When an agency states that it receives a 15% commission, it means that 15% of the gross purchase is taken. To calculate it, the net cost of the media is multiplied by 17.65%, which makes the media raise 15%. Although it may not seem like much, it adds up quickly. Despite this, 15% is still a “thing”.
Agreements with the media are still made at a rate of 15%. According to a recent study by the National Advertisers Association on agency compensation, there is even a slight resurgence of 15% bids in the programmatic space. Advertisers who need extensive reach often forgo the typical negotiation on people x hours x margins x bonus and instead opt for a direct 15% commission. In some cases, a different commission rate may be applied if a certain objective is met.
For example, the commission rate may be 2% of sales, but it can be changed retroactively to 4% if the seller reaches a certain quarterly sales target. For instance, a real estate company may hire commission agents to obtain sales opportunities and make potential sales. The agent will receive a certain amount of the total amount of each sale as their commission. The setting of the commission level at 15% was an agreement between media and agencies for the creative services that agencies provided to advertisers.
Under these hourly rate schemes, non-administrative agency staff are assigned billable rates that generally include direct compensation from a staff member and an agency overhead surcharge and a contribution to profits. While vendors' media invoices are gross charges, production invoices from salespeople, such as photographers, do not include agency fees.