I was watching new show on TV - Mad Men.  I have it set to record on TiVo so I’ve watched each show so far.  I’m still not sure whether I like it or not but once you’ve watched a show from the start, you feel like you have to continue to watch it.  It’s about a bunch of cutthroat marketing executives in the 1960s.

Since this blog isn’t a review of television series, I obviously must have some other point to bring up this show.  And, I do.  Throughout the show, there are references to the marketing business, to make the show realistic.  In one scene, a new secretary is taken through the office to see the different departments and her marketing executive/tour guide explains how the business works. 

Ad Agencies Get 15% Discount on Ad Spends

If a company comes to an ad agency with a $5 million budget to spend on TV, radio, and print advertising, the ad agencies get 15% of that $5 million, or $650,000.  The publishers (TV stations, radio stations, newspapers, magazines, etc.) give the ad agencies a 15% discount so they can keep that as their fee for the creative and directing the clients.  Even if the client skipped the ad agency, it would cost them $5 million to buy the exact same ads.  It’s a win-win-win for each of the groups.

This is an industry standard - every company operates by the same terms so they won’t win out by price.  Since the price is constant, the best ad agencies win. 

There is No Standard for Online Ad Agencies

Companies that operate in the online world - Pay-Per-Click is the biggest example - don’t have a similar standard.  Every company has different price structures.  Some charge a percentage of ad spend (but at different amounts), some charge a flat rate per month regardless of spend, some charge per lead/sale, etc.

While every business is free to operate and sell their products and services however they want, I have to wonder if the discrepancy in pricing and pricing models is hurting this industry that is really in its infancy.

Most business owners looking for a company to help them wade through the complexity of online advertising will look for the lowest cost provider.  They don’t have the common pricing model to effectively compare performances of different online marketing agencies.  If they chose the lower cost provider, they probably won’t get results that they are looking for, souring them to the whole area of online marketing, thereby adversely affecting good online marketing businesses.

A Common Standard

Rimm-Kauffman Group has a great post about pricing models for online marketing companies.  They talk about different pricing models and the positives and negatives of each.  They also provide the pricing model that they use and I think it’s  good start:

• 12.5% of online marketing spend
• $3000 minimum fee per month
• $9500 maximum fee per month

I think it’s a good start.  It might be a little skewed for small, local businesses but at least they came up with a number as a starting point for a discussion.