Which Advertising Agency Compensation Structure Is Better For Me? Part 2 of 3 (Media Commission)
There are a myriad of ways in which advertising agencies can be compensated. For full-service shops, it typically consists of some form of hourly billing for creative services, media commission and/or production commission. While there are standard industry norms, it is common practice to engage in negotiations specifically tailored to the unique needs of each client. Finding an agreement that is fair and mutually beneficial is the foundation to building a successful long-term partnership.
Part 1 of this series examined non-commission forms of compensation, generally the foundation of the agreement. Part 2 of the series will explore media commission and the final installment will cover production markup.
Today’s Media Landscape
The landscape of media buying is changing. Most print and broadcast companies still utilize agency discounts, but we don’t know what the future will hold. This is especially true of online initiatives, which are fast becoming a major component of integrated plans. Is it possible for you to place your media direct in some instances? The answer is yes.
So why pay an advertising agency a media commission? Well, there are several reasons. Compensation should be relative to the agency’s expert planning and research abilities, negotiation skills for maximizing your budget and their buying power. Buying power often leads to free bonus media and significant added value.
Sure, you can buy your own oil and change your own tires, but there is something very reassuring about having the mechanic do it for you. You know that you are getting the right tires, the right oil and a quality assurance benefit (not to mention a warranty). And, chances are, you’ll also get a free tire rotation and air fill up.
Media Services Responsibilities:
- Create innovative and cost-effective plans designed to fulfill media objectives through the development of strategies and tactics
- Determine the right media mix
- Determine which specific media outlets offer access to the target market
- Outline when advertisements should run, and how often Compensation
The success of a good agency/client financial relationship is based on setting clear expectations and billing transparency. In the case of media, planning, placement and negotiation is typically covered through space reservation. Standard agency commission is 15%. Client invoices reflect a ‘gross rate’ that accounts for a 15% mark up. Then, media vendors bill the agency at a ‘net rate’, with the difference compensating for the media planning services.