Ad Agency - Media Buy - Contracts - Standard Practices
Although I normally focus on Production/Post, many potential clients are approaching me to buy time for spots they already have, in some cases statewide.
I understand there's a standard mark up of 15%. I've heard in some cases the client pays the agency which marks up the price and then pays the local cable provider/station. In other cases the client pays the cable provider/station and they "kick back" 15%.
How do you recommend I handle the above on buys around the state? What would be a typical contract with the client and/or the cable provider/station depending on the above two circumstance? Seems there's a lot of "trust" involved when the client pays the station and you get" kick back."
Would it be easier still to have the client pay the rate for the time to the cable provider and then pay me as consultant to arrange the buy?
When I worked in the ad business I stayed didn't spend much time with the media department, but what I understood was that an "Agency" bought media at a 15% discount and sold it to the client at the media outlet's original quoted price. Of course, most clients were prepay on their media or required a sizable deposit to protect the ad agency from going broke or taking on too great of a risk by fronting all the money.
This is changing, however, with many larger clients now negotiating having to pay a much smaller percentage--I know some of our clients paid only 5 or 10% "commission" because they spent so much and played the whole, "Well, XXX Agency will only charge us Y%, but we want to stay with you guys because you're so nice. But we'll switch in a heartbeat if you don't meet our demands". Gotta love the multi-million dollar clients.
Other's didn't pay a "commission" but a standard rate for a negotiated amount of media time--say 500 cable spots on 2nd-3rd tier stations to run sometime between 9am-9pm with free filler runs from 9pm-9am if the station had high inventory levels left at air time. These packages were negotiated between the agency and the cable service--they had a pretty close relationship. This meant the cable outlet would sell their surplus inventory for less than desired, but received at least some money for airtimes that would otherwise have been filled with excessive promotions or "freebies" for other paying clients.
Your best bet would be to call the media outlets in your area and figure out 1) How many clients you have to have to be considered an agency, and 2) How they handle media sales. Some may give you a discounted rate if you fit the "agency" criteria or give you kickbacks.
And remember, this entire industry is built on trust. The client trusts you're going to put your heart and soul into their project to give them the best commercial at the budget level, you trust the client is going to pay you and listen to your professional advice, and you have to trust the media salespeople to handle your business with care--that is, to get you the best rate they can at the best run times given your clients budget, and that they won't go directly after your clients and try to make the buy directly. Remember--a direct buy to a client typically means a higher commission to the salesperson. Selling to an agency may mean making less money, and there are some very unethical salespeople. Find someone you can trust and they'll help walk you through it all.
...this entire industry is built on trust.
BIZZZZ!! Wrong! I've done political in a past life and trust is NEVER part of it. NEVER!!! Not for a week, a day or an hour. Political campaigns must come with their checkbook and pay for everything on the spot the moment the service is delivered. They, and you as the buyer for that matter, must pay in advance for airtime.
Of the four campiagns I worked for the only time I let the candidate owe me a small amount until after the election I was burned. This was for $1,500 and after he had WON. (I eventually found a way to get paid and laughed my ass off when he lost in his reelection bid. What a tool!)
And yes, typically the media rates for television are quoted gross and "recognized" agencies are allowed to deduct 15% from payment. Typically. As discussed earlier bigger advertisers and bigger media buys are highly negotiable. Start with the "standard" 15%.
[Nick Griffin] "And yes, typically the media rates for television are quoted gross and "recognized" agencies are allowed to deduct 15% from payment. Typically."
Once again, Nick nails the distilled essence of the matter. If you are NOT recognized, you are not getting squat. Do not think for a minute that you are going to get a discount with one client in your new roster (well, unless you are representing a major client or you are dealing with a station that is desperate for cash). Earning agency "status" is more than thinking that you have a client, therefore you get the 15%.
They talked about this in school long ago, that the PR and advertising industry has this little gimmick about the "agency discount" for acredited agencies, which becomes a built-in profit margin on every job, and restricts competition from non-"members"... They didn't go into great detail about what makes your agency "recognized", but part of it had to do with paying dues and belonging to one of the recognized advertising associations. That was what they taught us in the 80's, but I wonder if it is still valid today. Ron seems to be saying it still is. But I imagine that serious inroads have been made on the barrier between "recognized" and not-recognized, because there are so many more options now.
Yes, there are indeed many more options and as Nick alludes, "negotiation" is a driving force in this. That said, you will always be backed off the 15% if you are not recognized and it will take a strong bit of negotiation to get your cut. Get it in writing as I have seen the 15% disappear with words of "I can't recall this, we never allow discounts except to recognized agencies," after it has been agreed to.
Ron, it's the get it in writing part that's important. Exactly what is good wording? I'd NEVER leave this to a phone conversation. I don't mind going under 15%. I actually expect it for this kind of client (low budget) which, in the grand scheme of things, is not a big sale for the cable companies but is for the client.
BTW part of the services I'm rendering is getting the rates. The client has NEVER done this before. Has no idea what the costs are. Doesn't have the time to gather the info and learn how to do this. I know what the rates are around the state so I'm helping the client with the budget. I'll be able to match the budget with the rates and help them spend efficiently so they hit the target the best they can given their budget.
