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Notes from Notchcode

2.09.2006

Ad Commissions and why they are nasty

OK, let me first say that I know people in the ad business, and they are nice people. But the way their industry handles clients and media buying is not always aboveboard.

I recently began designing adverts for a client, whom I am doing a lot of other integrated marketing for. I've designed plenty of ads in my time, but this was the first opportunity to handle the entire thing, from concept through media buy and delivery, as a principal of a firm. Now, I've had good mentors in the design world, but I've never worked for what most people would think of as an "Ad Agency": a place that lands big accounts with multinational corporations to create and run multimillion-dollar ad campaigns. I never really took to that whole scene. For one thing, there's a lot of churn in every agency I've ever dealt with or had associates working in; and for another, well, it's very very fast. And while fast can be fun for a while, I like to think before I act. And I think my clients like me to do that, too.

So, with my first "ad account" before me, I researched the various ways that one can assess fees for creating and executing an ad campaign. There's the traditional fee for service + usage model, which I use with all of my other work. This has advantages, because it's familiar to most designers, and is pretty easy to quantify--except in the case of an ad campaign, as I will detail in a moment. There's the fee+hours worked model, which is similar to the first model but breaks down usage vs. man-hours to create the campaign into separate entities. And then there's the fee based on a percentage of the total media buy.

I can see the good points about all of these, but I settled on the latter. Basing the fee on a percentage of the total media buy assigns the worth of your creation to the amount that it is used (and the prominence it is given as well). Running an ad in a small newsletter? Small fee. Running it in Rolling Stone in full color? Big fee. I modified this somewhat to guarantee a minimum amount that I would get paid, regardless of whether or not even one ad was placed, to cover my overhead. But how much I get paid above that will depend on whether or not the client buys enough ad space to bring my percentage above the minimum "floor" I have set as my base payment. This means I have to make sure I make something that's actually relevant to them, and will work.

What about ad commissions, you might say? Well, what are they? Ad commissions are typically a 10-15% discount that are given to "recognized advertising agencies" who buy adspace in a publication and pay for it within 30 days or so of running the ad. This can be seen as the "wholesale" price for the adspace, and the rate listed on the rate card could be seen as the retail price. That is, it could be seen this way, if your clients never saw a rate card with the commission mentioned on it, and never bought ads themselves, and basically lived with their heads stuck in a bucket.

Ad agencies I have dealt with in the past sometimes pass this savings along to the client. Sometimes they keep it as their "fee" for making such a smart media buy. Sometimes thet pocket the commisison, charge the full rate, and add a 20% markup on top of the rate for administrative overhead. This is what's known in the biz as "double-dipping". Well, not really. But that's what it is. And if the client knows about the commission, and the markup on expenses, well, then I guess they get what they deserve; let them write that big check. But, believe it or not, some companies don't exactly disclose either the commission, or the markup, or both, to their clients. And that, my friends, is unethical. And probably illegal, although I'm not a lawyer, and wouldn't really know. But it feels illegal. And I saw enough durng my fee research about "non-disclosure", to make me want to maybe stay away from that, a little bit.

So I, being more focused on a long-term relationship with my client, am passing whatever commission I get from the media along to my client, and basing my profits on their belief in my creativity and marketing savvy to create an ad campaign that they will run over and over and over again...because it will be effective. I don't mind giving up the 15%, as I am getting in return a happy client that is more focused on a good, integrated marketing campaign, and not the song-and-dance of the ad man. Call me a naif, call me uneducated, take me away in a black helicopter and bury me under the headquarters of the American Advertising Association or whatever, but the whole ad commission discount/commission as profit smacks of problems down the road, and I hope others will swerve away from this practice and just Charge the Client What the Work is Worth in the first place.

posted at 9:34 PM Leave your comments here: 0 comments

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