Gross Vs Net

Most agencies offering media buying services are paid on a percentage basis.  This means their customer pays the agency for the advertising schedule purchased and then the agency pays the advertising vendor the net cost of that schedule.  The amount that the agency keeps is many times referred to as a commission or fee and it is calculated on a standard percentage.

The net price or net rate is the amount an advertising vendor receives in exchange for delivering the ads to the public.  However, because advertising agencies buy advertising schedules for many different customers or businesses, it is common for the advertising vendor to give a percentage discount to the advertising firm.  Many times, this discount is referred to as a commission.  Many advertising vendors understand this discount is a win-win, because their salespeople usually spend less time explaining their product offerings and how advertising works to an agency versus going to a company directly who usually does not have a lot of experience with advertising.  Advertising vendors also give this discount to agencies, because this is usually a longer-term relationship and the volume of advertising from an advertising agency is usually larger.  This really isn’t any different than when a contractor receives a discount from a lumberyard, because of their volume of business and their dedication to using that vendor.

In Broadcast (TV, cable and radio), pricing their available inventory at a gross rate to all advertisers is standard.  This means if a commercial slot is available for $100, this would be the price presented to a business who does not work with an advertising agency and to the advertising agency.  However, when the invoice is sent to the advertising agency the price is reduced to $85.00 or a 15% discount and the invoice to the business is still at a rate of $100 for the commercial slot. 

The standard discount throughout the Country is 15%.  Many publications, out of home and digital vendors also offer this discount to advertising agencies, because of the advantages of working through an advertising agency and again because of the volume of business they produce on behalf of their customers.  

Media Link Software® automatically shows both figures in order to ensure the pricing of any schedule is clear, no matter the scenario. We also developed a third category which we refer to as the agency price. This comes into play, when the agency charges a different percentage than the standard 15%. Sometimes an agency will lower their rate to be more competitive and other times they will raise it to compensate for particularly challenging buys.

Summary

Net Rate: Amount the vendor receives from the invoice

Gross Rate: Net rate divided by 0.85 (100-15%)

Agency Rate: Net rate divided by x (100-x%)