You can’t put a price on creativity. Hence, part of the reason why creative agency pricing is complex.
Businesses often expect that ideas should be pitched for free and only the ad creatives production and media costs should be added to the bill. However, loads of time and skill go into the planning process too.
To help you understand why creative agencies charge what they do, here’s an overview of the most common models and factors that can impact your marketing budget.
Common Pricing Models Used by Creative Agencies
Creative agencies typically charge per project or hour. For long-term marketing goals, you might also have the option of signing up for a retainer. Here’s what you need to know about these pricing models:
1. A flat rate per project
Charging a flat rate per project is one of the most common pricing models, especially if you’re hiring them only for a one-off project. The main consideration is that agencies typically have a minimum spend per project. This means that just because you have a relatively small, one-off project doesn’t necessarily mean that you’ll save money.
According to our data that’s based on 440 of the top creative agencies across the United States, the average minimum campaign size is $8,178. At the upper end of the spectrum, it’s closer to $12,000, while the lowest that you’ll be charged is in the region of $5,199.
Other online data also shows that the cost of advertising projects can differ significantly. For example, ad projects reviewed on Clutch typically cost between $10,000 and $50,000. The good news for brands is that it’s more common for projects to be less than $10,000 than to exceed the $50,000 threshold, though.
2. An hourly rate
Compared to consultants and freelance creatives, hourly rates are less commonly used by creative agencies. Our research into creative agencies’ hourly rates reveal that the average is just over $100. In some cases, you might be able to pay less, but never less than $88 per hour.
This is more or less in line with Clutch’s findings. According to its numbers, the average cost per hour for creative agencies in the US is between $100 and $149.
3. Retainer billing
For brands that know they’ll have recurring projects, retainer billing is commonly used. With this pricing model, you’ll be charged a monthly fee to cover the expenses involved in managing your ad campaigns and account. According to Csek Creative, a full-service digital agency in Canada, monthly retainers for small to medium-sized businesses range between $12,000 and $24,000 per year, excluding the extra paid media component.
In this case, the creative agency will be referred to as the “Agency of Record”. In other words, it becomes the brand’s dedicated agency (aka official one).
For example, Wieden+Kennedy (W+K) has been Nike’s creative agency of record for decades, with the brand delegating paid media strategy and execution for brand strategy and performance marketing to two new independent agencies, PMG and IPG Mediabrands in 2022. So, there’s real potential for long-term partnerships using this pricing model.
The benefit of using the retainer model is that agencies have a predictable income stream, while their clients will have a much better idea of what their marketing expenses will be each month. An added bonus for businesses is that it’s usually more cost-effective than appointing your own in-house marketing team or working on a project-to-project basis with the same agency. Plus, like in the case of the retainer agreement between Nike and W+K, the agency is given the opportunity to become very familiar with your brand and help you to reach your long-term business goals.
The terms and conditions can include details about overuse and underuse. For example, if the contract is for 50 hours per month but the client uses 55 hours that month, the creative agency might be willing to ignore these few additional hours. However, if it’s closer to eight extra hours, then the agency can charge their hourly rate for these extra hours on top of the monthly retainer fee.
Retainer billing typically also comes with a trial period of six months. This way, both the agency and client can get a better idea of their needs to avoid overuse or underuse turning into a recurring theme.
Where Does Your Money Go?
Jessica Oliver explains in a blog post for Media Place Partners, a marketing agency in Michigan that blends digital with traditional media, that the fees mainly fall into three categories: paid media/media buying, production, and agency fees. It’s key to note that ad agency fees are excluded in the cost needed to run the ad campaigns.
She reveals that paid media typically gets the biggest slice of the budget. Even though that’s the case, it’s best to leave it to the agency’s team that has the experience to know how to maximize your ad spend.
Your ads should be placed strategically to reach the right audience instead of choosing the first possible place. For example, if you opt for Google pay-per-click (PPC) ads and you have a monthly retainer, the terms of your contract will stipulate how much should be spent per month on this platform.
Examples of production services for which creative agencies can charge you include:
- Video production
- Video editing
- Photography
- Design
- Animation
You’ll find that for these types of services you’ll most likely be charged a fixed rate, depending on the asset needed. For example, they’ll charge a specific rate for producing a video, whereas logo design will have another rate.
Then, there’s agency fees. It’s common practice for agencies to charge a percentage of media spend, an hourly rate, or a combination of the two.
