Confessions of a consultant: Beware of agencies taking production in-house

To be competitive in the marketplace, ad agencies have been building out their capabilities, adding in new services in production or strategy that they previously would have used vendors for. But it doesn’t always mean that can be a good thing for brands.

In the latest installment of our Confessions series, where we exchange anonymity for honesty, a consultant who analyzes agency pricing for marketers said having agencies take on more production work doesn’t actually mean any cost savings for brands.

Agencies are doing more production work themselves now. Do brands like that?
Clients are attracted to agencies providing more services in-house because the pricing is supposed to be a little discounted because work is not being outsourced to a vendor. The problem is, agencies are telling us they don’t have the capacity to handle every project, so they end up having to put their senior people on jobs that their junior people could do at lower costs. Or say they just don’t have the manpower to do it, and that they have to outsource it and that often comes at the last minute. Just this week, an agency said they weren’t able to do edits for a client because they were being booked up with other jobs, and one reason why this client chose this agency was that they pitched their in-house editing and post-production services they operated internally.

Why is this happening?
Agencies are prioritizing clients with bigger budgets and more work. When they are working on larger scale productions, with their other simplistic, one-and-done projects they need to get out the door, they can’t handle the volume. Even when there’s a brand with a huge budget, it comes down to the fact that a project isn’t big or important enough, so the agency tells us they can’t finish it themselves or they have to have their higher-level staff create something that is really simple.

Do clients end up paying more?
Yes, clients end up paying more money for something really simple than if they had simply outsourced it to a vendor themselves. It adds up, because it happens on almost every campaign for almost every client. For something like a “rip” video, where you should be paying $550 a day for a junior editor, you end up paying $2,000 a day for a senior editor because the junior editor wasn’t available.

Do you think this practice is driving clients to just do more themselves?
I think it’s partially driving clients to move in-house. Another is the actual pricing for these services. Agencies want to bring everything in-house and charge it back to the clients. They should be offering discounted rates to clients because they are already paying them so much in retainer fees or for project compensation. But these agencies have to buy all this equipment and build out their teams, and that comes at a higher cost for brands.

How much higher?
On average, the price is about 10 percent higher than if you were to go straight to a vendor, when in reality, it should be 10 percent lower. You have to negotiate them down to a price that is a little more competitive. We try to be best friends with the agencies, but some things you can’t avoid.

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