Question

Topic: Student Questions

How Can An Ad Agency Make Money?

Posted by Anonymous on 7/14/2009 at 9:24 AM ET 125 Points
I'm really confused. I'm trying to start a local TV ad agency. I know the commercial itself is typically produced for cost, and the money comes in the %15 agency discount. But, the math isn't adding up. How can I possibly make money? I can go out and sell businesses on using my agency, that's not a problem.

But, in order to make enough money I'd need companies to be willing to spend at least $20,000 a year on the media buy. And for them to be successful advertising on TV they'd need about that much. For local businesses, how doable is that? Obviously some make more money than others. I'd be targeting businesses that have a high profit per customer ratio, so new customers should be very valuable to them.

The larger companies like auto dealers and furniture stores already have their own in-house production team and deals with the networks. I'd have to target a little smaller businesses. I'm just having so much trouble coming up with a business model because it's just impossible to get information!
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  • Posted on 7/14/2009 at 4:18 PM Author
    My primary expertise is in the marketing. So I definitely can sell them on using me instead of another agency or doing it themselves. What I mean is, I offer knowledge. I will create the ad and direct it with my own production company.

    But, I'm fuzzy on how any ad agency can make enough money...the whole concept just doesn't seem to add up. Even in the best of economic times!
  • Posted by Gary Bloomer on 7/15/2009 at 10:55 PM Accepted
    Dear Thinkofacard,

    Convincing customers to spend $20Kp.a. apiece with what for many of them is their massively reduced cash flow rates is at best, wishful thinking, and at worst, possibly a recipe for disaster.

    Randall's right, why would anyone with the money to spend on advertising work with an unknown outfit rather than with a bigger company that can handle all their media needs?

    When major ad shops are closing their doors left and right, does it really make sense for you to step away from what you know—which is marketing—to embrace TV advertising?

    OK, if you've got sacks of cash and you've got a line of clients lined up around the block, knock yourself out. No. Really, I wish you all the best. But to paraphrase Dan Kennedy here, "One of anything is bad!", which in your case might be one stream of income.

    Ask yourself this: does it really make sense to plough so much effort and money into this venture, now, in this economy, when ad buyers are simply not buying ads?

    To make money, there are other things you might want do, not least of which is leveraging what you already know: your marketing ability. I know this might not be what you want to hear, but it's realistic.

    I hope this helps you, really I do.

    Gary Bloomer
    Wilmington, DE, USA
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