Media Buying Companies in Canada and Net vs. Gross rate
I entered the realm of media buying after working in media for a period of nearly a decade.
I never questioned the need to hire an expert to navigate the nuances of media.
I did however, as an entrepreneur, question the unusual method by which almost all were being paid.
As a background, media buying is a old school business in need of a serious overhaul. Many companies were created around the time that AOL began distributing free trial CDs.
While radio and television has remained fairly unchanged, what we define as “media” has expanded immensely.
Social Media…Digital Media…New Media.
While you hire a media buying agency that specializes in the realm of radio and television, they will dazzle you by letting you know you don’t have to pay them directly.
In essence, most take a cut of the gross rate of a buy. The Gross Rate is what the agency charges their client for a buy. The Net rate is how much the agency was charges. The difference is their fee.
My firm operates under an entirely different structure. The math under the antiquated method is not in your favour.
For example, if an agency takes a 15% cut as a commission, what incentive do they have to get you a better deal.
In essence, any hard line negotiating they do would not be in their best interest as it would eat into their commission.
A post by agency Avenue Right, explains it like this
Just like retail clothing sales, do inventory prices change week–to-week, or month-to-month, for the same inventory? Do agencies actually know if their rates are the best? After all, in order for the net and gross rate ROI to work, they would need to ensure they’re getting the same or better rate that the media outlet is selling directly in the market or to another agency.
The fact is the same rate can be grossed up or netted down or otherwise changed, at any time. This is why the whole pitch about an agency not charging for their media buying services is being questioned and agencies who continue to use that selling point may be discredited in the future.
Many media buying agencies in Toronto will defend this type of pricing citing their expertise and negotiation skills. Frankly speaking, the math stinks.
If a media outlet knows they have to gross up a rate to account for the agency, they will be gouging you.
We offer dynamic pricing based on a clients needs, one example being taking a percentage of whatever we can save the client. In this scenario, all parties win.
Moreover, it’s not all about the money. A strong mix, timing of ads or even bonus integrated public relations is better than spraying a dollar in various directions.
That is the sort of expertise you pay for. The media buyer who knows the psychographics of an audience and when ,based on ratings, tht they might drop off. This is invaluable insider knowledge that will no doubt save any company in the short and long term.
And of course, total transparency with regard to their “take”