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Costs Control

Costs Control

This is the hub of agency business. If costs can be kept under control particularly at a time of real inflation, then profitability can be improved to offset income limitation. Generally, costs can be classified into two broad categories;

a) Direct Costs – Premises; salaries, pension and other remuneration; taxation, public, service and transport costs, rates on property, furniture and equipment.

b) Indirect Costs – Travel on company business, research, experimental work on art or media not directly related to a client; ancillary work/time spent on outside projects.

Without doubt, the assessment of all overheads is a top priority. Agency management must aim to trim and cut costs wherever possible. In this regard, essential areas for cost control consideration include;

c) Personnel – Keep staff members down. Resist demands for more hands to cope. Check on man-hour efficiency. Promote the ones with demonstrable ability to cope with pressure and do away with those who claim to work well only if they have a chain of assistants or have someone breathing don their backs. The latter cut savagely into profitability and are no assets to real service improvement

d) Premises – Property rentals are not controlled and can therefore be a heavy drained and profitability. Control of staff numbers will provide a better working environment and thus better work output. Therefore, avoid demand for certain departments to be housed elsewhere, otherwise control will be lost, cost will spiral and service needs will become duplicated.

e) Taxation – Seek to improve legally individuals and corporate tax allowances. This is one area where business can often be diversely affected by government arbitrariness to satisfying its political and economic expediency.

f) Service Charge – These are allied to taxation and government economic policies particularly in situations where light, fuel and water are run by government. These should be kept under control; otherwise, they can escalate out of reasonable levels.

g) Furniture and Equipment – These fixed assets especially those for accounting, photography, secretarial and record keeping are frequently written down in the company’s books. The emphasis here should be for efficiently and, if possible, the reduction of personnel required to get the work done.

On the average, the installation of modern and sophisticated equipment reduces manpower needs but, in turn, requires trained and efficient hands to man them. Although average cost per personnel and servicing charge may be higher, more modern equipment are invariably more cost efficient in the end.

h) Stationary – This constitute a very large item in an agency’s operating cost and is subject to frequent cost increase and abuse. Cut out waste. If this is not kept under control, profitability can be badly eroded.

 

4. Forward Planning and Assessment

Regular forward planning and reviews of income and operating costs are imperative in agency management. Periodic review meetings on the economy, income/cost of personnel and equipment, will facilitate quick responses on the part of management to redress imbalances in the agency’s business and allow for actions aimed at improving profitability. Campbell therefore posits that primarily, it is in agency’s interest;

a) To study and assess the effect of the economy on client’s business operations

b) To assess balance of business types among agency’s clients. Is the agency’s turnover too slanted towards consumer goods, industrial business, commercial banking etc? Which of these areas is showing economic improvement which a downturn? What are the effects of these on agency billings?

c) To assess quarterly income/operating costs. Management is interested in determining whether actual media income reach the previous estimates and the effects of the rate changes.

d) To check personnel movement and changes. Is there a real need for new staff, re-training of old staff or a reduction in staff strength? What are the effects on the various departments of loss in personnel and what departmental balances and changes will best improve cost of agency personnel?

Enhancing Profit Levels

Although an advertising agency strives to establish and maintain a reputation of creative excellence, as a business organization, profitability is its final goal. Therefore, Campbell advises that an advertising agency that is committed to improving its income and enhancing profitability should consider the following necessary steps in its operations

1. Schedule Invoicing – By this system, a client is invoiced at the end of every month for all space on the schedule, with reconciliation to follow publication. Unnecessary delays in waiting for tear sheets or certificates to transmission to arrive before a bill is sent to the client are thereby eliminated, thereby facilitating cash flow.

2. Early Invoicing – This is much like schedule invoicing but differs in that it concentrates on getting early evidence of press vouchers, magazines, posters where the advertising is seen to have appeared and evidence is ready. Weekly, fortnightly or monthly bills sent to clients help bring in income in good time before the bill from the media houses begin to stream into the agency.

3. Portfolio of Funds from Clients – To counteract the current fashionable trend of pre-payment requirement for advertisements by the media, it is necessary to negotiate with client for payments to the agency to cover these costs before the payments are made

4. Cash Trading – This is a system of promptly settling the bills of media organizations and other suppliers for a “prompt payment” discount. A bill, which should have been settled after 30 days, can, under this system, be paid within 10 or 15 days of receipt of the invoice for a negotiated discount of 5 percent or more. This helps to improve agency cash flow and income.

5. Fixed Deposit Account – To offset current levels of inflation, it is advisable to set aside available cash for either short term or fixed deposit rates with the banks. This is another source of income, which will benefit balances.

6. Agency Extra Service – From time to time agencies are required to provide extra services, outside the direct above or below-the-line business. Whenever these extra services are needed, the client should be persuaded to pay promptly so that agency does have to wait for the usual 30 days from the receipt of invoice.

7. Competitive Account Pitching – Agencies should charge for competitive pitching on new or currently held accounts.

8. Media Services – Outside the normal media planning and space buying, agencies are often called upon for additional data gathering, research enquiry, special studies etc. Agency should seriously consider negotiating special fees for such assignments.

9. Management of Agency Job Bags – Client service and creative departments should ensure that all job bags are promptly closed and charged out to client on the completion of jobs. This will facilitate early settlement of a large part of production costs.

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