Gross is what your business pays for advertising.
Net is what the media company charges for that advertising.
The difference is the commission your media buyer makes.
i.e News Channel 8 sales (:30) second commercials for $100 each.
You have a budget of $1,000. Therefore, you recieve 10 (:30) second commercials. Easy right? Now let’s break it down for an agency.
You have an ad agency that’s purchasing advertising for you. You give them $1,000 and they purchase that same $100 ad from News Channel 8 for $85, or 15% less, hence them earning a 15% commission. Your agency receives a 15% discount because, wait for it, they are an “agency”. This is very standard, yet a very dated model at the same time. It’s important to understand what’s negotiable — everything. This dated model forces a couple of actions to take place.
- Your agency opens their eyes to the digital world and offers creative solutions, reallocating those dollars to a diversified portfolio. OR
- Your agency keeps doing what they’ve done for years; buying the same stations / networks, sometimes with the same dated creative and keep taking their 15% commission.
- Your business gets burned out spending and spending with very little measureability nor excitement around the marketing campaign at all.
If you are not challenging your agency to stop doing what they’ve always done and start providing your compnay with more creative ways to move your brand forward, they’ll more than likely keep doing just that. Nothing. The only way your media buyer can win, today, is to add volume to the media buy. My clients tell me all the time,
“My last agency just wanted me to spend more, spend more.”
That’s how they get paid, remember. Read Trust — People Buying People, The Media Rep.
Setting Up Your Agency?
The title says it all. Most media companies want your business so badly that they are very willing to work with your “in house agency”. If you are currently spending money in advertising and want an immediate 15% discount on your annual spend; here’s a few steps to get you started:
- Open an “Equity Account” with your bank, separate from your operating account
- Email all of your media vendors and state the following,
“We now have an in house agency for all of our marketing efforts. Please continue to direct all correspondences to email@example.com. We will need to schedule a meeting and review our current contract immediately. Thanks!
That’s all you have to do. That’s it. Those $1,000 invoices that you’ve been paying will now come to you for $850. The media rep will call you immediately, as he / she (more than likely) gets paid less for managing an agency account rather than a local / direct account, so they’ll be very eager to learn what’s going on. Oh yeah, and the company is making less of a margin, so it trickles down hill to the rep.
Please understand that the overwhelming majority of media companies still operate this way, yet some have instituted very specific criteria to have an in house agency. Run your numbers and see if it’s worth your time.
$1,000 spend per month = $12,000 / year
15% (x) $12,000 = $1,800 per year in savings! That’s real cash! Your company still takes the expense on the P&L and your equity account grows with 15% commissions each and every month.