How much of the marketing budget should be allocated to Agency Fees?

One of the most frequently asked questions from finance and procurement teams is deceptively simple: how much of the marketing budget should be allocated to agency fees?

The honest answer remains: it depends. While that may feel unhelpful, there is no single “correct” ratio – particularly in today’s marketing environment, where spend is increasingly weighted toward digital media, content production, data and technology rather than traditional paid channels.

What has changed is the context. As paid media models evolve and investment shifts toward digital platforms, owned content and performance marketing, agency fees now represent a much larger – and more visible – share of total marketing spend. This naturally increases scrutiny and raises questions about value, efficiency and fairness.

What do we mean by marketing agency fees?

To answer the question properly, it’s important to clarify definitions.

Agency fees refer to the cost of agency people delivering services – strategy, planning, creative, production, optimisation and account management. Fees are typically time- and rate-based and exclude third-party costs.

Marketing spend usually includes all external marketing costs paid to third parties, excluding agency fees.

Media spend refers specifically to paid media investment across traditional channels such as TV, print, radio and OOH as well as channels such as search, social, display, video and retail media.

The way these elements are defined and reported varies significantly between organisations, creating immediate challenges in benchmarking.

Why are agency fees under greater scrutiny?

There are two structural reasons why agency fees are increasing as a percentage of marketing budgets.

First, paid media investment has shifted dramatically. While total media spend remains high, money has moved away from high-cost, low-touch channels such as print and linear TV into digital platforms where media is cheaper, more targeted and continuously optimised. As media costs reduce or fragment, fees naturally represent a larger proportion of overall spend.

Second, the scope of agency work has expanded. Brands now require significantly more content, more frequent updates, multiple formats, platform-specific assets and ongoing optimisation. The rise of always-on marketing, social commerce and performance media has increased production and operational workloads, often without a corresponding increase in budget.

The challenges in defining the “right” level of agency fees

1. Inconsistent accounting and reporting
   Marketing spend is not reported consistently. Some organisations include internal salaries, customer service costs, e-commerce operations and digital platform IT costs, others do not. This makes like-for-like comparison extremely difficult.
2. Shift toward digital and below-the-line activity
   Brands with a heavy focus on digital, CRM, social and content-led marketing typically require more agency effort than those running predominantly above-the-line campaigns. Digital marketing is more labour-intensive, even if media costs are lower.
3. Industry and competitive context
   Different industries demand different go-to-market models. Highly competitive, fast-moving or locally-driven categories often require higher agency engagement and therefore higher fees relative to spend.
4. Variability in reporting by region
   Global and regional reporting inconsistencies can significantly distort fee ratios. Local market activity, labour costs and decentralised spend all affect the headline numbers.
5. Agency model and roster structure
   Centralised agency models often appear more fee-efficient than decentralised ones but efficiency alone should not dictate structure. The right agency model should reflect business objectives, not just cost expectations.
6. Short-term business objectives
   Periods of transformation such as digital platform builds, e-commerce acceleration or investment in new content capabilities can temporarily increase agency fees as a proportion of spend. This does not necessarily indicate inefficiency.

How to assess whether agency fees are appropriate

The starting point is a clear, well-defined marketing scope of work aligned to the annual marketing plan. Fees should then be assessed in the context of that scope and reviewed as activity changes.

A common mistake is to cut marketing budgets mid-year without adjusting agency scope or resource, which inflates fee ratios artificially. Reviewing trends over time, rather than single-year snapshots, provides a far more accurate picture.

Regular fee benchmarking, either internally with procurement or with independent specialists, remains one of the most effective ways to ensure value for money.

In summary

There is no formula and no universal benchmark for agency fees as a proportion of marketing spend. The right level depends on scope, marketing mix, agency model and business objectives.

What is essential is regular, informed review. In a world where marketing investment is increasingly digital, content-led and production-heavy, agency fees are not a cost anomaly, they are a reflection of how marketing now works.

For more details of the Observatory International’s agency remuneration and compensation practice please click here or contact a member of our team.