Number
Top ad agencies pull millions in annual retainer from Fortune 500 brands
Brendan Gahan explains agency retainer economics: small shops start around $5K/month for a single service, while the largest agencies cover strategy, creative, production and social for the biggest brands.
$5K
Starting monthly agency retainer for a single service · USD/month
“the, the, the, the high end of the big brands is, you know, millions in, uh, in retainer fees a year. And that's, you know, covering everything from, you know, they're doing strategy to the creative development, helping them plan production, you know, doing social media and community management. So, you know, I mean, there, there are agencies getting paid tens of millions of dollars by massive Fortune 500 brands.”
Number
A healthy ad agency runs 15-25% net margin
Asked what good margins look like for an agency, Brendan Gahan gives the accepted benchmark, comparable to how a restaurant hitting 20% is crushing it.
$25
Good net margin for an ad agency · percent
“good for an agency is 15 to 25%. Like that's solid, that's generally accepted as like the goal.”
Fact
The brutal math of an agency: selling people's time and 'selling through'
Brendan Gahan describes the core agency model as billing out people's hours, and the central operational headache: keeping every person fully 'sold through' to clients without idle capacity.
“at its core, you're selling through people's time, you know, like the traditional model is you get a client on retainer and you basically assemble a team based on the client's needs and bill people out kind of based on an estimate of hours and incorporate kind of overhead and your profit margin into that.”
Steal thisBefore scaling an agency, model whether each hire can be billed near 100% across accounts; idle specialists kill the margin.
Fact
Agencies make most profit marking up staff, not media or production
Brendan Gahan notes agencies can profit by marking up media and production, but the overwhelming majority of the margin comes from marking up staff time.
“there are other avenues to generate profit. It's, you know, you can mark up media, you know, production and various services, Yeah, 9 times out of 10, 80% of the time you're marking up staff.”