When your agency buys media on your behalf, you’ll be quoted a Gross rate. The agency will pay a lower Net rate, yet the Gross rate should be the same price you’d pay if you purchased directly.Back in the “Mad Men” era, media commissions paid for everything. Marketing was synonymous with advertising and clients created their budgets based upon media costs. Creative and account services were covered entirely by a 15% media commission that the agency earned. So, a client with a million dollar media budget netted the agency a hundred fifty thousand dollars in revenue and no more. But, times have obviously changed.
Marketing is much more than simply running ads. In fact, agencies rarely refer to themselves as “ad agencies”, even though that may be a more romantic view of what we do. In reality, most firms are marketing firms offering a broader array of services typically on a fee basis. Several of my clients don’t even advertise, but we do market. The shift has been profound, and underscores the ever-expanding ways in which you can spend a marketing budget.
In simple terms, Net vs. Gross rates are comparable to an agency buying at wholesale and reselling to their client at retail.
The concept is the same and most (but far from all) media will grant to recognized agencies a 15% media commission. Only agencies should earn this, so you as the client would still pay a gross rate if you bought directly from the media. This still holds true for many print and broadcast media, but is less present in the relatively newer realm of online advertising. My hunch is this lack of what’s known as “commissionable media” in online is due to a lack of history with it.
Media commissions are not always fixed at 15% and not all media buys will earn the agency a commission. But, because your agency can effectively buy at wholesale and resell to you at retail, commissions are one of the compensation methods they may employ. Open and honest communication about costs and the ways in which an agency makes money should not be something you shy away from. I’d recommend having a dialogue with your agency account manager regarding commissions during your media planning process. Keep in mind that all agencies need to be profitable in order to continue to provide services to their clients; media commissions can provide your agency partner additional income without a direct cost to you.
Looking for guidance or just need to bounce an idea off someone new? Contact Matt Birchard directly at: 503-297-1791 ext. 1 or via email.