How Does an Advertising Agency Get Paid?
This article has been updated June 2020.
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While each advertising agency has its own unique payment and operations structure, they all usually fall under a few categories:
Commission: In the commission model, the client sets a budget for media buys and the agency takes a percentage commission. The traditional standard is 15%. This model was much more popular prior to the digital revolution of the 2000s. While still available, the advent of multiple platforms and the evolution in media consumption has decreased the level of commission usage in the advertising industry.
Hourly Service: In the hourly model, an established hourly rate is contractually agreed upon between the client and the agency. The client dictates the services desired (demographic research, ad creation, reviewing results) and, in many cases, a maximum regular (weekly or monthly) budget. The agency logs the hours worked and sends an invoice following a defined work period.
Per Project: In the per-project model, the client establishes clear guidelines regarding a project. That could mean anything from crafting and launching two different ad campaigns or working strictly to deliver a strategy report. Once the project goals are fulfilled and the deliverables are received, the project is considered finished and billed. Any additional work requires a new price quote and agreement.
Which Model is Best?
In many cases, agencies will offer different models based on client circumstances. In addition, agencies can combine models. For example, a per-project fee can be used to craft and create an ad, but then an hourly service can be applied for handling the media purchases. If you’re not sure what model fits best for your circumstance, just ask. A good agency will find a happy medium between your needs and the agency’s usual approach.
By Marc Apple
Marc Apple is recognized as a leader in the marketing industry and has 20+ years of experience helping businesses of all sizes improve their digital marketing. He specializes in website design, SEO, social media, and paid search programs. He is a frequent contributor to other marketing websites and speaks regularly about marketing to small business owners and startups. To learn about Marc and to contact him, visit his author bio page.
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