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Advertising/commission structure


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!


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


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.



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Peter Gabany


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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