Advertising agency operating efficiency

Abstract

This study uses data envelopment analysis to evaluate the operating efficiency of a sample of 41 US advertising agencies, based on their profits and expenditures in six key areas (i.e., payroll to employees, other payroll-related expenses, administrative expenses, space and facilities expenses, corporate expenses, and professional fees). The analyses reveal that, on average, 5% of an agency's budget is wasted, incurring the greatest amount of waste in the administrative and corporate expenses. The tobit model also indicates that professional fees contributed the most agency inefficiency overall.

Keywords:

• advertising
• advertising agency
• efficiency
• ROI

Acknowledgements

This work was supported by the Hankuk University of Foreign Studies Research Fund of 2013.

Notes on contributors

Yunjae Cheong (PhD, The University of Texas at Austin) is an Associate Professor of School of Media Communication at Hankuk University of Foreign Studies. Her research interests focus on evaluating advertising media spending efficiency, the assessment of advertising agencies from various perspectives, and cross-cultural consumer behavior. Her work has appeared in such journals as the Journal of Advertising, Journal of Advertising Research, Journal of Current Issues and Research in Advertising, International Journal of Advertising and Journal of Marketing Communications, among others.

Kihan Kim is an Associate Professor of the Global Sport Management Program in the Department of Physical Education at Seoul National University (SNU). His research interests include sport media, and sport advertising and public relations. He previously was an Assistant Professor in the School of Journalism at Middle Tennessee State University, and in the School of Communication at The University of Hartford. His work has appeared in such journals as the Journal of Advertising Research, Journalism & Mass Communication Quarterly, International Journal of Advertising, and Journal of Marketing Communications, among others.

Justin Combs (MS, University of Louisville) is a Lecturer in Communication Studies at the Indiana University East. He holds an MS from the Department of Communication at the University of Louisville and a BS in Advertising from Ball State University. His research interests include local advertising cooperatives and interactive advertising.