A typical advertising agency is divided into a number of departments, such as account service, research, media planning and buying, the creative department, and production. A multinational advertising agency with clients that spend hundreds of millions of dollars on advertising may employ as many as 8,000 people worldwide and up to 900 people in a major office. A local agency with clients that spend about $15 million a year on advertising may employ only about 25 people.
Advertising agencies make money in a variety of ways. When the agency uses the client’s advertising budget to buy time for an ad on the radio or on television or when it buys space for an ad in a newspaper or magazine, the media outlet allows the agency to keep 15 percent of the cost of the space or the time as a commission. The 15 percent commission has become an advertising industry standard and usually accounts for the largest portion of the agency’s income. Agencies also charge clients for the cost of producing the ads. Increasingly, agencies are charging clients a straight monthly or hourly fee for all of their services or are combining a fee with some kind of commission. Agencies have turned to this approach because clients are asking them to address a range of marketing issues rather than just producing ads. The fee arrangement pays for the time devoted to these larger marketing issues.
Once a company selects an agency, the agency assigns an account executive to act as liaison between it and the client. The account executive manages all of the services conducted on behalf of the client and coordinates the team assigned to the client's business. The account executive directs the preparation of the advertising strategy, which includes deciding how and to whom the product or service will be presented. The account executive also assigns priorities, oversees the budget, reviews and approves all recommendations before they are taken to the client, and makes sure that the agency meets all deadlines.
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