Keep the thoughts coming. I'm gaining some good insight at this end of the business.
Interesting how Nick new this involved politics. He must have remembered that from my previous posts.
Locally, I've done cable spots. Sometimes the cable company send me business on spots that are unprofitable for them to produce. When I've done local cable spots I either send them to the sales rep or I help them do the buy and simply add that to my package price.
Recently some people have been contacting me just to help with the buy (they usually have "self produced" ads (one might imagine the quality). I had been turning this business away since the buy was often small (on par with the fact that they "self produced" the ad) and taking any percentage wouldn't amount enough to make it worth the phone call and paperwork time.
I have been approached recently by someone who wants to advertise statewide. It was through a recommendation (we know word of mouth works). It's a lower budget client of course but higher budget than the others I've mentioned above. They can certainly afford a targeted statewide buy.
I'm curious about being a "recognized" ad agency though. Ultimately the cable companies want to sell their time so I can't imagine them saying no to a buyer (unless it's unprofitable of course). Obviously the bigger the volume (as "recognized" agencies can do) the greater potential for discount/markup. Keep in mind that political candidate ads are already "discounted."
Wouldn't worse case scenario would be that I get the client the "book" rate and charge the client for my services based on the buy?
Additionally, does one create a contract (and what does it look like) if the cable company gives you the percentage vs a contract with the client.
I see three business models (maybe more?).
1) Client pays me and I write check to cable company, taking my cut.
2) Client hands cable company check and another check made out to me for my fee and I hand check to cable company (assuring I get paid).
3) Client hands me check for cable company and the cable company writes me a check for percentage (how the "kick back" - I hate that phrase - works?).
It seems that since I'm not a "recognized" agency and this is not a local buy (those folks know me and certainly want me to bring them regular business) that (2) seems to make the most sense. In this case I would assume the client signs contract with cable company, I do the administrative work, and have a separate contract with the client for such consulting work.
BTW, I agree with Nick, since I am experienced in dealing with politics/political campaigns one always gets paid no later than on(before) delivery with such campaigns. Never allow a political campaign to owe you money.
Feel free to keep chewing at this. Thanks for your thoughts. Please do tell me about the various forms of contracts for such things too.
Given the nature of the beast, I won't be able to monitor the airwaves for delivery but I would get (and have to trust) the cable reports on when aired (as I have done for local spots). I'm concerned about being in the middle of any discrepancies that may happen.
[Craig Seeman] "Interesting how Nick knew this involved politics. He must have remembered that from my previous posts."
It does? My condolences, Craig. ;o)
Sorry, I couldn't pass that up...
Mark mentioned something about "recognized" meaning belonging to an organization. While I guess that might have meant something to some media outlet I think today "recognized" means that you are literally in the ad agency business and not just some bozo trying to squeeze a 15% discount from the one and only buy your making this year.
In the olden days (70s, 80s) "recognized" meant that you had a minimum of 3 different clients (not 3 divisions of one entity). But there's nothing official about it. You're "recognized" by each individual station / outlet. Recognition from one goes a long way to getting it from all, though.
For what it's worth, Media Buying, when done properly, is a set of fairly complex calculations. You're balancing "reach" (the numbers of people who see your spot) against "frequency" (the number of times the spot is seen). Most stations will give you a complete breakdown of this so you can compare apples to apples. But you have to know what you're doing in terms of demographic segments so you're not comparing Adults 18-54 to Adults 18+, etc.
Then there's the matter of psychographics. Here's a hint: even if you arrive at a similar "cost per thousand" a news program will be a much better buy for a political than say, ohhh, Jerry Springer. Mostly common sense, but something which must be considered.
How did I know this was about politicals??? I seriously thought that's what I read in the post. This time of year, in an even year, given what's on the air here in Maryland, USA... let's just say it was an easy assumption.
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"Some people say that I'm superficial. But that's just on the surface."
And speaking of frequency. One of the dumbest mistakes that I see all the time on cable is over buying of single spots. For example, I have CNN and MSNBC on in a corner of the office on a fairly regular basis. That means I might see some spots 20 times in a week, 80 times in a month, a few hundred times before the spot is changed.
This is beyond dumb media buying. Instead of making me more interested it's boring me to death. An example? Yellow Book. They have one spot at a time and run it into the ground. Saves on talent fees but bores the same audience over and over again.
Good examples of NOT doing this are:
Geico. The Don LaFontain - movie anncr spot is great and the Little Richard spot is the best! And their running these in rotation with some of the older lizzard spots.
Capital One. At least two different campiagns seem to be going at any one time, not just different spots, entirely different themed campaigns.
DiTech. Not great spots, but at least they know that with their frequecny they have to have different spots on a fairly regular basis.
There. I feel better know. Rant off.
And then there is Head On - obviously repetiton works.
And then there is Head On - obviously repetiton works.
Brilliant. A spot for a headache remedy that actually GIVES you a headache. I lunge for the remote everytime it comes on.
[Nick Griffin] "And then there is Head On - obviously repetiton works."
The "Plan 9 From Outer Space" of TV Spots.
Oops. Internet is being bothersome. Sorry.