DeWinter Comm News & Occurrences

As featured in The Denver Business Journal, October 2005

Mark-ups: The Bane of Healthy Marketing Budgets

These days, it’s more important than ever to seek out and eliminate practices that lead to wasted dollars within a company’s budget. And nowhere is that more important, or waste more evident, than in reviewing a company’s marketing budget.

It’s a Catch-22 situation. You MUST market. If you don’t, you lose market share. But while creative services, ad space rates, printing fees, and more are increasing in price, it’s harder than ever to gain and retain customers.
So just how does a company eliminate wasted dollars in its marketing budget? The answer is simple. Seek out and eliminate costly mark-ups, hidden or otherwise.

Mark-ups. The practice of taking an expense item, and marking it up anywhere from 15% or more. Just because. This practice permeates the marketing industry and traditional agencies, and it is the number one cause of bloated budgets.

Here are some examples of where mark-ups are found:
Purchasing Advertising Space: Agencies charge clients for concept work, writing, designing, producing, and placing advertisements. Then, they buy the ad space at a 15% reduced rate from publications, and typically charge the client full price – thus making an extra 15% on the total ad buy, or gross rate, as it’s called.

Printing Services: Graphic designers charge for their creative time to develop concepts, produce the artwork, and coordinate submission of the artwork to a printer. Then designers, if allowed, run the printing bill through their own companies and mark it up. Typically, the industry mark-up fee is 15% but it can be less, and often is more.

Web Development Services: Often, Web development services are farmed out to a specialty firm or an independent subcontractor. That subcontractor provides Web design, programming and search engine optimization services – and then their work is billed through the main agency, where it is marked up.

Supplemental Trade Show Booth Development Services: If you pay a company to build a new trade show booth for you, you will pay for design fees, graphics production, construction services and materials, booth transportation and storage during off seasons, and booth set-up/tear-down costs at your trade shows. But if you also need lighting and special effects NOT offered by the booth vendor, those services will get billed through the booth vendor and marked up a minimum of 15% and often, more.

These are just a few examples of where marketing industry mark-ups routinely occur, and these mark-ups are a HUGE source of wasted marketing dollars.

Let’s look at a hypothetical situation of how much mark-ups can really cost companies. Consider a $100,000 annual marketing budget. For easy math, let’s assume that 50% of that budget is for services, or $50,000. That leaves $50,000 for expenses such as printing, media buys, postage for direct mail campaigns and subcontractor services such as design, Web development, and more. At a minimum mark-up rate of 15%, you have just spent $7,500 on mark-ups for that $50,000 in expenses. As I explained previously, this percentage rate actually is quite low, and sometimes can be as high as between 30-40%.

Since mark-ups provide absolutely no value for customers, the $7,500 in mark-ups is a clear waste of marketing dollars. Frankly, it would be better to eliminate those mark-ups and funnel that money into yet another marketing strategy designed to drive more business through the door.

So what’s a savvy marketing director to do?
1. Make it clear up front that you will pay for all creative, production, and account management services. But that you will NOT pay mark-ups.
2. Ensure that you are not paying mark-ups by having vendors such as printers, Web developers, etc. bill you directly, rather than through your agency.
3. Look those vendors in the eye, and make sure they are not providing kick-backs to the agency, i.e. charging you a higher price and then quietly sending a rebate back to the agency. To make sure prices are in line with what the market will bear, get competitive bids to make sure the vendor is in the ballpark with other bidders.
4. If you have the cash flow to handle it, offer to pay the ad bill up front to the agency so they have no financial liability for the high-dollar ad buys. Then, negotiate a lower rate than the gross rate, i.e. a portion of the agency discount that they get.
5. Review your bills carefully, and be clear about what’s what. Sometimes, mark-ups will be hidden somewhere in the bill. If you don’t understand something about your bill, ask for clarification.

Alas, mark-ups are a heavily established practice in the marketing industry – and many other industries, for that matter. But in these economically challenged times, mark-ups do not serve emerging companies, where every dollar is precious. Mark-ups do not serve the marketing industry, because the lack of value associated with them gives us marketing types a bad name.

Finally, mark-ups do not encourage use of every possible tactic to drive business because of a portion of the budget is wasted. Follow these steps to eliminate mark-ups, and it’s quite possible you’ll gain an extra 15% in your marketing budget.