Kate,
A local direct buyer is going to be sold on the "idea' (the copy, the promotion, and all of the other creative ways you're going to connect your audience with their prospective customers). Ratings, rate, schedule, and all of the details of how you're going to write the order up are of very little consequence to them. They will also hold you accountable! If your campaign doesn't follow through for them... you can expect they'll be quick to cancel.
Local = trust, creative, finding the solution to their key marketing needs, relationship, affordability... and they'll buy as long as you keep giving them good reasons to.
Agency business, for the most part, is purely transactional. How much of your inventory can they get for as little money as possible? They often provide the ads and other elements of the creative so all that's left for them is price. The way they assess this is by looking at your Cost Per Thousand, Cost Per Rating Point, and their total budget for the market. I don't know much about the history behind agency commission, so I can't help you too much there. But I do know that it makes NO sense for stations to discount their rates for agencies. The only reason a station would do that is if their rate card exceeds the agency's goal for Cost Per Point and Cost Per Thousand. If you're charging the locals more than you are the agencies... I think you're doing it backwards. What I recommend is grossing up the rate a little bit on the agencies to account for the commission. So if you're paid 15% commission on direct, but 9% on agency and your 6a-7p rate is $50, increase that rate a little bit to $60-$63 (that little of an increase shouldn't severely impact your CPP/CPM unless you're a high rated station). That will at least account for SOME of the $$ that both you and your station have to kiss goodbye to the buyer, as they often receive a commission on the buy. I don't know why, that's just always how it has been.
Agency = trust (if the spots on the schedule they buy bump, you will lose trust and the chance to get in on future buys), station demographics, ratings, price... and they buy when they buy.
Yes, if does leave you the sales rep with less money in your pocket and that's intentional. Agency business requires a much smaller investment of time from the sales rep, there's very little selling involved. It's just putting the schedule with the numbers together for them and meeting their CPP needs while making sure you are being cognoscente of your station's inventory and what's left. You also can't control agency business. Local, as we all know, takes a heck of a lot of work and creativity which is why you're paid more on it. And finally, your GM/SMs want you motivated to be hunting down new local business all the time.... they don't want you living by the email/fax machine. Another good reason to pay less on agency business!
Good questions. I don't know how the 15% discount came to be....does anyone??
As a rep, it's not fun to get paid a smaller percentage of the net billing.
When I set up my agency, I decided to have the client pay my 15% commission, so reps can earn their full commission. Reps do a lot of the work and should get paid.
Reps treat the advertiser like a local direct client and most of the time the client gets the 15% back in 'station extras' so it ends up being a win-win for everyone.
I think that more often than not (at least in my experience) the smaller % in pay is due to the fact that there often isn't copy the rep has to write (the agency often has the spots voiced/produced... the rep just needs to send them to production to be loaded), and there's no need to sell the agency on you, on radio as an effective marketing medium, sure MAYBE on your station but... mostly using ratings as ratings are the criteria media buyers use to decide whether or not they'll include your station on their next buy.
With local, you need to set up an appointment (that's hard), CNA them (that can take some work), eliminate objections, etc... there's quite a sales process to go through to get to the order... so it should pay more.
I have worked both sales and agency side.
The 15% commission to agencies came to be from the client side - a fixed stipend or compensation for agency time and resources spent in placing media orders into the market, an amount based on the amount spent on media. Because you have grossed up the rate for the agency, the station is not paying the agency commission. The station bills the net to agency, the agency bills the gross to the client and keeps the difference. So the client is paying the 15% - not the station. this is the standard but some agencies have different arrangements with the client - a fixed monthly allowance to the agency with all media billing going direct at net, for instance.
You should always quote gross rates for the dayparts or programming requested only to agencies unless they specify the client wants to be billed direct for the airtime. If you provide net rates to an agency, be aware:
1. they will not gross up net rates themselves - they go by the rates you quote them. So the buyer will (often impatiently) come back to you for the correct rates. Not a good idea to make dealing with your station harder for the buyer - he/she is juggling a lot balls for multiple flights or clients. He/she will (and I did as a planner) perceive it as amateur that you did not submit the rates as requested.
2. run the risk that they assume what was sent to them was gross. They plan and quote it accordingly to the client, get approval and... you will end up screwing up their market placement because they will not go back to the client. Media buyers can and do hold grudges. You have, after all, just made their job harder and possibly made this buyer look bad to the planner he/she reports to.
