When working on a marketing or advertising campaign, after the client is done with media planning and strategic & creative direction, an advertising agency may act as a third-party vendor which produces campaign assets as per the requirement of the campaign. These assets include printing, outdoor production, TV and radio production, shipping, and any other tangible asset that cannot be supported by the client internally.
All these third-party services are procured by the agency on behalf of the client, and so, they are billed to the client at specific rates (between 5-20%) with a commission. This is known as the agency markup. In essence, it covers the time and effort spent in conducting production of all above-mentioned outside services associated with the development of the campaign.