)
Production budgeting can be akin to dating: You don’t share everything on the first date, it’s good to always have backup plan and be sure you’re prepared to spend more than you originally thought.
Let us know if you would like to learn more about budgeting, allocation and working with your agencies throughout the bidding process or if you’re interested in downloading our Working to Non-Working Budget Ratio POV.