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Business Glossary


Business Definition for: advertising agency
advertising agency

independent service organization that contracts with advertisers (firms or individuals attempting to find customers for their products and services) to manage their advertising. Historically, advertising agency services are of a creative nature, but the agency concept has expanded to include research services and media planning and buying. Agencies are typically classified by the type of business they handle (e.g., financial, industrial, or consumer packaged goods) or the range of services they offer (e.g., creative, media, or full service).

Compensation for services is derived from three different sources: (1) 15% commissions from the media on the rate charged for media space or time; (2) fees charged for services (usually noncommissionable, such as a market survey); however, situations will occur when the price-value relationship between media placement and creative services is out of balance (e.g., when a client uses the same broadcast commercial for a long period of time, incurring no creative costs, but incurring millions of dollars in broadcast billing), and agencies will be compensated by the substitution of a fee system in place of the 15% commission; and (3) percentage charges on materials and services used in the preparation of advertisements; in this area, clients are charged cost plus 17.65%

The structure of a typical full-service advertising agency is shown in the table below. In smaller agencies, many of these jobs will be combined or filled by freelancers. Additionally, some smaller agencies will hire outside companies to supply the services that are provided by entire departments in the larger agency.


See also full-service agency
Copyright c 2000, 1994, 1987 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.


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