How to Calculate Advertising Agency Commission

Advertising agencies have been using a commission-based structure as the most traditional approach to ad billing for many years. This method involves taking a percentage commission based on the media budget for the campaign, with a 15 percent commission being the norm. However, this method has become less common in the early 21st century due to potential conflicts of interest. In industry jargon, media bills represent gross costs, including agency commission, while production invoices represent net costs, since they do not include commission and must be increased (or collected) to include agency commission.

This system was the subject of great controversy within the industry, pitting the advertiser against the agency, but it eventually survived. The U. S. Department of Justice issued a consent decree that effectively abolished the 15% commission system and required all media outlets to sell space and time at the net price to all buyers.

This gave business owners more freedom to buy media at net prices and negotiate agency compensation on their own. Alternative advertising agency compensation systems have been growing vigorously since then. Agencies have been more accepting of this approach if the objectives relate closely to things that are under their control. Business owners who want to increase their income can choose between a marketing agency or an advertising agency.

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