If you use or want to hire an advertising agency, you should know how they work.

Madison Avenue is a familiar name to most Americans. It’s right in New York City where some major advertising agencies headquarters are located.

This post will cover how does an advertising agency work?

Advertising agency Chicago, advertising agency New York City, an advertising agency in Los Angeles, advertising agency Boston, or advertising agency near me they are all over the place. Not as bad as Starbucks but getting there.

How many advertising agencies are there in the US?

But most of the nation’s 10,000 agencies are found outside of New York, and almost every city has at least one agency, even if it’s a one-person shop. Some ad agencies are huge, the largest worldwide.

The agency, WPP Group, as annual billings over $19 billion.

Average advertising costs for small business operations that use Google Ads as part of their online advertising strategy are between $9,000 and $10,000 per month. Click To Tweet

Sure some marketers want face to face time and search for an advertising agency near me. But there are many advertising agencies that work from a distance as well.

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Check these advertising stats out the ad industry:

  • 5.2 percent is how much total U.S. ad spending—including digital and traditional outlets like TV, radio and outdoor—will increase in 2019. That puts the new total spend at $205 billion, eMarketer says.
  • 15.9 percent is the increase in digital ad spending this year, hitting $209 billion in 2018.
  • 40.5 percent of all U.S. media spending is now digital. At this rate, the 50 percent mark might not be too far in the future.
  • 34 percent growth is expected for social network ad spending, which in 2017 will, for the first time, make up more than a quarter of digital spending. This year’s expected total for social networks, eMarketer says, will be $21.1 billion.

Mobile advertising is increasing. Listed below is the net US mobile ad revenue share by the company.

US mobile advertising

Companies obtain their advertising in different ways. And small companies, advertising is typically handled by someone in the sales or marketing department, who works with an advertising agency.

Larger companies set up their own advertising departments who are managers reporting to the vice president of marketing.

advertising firm

The advertising department’s job is to develop the total budget, approve advertising agencies ads and campaigns, and handle direct mail advertising, retail displays, and other forms of advertising not ordinarily performed by the agency.

Most companies use an outside advertising agency to help them create advertising campaigns and to select and purchase media.

76% of marketers fail to use behavioral data for online ad targeting. Click To Tweet

Even companies with strong advertising departments use advertising agencies. Agencies employee specialists who can often perform an advertising task better than a company’s own staff.

Agencies also bring an outside point of view of solving a company’s problems, along with years of experience from working with different clients and situations.

Agencies are paid partly from media discounts and often cost the firm very little. And because the firm can drop its agency at any time, and the agency works hard to do a good job.

Advertising agencies usually have four departments:

  • Creative department
  • Media department
  • Research department
  • Business department

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1. Advertising firm creative, which develops and produces ads

This is the engine of any advertising agency. It’s the lifeblood of the business because the creative department is responsible for the product. And an ad agency is only as good as the ads the creative department puts out. The roles within the creative department are many and varied, and usually include:

  • Copywriters
  • Art Directors
  • Designers
  • Production Artists
  • Web Designers
  • Associate Creative Directors
  • Creative Director(s)

 

Google and Facebook still hold the largest share of total US digital ad spend, with 38.6% and 19.9%, respectively. Click To Tweet

2. Media, which selects media placement ads

The media buying department procures the advertising time and/or space required for a successful advertising campaign. This includes internet banners, radio time, TV, outdoor (billboards, posters, guerrilla), magazine and newspaper insertions, and pay-per-click (PPC) advertising.

Case Study – Google Adwords

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3. Research, which studies audience characteristics and wants

Larger advertising agencies rely on their own research department to provide data on current and future clients. This is the department responsible for focus groups and testing, analyzing and interpreting data, and helping the creative and account teams focus on new market trends.

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4. Business, which handles advertising agencies’ business activities.

The finance and accounts department handles all the money flows. This department is responsible for handling the payment of salaries, benefits, vendor costs, travel, and day-to-day business costs.

Each account is typically supervised by an account executive, and people in each department are usually assigned to work on one or more accounts.

5.2 percent is how much total U.S. ad spending—including digital and traditional outlets like TV, radio and outdoor—will increase in 2019. Click To Tweet

Ad agencies often attract new business through reputation or size. Generally, however, the client may send out an RFP or invites a few agencies to make a presentation for its business requirements and then selects one of them.

Denver Ad Agencies

As a Denver-based advertising agency, Matrix Marketing Group, offered several ad pricing models to help startups and small businesses grow. But under some ad agencies, they stick to one model. Let’s explore one of these.

Under this system, the agency usually receives 15% of the media cost as a rebate. Suppose the agency buys $60,000 of magazine space for a client. The magazine advertising agency for $51,000 and the agency for 60,000, keeping the $9,000 in commissions.

If the client bought space directly from the magazine, it would have paid $60,000, because commissions are paid only to recognize advertising agencies.

However, both advertisers and ad agencies have become more and more unhappy with a commission system. Larger advertisers complained that they pay more for the same service received by smaller ones just because they place more advertising.

Small businesses earn an average of $3 in revenue for every $1.60 they spend on Google AdWords. Click To Tweet

Advertisers also believe that the commission system drives agencies the way from low-cost media and short advertising campaigns.

Agencies are unhappy because they perform extra services for an account without getting any more pay.

As a result, the trend is now towards paying either a straight fee or a combination commission and fee. And some large advertisers are tying agency compensation to the performance of the agency’s advertising campaigns.

Unilever, for example, is happy to work with a 15% commission if the advertising campaign is excellent if the campaign is only good, the agency should get 13%, and if the campaign is weak, the agency should get 13% and a warning. Philip Morris prefers to pay its agencies 15% and then add a bonus if the campaign is especially effective.

The key problem with these and incentive compensation schemes is how to judge whether the campaign is excellent, good, fair, or poor. The sales and commission measures can be misleading.

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Another Trend for an advertising agency.   In recent years, as growth in advertising spending a slowed, many agencies have tried to keep growing by gobbling up other agencies, thus creating large agency holding companies.

The largest of these agencies called supergroups, WWP Group, includes several large agencies.  

Worldwide digital ad spending is predicted to reach over $375 billion by 2021. Click To Tweet

These new “super agencies” offer a complete list of integrated marketing and promotions services under one roof, including advertising, sales promotion, public relations, direct marketing, marketing research, and digital marketing services.

Finding the right digital marketing agency to help your efforts is as important as picking the right partner. The agency needs to be a good fit and align with you and your team.

They need to see your company vision and be able to execute your ideas with ease and show a return on your investment.

Transparency on both sides is important. Before you sign an agreement, you need to know who will lead your company’s marketing campaign and who will be your direct contact for all communications.

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General FAQ’s

How Does an Advertising Agency Work?

Most companies use an outside advertising agency to help them create advertising campaigns and to select and purchase media. Even companies with strong advertising departments use advertising agencies. Agencies employee specialists who can often perform an advertising task better than a company’s own staff.


How can an advertising agency help a small business?

Agencies bring an outside point of view of solving a company’s problems, along with years of experience from working with different clients and situations. Agencies are paid partly from media discounts and often cost the firm very little. And because the firm can drop its agency at any time, and the agency works hard to do a good job.


Do I need a local firm to handle my advertising?

No. With today’s technologies, you can access the best talent from anywhere. With a set of good metrics in hand, a communication framework, and a project management system you will be all set. As a Denver-based advertising agency, Matrix Marketing Group, offered several ad pricing models to help startups and small businesses grow.

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