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Hi Pete,

My name is Kimmie and I used to work for an advertising agency that billed clients based off commission multiplier.  This method includes the media buys and the agency commission.

For example, a clients that pays a 10% gross commission, the commission multiplier is .95.  From my perspective, it makes sense to say the standard commission is 15% and deducts it from the 10% gross client agrees which leaves a difference of 5%, I then deduct this from 100% and out comes .95.
Is there a multiplying way to do this shortly?

Another scenario is a client agrees to pay a 10% net commission.  The commission multiplier is .935.  I don't know how it comes out to .935.

Any input is appreciated.  Thank you!

Kimmie,

This commission thing is DEAD (for the most part). I don't know where you are living so comments may not be relevant. In the US, Canada and most of Western Europe the agency commission is 15%. The way that one would figure out billing for that sort of rate has a similar ratio as what you are seeing in the .935 multiplier that you indicate.

Take \$100 and mark it up 7%. Most people would multiply the \$100 X 7% = \$107

BUT

This formula however is NOT representative of a 7% margin, and this is where many people miss the mark and leave a LOT of money on the table.

In order to achieve a 7% margin the formula for doing so follows:

\$100 ÷ .93 = \$107.53

You will note that on \$1000 that equates to \$5.30, \$10,000 = \$530 and \$100,000 = \$5300 and so on.

When dealing with an agencies STANDARD markup of 15% or 17.65 one would see the formula work out like this:

\$100 ÷ .85 = \$117.65

Now you ask – what the heck, where did the 17.65 come from. See the 17.65 on the \$117.65 sum from the above equation? That is the true margin of a 15% markup.

FYI… an ad in the New Yorker costs about \$160,000. The sales rep is paid a 15% commission. If you were the rep would you prefer to be paid \$24,000 for the sale of the ad or would you prefer \$28,235?

An agency billing \$10,000,000 would find a \$264,705 difference.

I'm not certain why you ask your question(s) but I trust that this will shed some light, but interested to know better why you ask.

Pete

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#### Peter Gabany

##### Expertise

Strategic planning: Objective based communicaitons, ad creative graphic design, writing, photography - buying and making, illustration - buying, print, outdoor, event, media, media planning, broadcast, how to select an agency, what the client must provide, pitching a client / being pitched

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Nearly 30 years in the business - 29 years operating an agency. Creative direction and agency management.

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