The way to gross up a net rate is to multiply your rate times 1.11765. Just take the one-sheets or rate card you have and do the multiplication for the agency. Just keep a gross and net version - labeled as such..
An agency should not use rates negotiated for one client for another, i.e., expect an agency rate. All clients are not equal - some spend a great deal more than others. We have one agency that insists on doing this - their 2 radio clients actually spend approx the same so we did not push this. Had it been really disproportionate, we would have pushed the issue more. Separate clients, different flights, different quarters - agencies should ask for rates repeatedly, aware that season and avails can vary rates.
Value Added is now expected on agency flights but never volunteer it - make them ask. This should run 15-20% of value or frequency and should be invoiced along with the regular airtime. The buyer is not particularly picky about what the VA is - but is expected to negotiate it. So VA airtime or bonus spots run the weeks the schedule airs but normally run 5a-12m MTWTFSaSu.
Local salespeople make less commission on agency buys because there is no creative or production time or resources involved (in theory) and less sales time (definitely). It is largely, as someone else noted here, transactional business. It comes thru when it comes thru, normally on a quarterly basis. If you are in a rated market, you need to familiarize yourself with ratings and CPP. If you are in an unrated market, agencies will come fishing - sometimes on the direction of the local client. If you get the call from the agency, you will have already made that cut for the buy but can use the numbers to argue a larger share of the buy v. your competitors. The ratings are the primary decisionmaking criteria but - having worked in-agency - the ease of working with your station, your willingness to get back to them quickly on scheduling and invoicing issues, even ideas on VA and knowledge of the local market - this makes them look good to the client and can keep you on buys or bring a bigger share. Occasionally a buyer will look at a package or event sponsorship - something like that - to take to the client.
If the client is in-market, working with the agency does not preclude calling on the client occasionally so he/she knows who you are. You can drop off an interesting article you saw, tickets to something - just a casual relationship to let them know who you are, something about your station and how much you appreciate them and the agency working with you. Things change. Agencies change. Sometimes clients come back in-house. Always let your clients know you.
We pay our rep firm (regional buys) on net billing. Their preference is, of course, payment on gross - which would mean 15% of the gross to the placing agency, 15% to the rep firm and then your management paying your commission on the net as well. It's a situation of having 2 middlemen involved. That is why sales managers normally handle the rep firm business. There is absolutely no creative, production nor sales time spent on this other than quoting rates but it can be expensive airtime for your company if local salespeople get involved in it. Should your company decide to do that, the commission rate may be very low.
Negotiating rates with agencies is something your management should help you with as a policy. First of all, CPP or cost per point is what they go for the majority of the time so it is very possible to maintain rate while giving bonus and/or value added to match their desired CPP.
Note that even years are political years and any political campaigns coming in will demand 'lowest earned rate' - the lowest rate on your station within 60 days of a general election, within 45 days of a primary election. These rates do not apply to issue advertising but do apply to campaign advertising. Campaigns buy 60's 90% of the time - which is why advertisers like Menards can negotiate what they do for 30's on annual contracts. But watch your rates - especially for annuals or annual flight advertising - with this in mind.
Diane is right. Do not quote net rates and ask the agency to gross it up. You will not make friends.
I never knew about the 15% being initiated from the client side..really?? Jeez. It's not a commission...it's a discount. Where did the 1.11765 come from? That seems more confusing. We've either multiplied x .85 or just x15%.
With the 85% / 115% formula
If your net rate is $100:
$100 x 115% (1.15) = $115 gross
If your gross rate is $115:
$115 x 85% (.85) = $97.75 net
With the 1.11765 formula
If your net rate is $100:
$100 x 1.11765 = $111.77 gross
If your gross rate is $111.77:
$111.77 divided by 1.11765 = $100 net
EEK - I had an extra '1' in the second formula... sorry for the confusion
the multiplier is 1.1765 so
$100 x 1.1765 = $117.65 gross
If your gross rate is $117.65:
$117.65 x .85 = $100 net
This formula lets you keep the $2.25 difference between $100 and the net on the other formula.
My apologies.
To gross up use 1.1765 as the multiplier. To take a gross rate to net multiply by .85. This is more accurate.
Yes.
:) You're very welcome, Kate.
Jack - Wholeheartedly agree, if what you mean is "quote the agency gross rates to start with." :>)
