A commission-based structure is the most traditional approach to ad billing. The agency simply takes a percentage commission based on the media budget for the campaign. A 15 percent commission is the norm, which means that the advertising agency receives 15 percent of the total spent on the advertising campaign. Since about the 1920s, the 15 percent commission has been the gold standard for advertising agencies, but the media only awarded the commission to advertising agencies.
They capitalized on the system by selling directly to other buyers at the gross rate and withholding the agency's commission as a profit. In industry jargon, do media bills represent gross costs? That is, media fees, including agency commission. Production invoices represent net costs, as they do not include commission and must be increased (or collected) to include agency commission. Around 1920, the media agency commission rate was set at 15%.
Setting the commission level at 15% reflected an accommodation between media and agencies for the creative services that agencies provided to advertisers. The system was the subject of great controversy within the industry, pitting the advertiser against the agency, but in the end it survived. The commission was only allowed to advertising agencies. If advertisers bought space (or later) directly from the media, they were charged the gross or non-discounted rate.
The 15% commission system served as the basis for agency compensation in the U. S. UU. The Department of Justice issued a consent decree that effectively abolished the system.
Under this decree, all media outlets were required to sell space and time at the net price to all buyers, instead of charging the gross fee to advertisers who bought space or time directly from the media. We are now free to purchase media at net rates and negotiate agency compensation on our own. The result was vigorous growth in alternative advertising agency compensation systems. Todd pays a higher commission than many publishers.
At 15%, it almost doubles some of the highest-earning actors in the publishing space. However, he was recently able to reduce his commission rate by 17% by hiring an ad traffic manager. As stated above, this fee structure can vary based on the amount of money you'll pay for an advertising agency. Part 1 of this series examined non-commission forms of compensation, usually the basis of the agreement.
The traditional method of compensating agencies is through a commission system, in which the agency receives a specific commission (usually 15 percent) from the media for any time or advertising space it purchases for its client. Others claim that this system tempts the agency to avoid non-commissionable means, such as direct mail, sales promotions or advertising specialties, unless the client requests it. As you examine (and re-examine) the ad sales commission structure, you are probably wondering how you can create a win-win policy for both stakeholders and representatives. A major problem centers on whether the 15 percent commission represents equitable compensation for the services provided.
Costs for magazine space Minus 15% commission Cost of media space Minus 2% cash discount Agency pays media. Normally, when an agency publishes an ad on television, the broadcaster offers an agency discount of 15 percent, which is included in the bill the advertiser receives from their agency. A recent study on agency compensation conducted by the National Advertisers Association (ANA) indicates that agency compensation based on the traditional 15 percent commission is becoming rare. Annual contracts are common with advertising agencies, especially when dealing with government contracts that are based on a bidding process.
Even with the Justice Department ruling, many agencies continued to adhere to the established 15 percent commission. Large online advertising networks such as Media Traffic, Traffic Vance, Addonetwork or Zango use pay-per-view advertising. When computer users search online or type in certain website addresses, a pop-up or pop-up advertisement is displayed. The pay-per-view advertising model, for example, is based on the number of views or responses to a specific ad..