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This question has been answered, and points have been awarded.
Gross Vs Net Advertising Rates
Posted by Anonymous on
5/13/2008 at 2:54 PM ET
New to advertising...
I need to learn more about gross advertising rates. Publication often cite gross rates in their rate cards with ad agencies in mind. What does the gross rate include, what's the rationale?
5/13/2008 at 3:24 PM
Gross rate includes an amount allowed for the ad agency's 15 percent commission. Publications that work directly with the advertiser without an "agency of record" often quote net rates to the advertiser, meaning net of any agency commission.
In the "golden age" of advertising, agencies used to give away creative and make it up in commissions. Do one ad, place it in $200,000 worth (gross) of magazine pages, and collect $30k.
Then advertisers started wanting more expensive creative and production, more variety in ads, and splitting the media buy with other agencies for their different brands and subsidiaries. So agencies started charging for creative AND taking commission.
Now many agencies cut or waive commission and make all the profit on creative, and many advertisers do their own insertions and negotiating of rates. Publication reps call on both agencies and advertisers, and go where the money is.
SELMARQ Brand's Best Friend(R)
5/14/2008 at 9:16 AM
If you place your media yourself, most media will give you an "agency discount" which is 10 - 15% off the gross rate. You are entitled to request net rates if you are doing your own media placement.
You don't say whether you're an agency or a client. One of the reasons for agencies charging the commission was to reimburse them for the time involved in negotiating rates and managing a media buy (it can be considerable), and for their risk in signing off on the buy.
Realize that if the agency signs off on the buy on behalf of the client and handles the billing, thereby entitling it to the commission, it also assumes the risk if the client doesn't pay. (That happens more than you would like to think.) When a client defaults, the wronged publication can contact the rest of the media in your city, essentially placing a freeze on your ability to place media for ANY client. This puts you out of business on the media buying side until 1) the client pays up or 2) you pay for the client's media and then take him to court.
Since many media buys run into the tens or hundreds of thousands of dollars, it's no small thing to liquidate a delinquent client's media bill. After over 20 years of watching these shenannigans, my advice if you're the agency is to have the client sign all contracts and handle all media billing directly, and to make sure that the media know your policy. (You can still do the client's negotiations and manage the schedules, just charge per hour for your time.) You are better off charging a 15% higher rate for services and reducing your risk than dealing with the headache of a client who closes up shop without paying his media bills.
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