Selecting the Right Type of Media Organization

January 1, 2006

No special license fees are required to open a media department.
All media vendors will require that you establish the financial creditworthiness of your company, or the vendor will require that you pre-paid all media costs. This would include paying broadcast before air dates and print at the insertion order closing date.
The cost for personnel, media systems and research is high and should be researched before making final decisions on the type of organization to operate.

Understand Agency Fee Dynamics

Most media agencies are getting commissions of 1% to 5% for each client's gross media budgets. The variables depend on:

The media elements

Spot TV, OOH, Newspaper are all more expensive to plan and buy than network television

The budget
The work required

How often do you plan/buy, number of changes, extra work required for business partners

Digital/New Media

These areas have higher manpower costs and should be separately evaluated

More maintenance
Greater Expertise
Creative and Media skills needed

Another way to evaluate a fee is using a manpower cost plus analysis.

Currently this is the preferred option for advertisers when setting compensation deals.
Allows an advertiser to control the staffing and therefore control their costs
This fee covers the cost of:

Manpower
Fringe benefits - 17% - 23% of salary
Overhead - 70% - 100% of Salary and Fringe Benefits. The wide range is due to location cost differences
Profit mark-up - 10% - 20% over all costs

Agency Manpower Costs
	Salary	Fringe Benefits	Overhead	Profit Mark-Up	Total Cost
Manpower	$100,000	$20,000 (20%)	$102,000 (85%)	$33,300 (15%)	$255,300

The above example at a 3% commission fee would mean the client gross media billing would have to be around $8,500,000. To translate this into a net media billings basis, the actual percent fee is 3.53% of net ($7,225,000). The difference between gross and net is always 15%.

In-House vs. Agency

Look at your savings when using an in-house media department versus a media agency

For example: Media department manpower costs and fringe benefit costs may remain the same, but you can save a lot of the overhead and all of the profit mark-up.

Advertiser Manpower Costs
	Salary	Fringe Benefits	Overhead	Profit Mark-Up	Total Cost
Manpower	$100,000	$20,000 (20%)	$24,000* (20%)	$0	$144,000

*Does not include media research or media system costs.

This example would generate a savings of $111,300. After you understand commission-based fees or cost-plus fees, you can look at the systems and research costs:

Provided at the back of the document is a listing of media systems and research sources that you need to evaluate and get costs.
Your individual cost may be higher than the agency is charging. At the agency these Systems and Research costs have been spread over many clients and are folded into the overhead cost on the above agency example. This exercise is to find out if your cost is higher than your savings.

Best Practice

Build an in-house operation by selecting only the areas that are most cost efficient and business effective. If you have a percent commission arrangement, move to a net billing commission base and eliminate the extra gross calculations. Gross media billing information should be eliminated. This dinosaur is just going to waste you manpower time in recalculating costs. Net plus fee (netfee) or Net plus commission (Netcom) should be the rule.