Marketing your business is critical to obtaining new customers. Without an effective advertising campaign, even the best retail store or finest restaurant may go unnoticed and subsequently unable to keep its doors open. Many business owners and managers will turn to media buying agencies to help navigate through the myriad types of advertising including print, online, television and radio. Media buyers most commonly earn their living through one of four fee structures.
The most common way media buying agencies get compensated is by earning a commission on your total advertising spend. A common rate is 15 percent of your total advertising spend. For example, if you buy $15,000 worth of advertising in a newspaper, the media buying agency will earn $2,250. Depending on the relationship, you may pay the advertising venue directly and the venue will subsequently issue a commission check to the media buyer behind the scenes. Or, the agency may bill you directly for the entire amount of the advertising spend and pay the advertising venue the discounted amount. This approach is very common though it can be counterintuitive as the agency earns more as you spend more. However, the fifteen percent commission is used as the method to compensate for the buyer's time for selection of the media and even creative design services.
Fixed Service Fees
Rather than earn a spread or commission on each advertising spend, the media buyer may charge you fixed service fees for various services. In this case, the 15 percent agency discount on the advertisement may be passed on to you, but you may be billed service fees for the development of a media plan, design of the creative or reporting. These rates may be quoted upfront as fixed rate prices or billed hourly. While the exact billing procedure depends on the buyer you are working with, fixed prices are usually used for media plan development and buying with creative services more suitable for hourly billing.
Business owners need to make sure advertising campaigns are producing revenue and profits in excess of the advertising spend. Tracking the performance of marketing campaigns is instrumental to the ongoing success of a media buy. Online marketing and media buys are particularly easy to track due to special software and content delivery mechanisms designed for these types of analyses. Some agencies will go as far to not charge any upfront commissions or service fees for assisting with a media buy but insist on getting paid based on performance. For instance, a media buyer taking this approach may suggest taking a commission on each sale generated through the marketing campaign or earning a bounty on a new customer sign-up or inquiry. This approach eliminates the upfront investment for the business owner and provides the media buyer with unlimited upside potential -- the more sales, the higher the commissions will be. Advertisers wanting to go this route often have to offer very aggressive and attractive commission rates and bounty amounts to justify the media buyer taking this approach.
Particularly with the advancement of online media and the ability to track performance, many media buyers opt for a hybrid model of compensation -- a combination of guaranteed cash fees plus a performance incentive. This approach can be appealing to all parties as the hard media costs are often subsidized by the media buyer and the media buyer will earn some fees for designing creative materials while potentially earning some incentive fees on the performance of the advertisement. Especially where the media buyer has agreed to share the advertising costs, this method also encourages the media buyer to negotiate the lowest possible price on the media campaign on behalf of the advertiser.