I’ll let you in on a secret… Are you listening? … Marketing agencies do not mark-up media costs. Ok, it’s less of a secret and more of a revelation for our overjoyed customers, but let me explain why.
It is a requirement of most businesses to mark up their costs somewhat in order to make a profit (admittedly some more than others…but we won’t go there!) and it is usually assumed that this mark-up is an essential part of doing business: “The mark-up covers the incurred costs”. The difference between the actual cost and the inflated cost is where companies make their money.
“Ok” I hear you say “but surely marketing agencies have to do the same”. In fact, when it comes to advertising bookings, we don’t, because of a little arrangement that few corporate companies know about called agency commission. In essence, this is an agreement between the media (broadcast or print) and the advertising agency that ensures that the process of marking up the cost of booking advertising is not required, and ultimately keeping the cost of advertising down.
Essentially, agency commission refers to a discount given to the advertising agency by the media for bringing in advertisers. With the ad agency acting as an intermediary, the broadcaster is saved significant time and expense of finding advertising clients, direct sales, billing etc. The commission also serves as an incentive to the agency to increase advertising booked through their company. While the rate of agency commission can vary between publications (and jurisdictions), anything in the region of 10 – 15% is commonly considered as acceptable. The discount is given to the agency as profit, and that’s where agencies make their money, rather than having to mark up any costs.
So, for example, if Company X would like to place advertising in Publication Y, the cost to the company would be exactly the same were they to contact the publication directly, as it would were they to book the advertising through an agency. It would not be necessary for the agency to mark up the cost of the booking, since the publication would typically offer the agency 10 – 15% commission, based solely on the fact that they are a recognised advertising agency.
That said, the reverse is also true. The agency commission system is predicated on the fact that both the agency and the media offer the same cost for advertising bookings, and it is just as important to both parties that the figure that the agency offers matches that of the media, as it is that the media’s cost price matches that of the agency. A heavily discounted rate from an agency in order to attract more advertising bookings through their company would literally break a system that is based on mutual understanding and trust.
So you see, ad men aren’t the thieves you may have thought they were!