It’s important to note that the percentage of your media spend is in addition to the media placement cost. This percentage can be anything between 5% and 20%. The money is used to cover costs like:
- Employee salaries
- Account management
- Campaign optimization
- Reporting
As mentioned, creative agencies are less likely to use solely an hourly rate. Instead, they would typically apply an hourly rate for activities like:
- Planning sessions
- Research
- Meetings
- Consultation
- Revisions
Factors That Can Impact the Cost
1. Location
The location of the creative agency can impact its rates. Some states like California that’s home to cities like San Francisco and San Diego which have vibrant markets are more competitive, hence they can afford to charge more. For example, the average minimum campaign size in these two cities is just over $9,000, while the hourly rate also tops $100, according to our data.
However, that’s not always the case and you can get outliers like Los Angeles. Here, the average minimum campaign size is about $5,200 while the average hourly rate is about 10% cheaper. In fact, when we surveyed creative agencies’ rates in 11 US cities, Los Angeles was the most affordable, even beating cities like Minneapolis.
We found that Chicago is generally the most expensive. Here, the average minimum campaign size is nearly $12,000. The hourly rate is also the highest with creative agencies charging as much as $115 per hour on average.
If you’re working on a tight budget, you can consider using an offshore creative agency. Countries like India, the Ukraine, Mexico, and Poland where labor costs are lower can be an option.
The location of your target audience can also impact the cost. For example, targeting New Yorkers will cost more than reaching a rural community. By broadcasting your ads to a densely populated urban area, you can reach a bigger audience, hence the jump in price. On top of that, these markets are also rated as more valuable.
2. The agency’s size
While it’s not always the case, bigger creative agencies are usually more expensive. Aside from the fact that they’re more experienced, the minimum campaign size is also bigger which bumps up the price further.
3. Your industry
Businesses that operate in a competitive industry will typically have to fork out more for creative services. Aside from the extra time and expertise needed, the paid media component will also be more.
Industries that generally pay more for paid ads include:
- Legal
- Dental
- Home improvement
According to WordStream’s search advertising benchmarks for 2023 all three these industries pay more than $6 per click on average.
4. Scope of the project
Running a few social media or Google Ads doesn’t require the same manpower than launching a complete rebrand. Even branding projects will differ in cost depending on the requirements.
In fact, according to Element Three, a full-service marketing consultancy located in Indianapolis, the cost of brand projects can be anything from $20,000 to over half a million.
Factors like the complexity of the brand and amount of research will drive up the cost. Also, if you want your brand to reach a global audience, expect to pay more.
That being said, paid ad campaigns can also become costly, especially if you’re taking a multi-channel advertising strategy (which is recommended). Then, the combination of channels that you use will also impact the pricing.
According to the pricing models for different types of advertising, the hourly rate for radio advertising is the highest on average and can set you back as much as $200 per hour. So, if your project mostly relies on this service, it will work out more expensive than, let’s say, over-the-top (OTT) ads which cost between $50 and $100 per hour on average.
5. Your resources
For brands that have their own in-house marketing team, agency fees can also be lower. For example, if you have an employee who can tackle graphic design, that’s one area where you can save.
On the other hand, if you have no marketers or designers on your team, you’ll have to outsource everything to the agency. Plus, it will also take longer to strategise, create, and execute campaigns. That being said, hiring a creative agency remains more cost-effective than employing an in-house team most of the time.
Key Takeaways
If these averages tell you anything it’s that the costs of hiring a creative agency differ greatly. If you’re interested in partnering with a big agency in a competitive city like San Francisco, San Diego, or Chicago, expect to pay more. Plus, if you’re trying to target audiences in locations like these, the cost will also be higher.
Then, there are other factors like your niche and own resources to plan around too. While there’s little that you can do about your industry, you can try to find a sweet spot between hiring in-house and outsourcing to an agency.
At the end of the day, for the most accurate idea of what hiring a creative agency will cost you, you need to reach out to a few directly. If you’re in the advanced stages of planning and you have a good grasp of what you need, you can share a request for proposal (RFP).
The scope of your project will also play a massive role. You can’t expect to pay the same as another company for a rebrand, for example. It’s like redesigning a kitchen. No two kitchens are the same. For one, it’s repainting the existing cupboards, for another it’s custom cabinets made from solid wood.
