Perhaps one of the more significant trends within the advertising industry in the last decade has been the advent of digital asset management platforms and the continued move toward the decoupling of creative development and cross platform production.
These innovations have resulted in a number of meaningful benefits for advertisers including; the ability to maintain consistent brand standards across the globe, minimizing required production lead times and reducing expenses in this area. Agency holding companies to have been the beneficiaries of improved efficiencies tied to their horizontal strategy of creating in-network production centers to serve clients across their network of agencies. There have been numerous reports from agencies indicating that this de-coupled, centralized approach to advertising production can generate savings for their clients in the range of 20% to 50%.
There is another trend which is positively impacting production efficiencies… “offshoring.” Ironically, the practice of offshoring is not talked about quite as openly or as often between advertisers and agencies. Considered a global best practice in the digital production sector, the ability to leverage an advertiser’s digital asset repository from anywhere in the world has fueled the rise of digital production hubs in markets such as Bogota, Colombia, Sao Palo, Brazil and New Delhi, India. The reason is straight forward. These markets provide access to a growing talent pool of digital production specialists, while offering comparatively low labor costs that can be as much as 70% below that of North American and Western European markets.
In our agency contract compliance auditing practice we review numerous client-agency agreements complete with agency staffing plans, labor and studio rate sheets and direct labor cost work-ups. Of note, it is rare that these documents provide any transparency into an agency’s use of in-network production centers or their utilization of an offshoring strategy. Rather, we see agency overhead and direct labor rates by function, which reflect more traditional staffing models and costs affiliated with U.S. creative hubs such as New York, San Francisco and Chicago.
The obvious question to be asked is; “Are advertisers fully participating in the efficiency gains related to these practices?” Based upon our experience, too often advertisers do not have the requisite transparency into this area to assess the extent to which any realized production efficiencies are flowing through to their bottom line. As the twentieth-century U.S. architect and engineer, Richard Buckminster Fuller once said:
“None of the world’s problems will have a solution until the world’s individuals become thoroughly self-educated.”
Interested in learning more about your true production costs? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule your complimentary consultation on this important topic today.