The Advertising Business

June 21, 2017

Have you ever wondered how advertising works and how an advertising agency makes money? Behind the glitz and glamour, advertising is still really a business and a lucrative one at that.

In general terms, advertising refers to the promotion of goods and services (as well as companies and ideas) through media, especially television, radio and print (newspapers and magazines), but also through outdoor and non-traditional means. It is usually undertaken by an advertising agency on behalf of a corporation, which is its client. These clients bank on advertising to make their brands and products stand out in an otherwise cluttered marketplace. To do that, they depend heavily on the creativity and technical know-how of agency people.

In a nutshell, the client provides the advertising agency with a set of marketing objectives (usually to increase sales of its product or service) and a profile of the consumer groups it wants to target. Based on this, the agency creates a “brand image” through advertising campaigns on media which will, hopefully, make consumers flock to department stores and clear out the client’s shelves. The key is to make the ad campaign as creative, unique and interesting as possible.

Though they fulfill the same function, ad agencies tend to vary in size and structure. There are small one or two-person shops as well as large multinational ad agencies with offices all over the world. In advertising, though, bigger is not necessarily better as many of the smaller ad firms have established reputations as creative hotbeds. Some companies also opt to create their advertising in-house through their advertising departments.

Some agencies specialize in certain types of advertising, such as TV commercials or print ads. Agencies usually have a roster of suppliers that provide specific needs such as TV production, billboard creation and installation, talent agencies that provide actors, art design studios and the like.

And how do agencies make money? They do so by taking a 15% commission for work they produce for clients, particularly for media placements. Hence, if a client places $10 million worth of TV commercials on, let’s say, the Super Bowl, the agency earns $1.5 million or 15%. It’s not a bad way to make a living.