What Does My Management Fee Pay for With an Advertising Agency?

Want to know the most commonly asked question advertising agencies receive from potential clients? What does my management fee pay for with an advertising agency? It’s a great question. As a client, you want to know exactly where your money is going and that it’s being put to good use. To make things even more complicated, if a digital marketing agency is running Facebook or Google ads for your business, you not only have to deal with the agency’s management fee but also monthly ad spend to the corresponding platform. Though this all may be confusing (especially if this is your first time working with a marketing agency), don’t fret! We are here to help walk you through exactly what your management fee pays for with an advertising agency.

1. Time

The first item on the list is time. For ongoing monthly services such as running Google ads, social media ads, social media management, SEO, email marketing, etc., agencies will typically have an hourly rate. Depending on your budget, your team will determine how much time each month they are allotted to work on your account. Everything from fulfilling services, weekly client calls, and internal strategy meetings will be added towards your monthly allotment.  It’s also important to note that smaller, boutique agencies typically charge a lower hourly rate.

Now, before you pick up the phone to call your agency and demand to know exactly how many hours they put in each month, ask yourself the following questions: Does my agency ever tell me ‘no’ when I make requests? Are their services not fruitful? Does it feel like I’m paying too much for what I’m getting? If your answer is no to these three questions, then the amount of time they spend on your account each month shouldn’t be a huge concern. As a business owner, you’re more concerned about the end results. If you answered yes to any of these questions, then it’s probably time to have a chat with your marketing agency to get on the same page.

Though most agencies track time to make sure they aren’t spending 100+ hours on a client who is paying $100 a month, most don’t mind spending more than the allotted time on their clients. Most agencies, quite frankly, will spend a few extra hours each month on a client’s account without that client ever even knowing. That being said, there are a few different reasons agencies track time:

  1. It helps the team stay on track and focused on the most important tasks at hand. When a marketing team knows they need to work within a specific time frame, they’ll prioritize their tasks more efficiently.
  2. It ensures that time is being dedicated properly to each client. For example, if you were paying a marketing agency $5,000/mo for services, but found out they were spending twice as much time on a client who was paying $500/mo, you probably wouldn’t be very happy and wonder why you were paying so much. A common rule of thumb with most service companies: higher budget equates to more time. 
  3. If teams are constantly going over time, having a record of that will make a conversation with their client much easier. When agencies pitch potential clients a budget, it is almost always based on how much time and resources they think they’ll need to allocate to their account each month. Scope creep, unfortunately, is very real and it’s not uncommon for clients to ask more and more from their agencies each month without ever talking about budget.
  4. It keeps marketing agencies profitable, as tying an amount of time to a specific budget allows them to stay within certain boundaries and hire additional staff accordingly. Knowing what the agency’s hourly rate is and how many hours one employee can work each month leads to wise hiring decisions and helps with planning ahead. No agency ever wants to be understaffed, as it can have a negative effect on their clients.

The most important thing to remember is that agencies pitch potential clients a budget based on how much time and resources they believe it will take each month to hit desired goals. The only time an agency will push back on additional client requests is when they begin to feel that more requests are coming in each month that weren’t agreed upon in the original agreement. Trying to do double the work with the same monthly time allotment would be a disservice to their client—hence why they may request additional budget in order to take on more projects.

2. Expertise & Experience

The next items your management fee is paying for are expertise & experience. This probably sounds like a no-brainer. When looking to hire someone to complete a certain job, most people will search for an expert in the field with years of experience—DIY solutions can get things going, but a true expert can guide your strategies and plan for the future.

Last year, a tweet went viral, garnering over 39,000 re-tweets and over 130,000 likes. It read:

What Does My Management Fee Pay for With an Advertising Agency?

This is why a plumber can fix a serious piping issue in your home in half an hour and still leave behind a pricey bill. Or why dentists can take care of a filling in fifteen minutes, but still charge your insurance $150. You’re not paying for them to drill your tooth and fill it with a tiny bit of metal. You’re paying for their expertise, experience, and the guarantee that they know what they’re doing.

When you hire a marketing agency, you’re paying them for their years of schooling, additional post-grad studies, expertise in the field, and prior experience. Ask yourself, would you rather get a bargain with someone who has never worked in marketing before or invest in someone who has a marketing degree, attends multiple marketing conferences each year, and has worked in the advertising field for several years? Put another way—would you ever pay someone who has never practiced dentistry to give you a root canal? I didn’t think so.

3. The Execution of Services

Last on our list of what your management fee is paying for with an advertising agency is the execution of services. When you first meet with a potential digital marketing agency, they are more than likely to ask you what your goals are. Some common goals tend to be increase revenue, grow a following on social media, build an email list, improve brand awareness, etc. Based on your initial goals, your agency will prescribe specific services to help achieve those goals. When you sign a contract, you are saying that you agree to pay X for the agency to provide Y. If the agency ever does not provide the agreed-upon services, you are fully in your right to demand a refund.

Agencies have a responsibility to document the agreed-upon services and the ongoing execution of said services. Though rare, it’s not completely uncommon for clients to ask, “What am I paying you guys for again?” That’s when agencies will pull out all of their documentation. Here at Set Fire Creative, we send out monthly reports the first week each month so that clients are always aware of what we’ve done, the results we saw, and the strategy moving forward.

Whereas item number one on our list (time) is more for internal use within an agency, this final item is the most cut and dry. The same way you pay for a burger at a restaurant or a haircut at a salon, your management fee with an advertising agency is paying for the services that they provide. For the agency to fulfill their end of the contract, they must execute the agreed-upon services.

Any Questions?

Hopefully, this post has helped clear up any confusion regarding marketing agencies and their management fees. At Set Fire Creative, we value transparency—internally with our team and externally with our clients. If you have any questions regarding management fees or digital marketing, please feel free to contact our client strategy team for a free consultation.