Advertising Agency (Ad Agency) Definitions

Contents:

US Advertising Agency Population

Government Advertising Agency Categories

Government Advertising Agency Definitions

Industry Advertising Agency Definitions

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US Advertising Agency (Ad Agency) Population:

28,459 individual firms*

Source – Hoovers.com, April 29. 2011

Government Advertising Agency (Ad Agency) Category: SIC 7311

Establishments primarily engaged in preparing advertising (writing copy, artwork, graphics, and other creative work) and placing such advertising in periodicals, newspapers, radio and television, or other advertising media for clients on a contract or fee basis. Establishments which place advertising with media, but which perform no creative services (media buying service), are classified in Industry 7319; those which write advertising copy, but do not place the advertising with media, are classified in Industry 8999; and those which provide services in commercial art and graphics, or other creative advertising services, but do not place the advertising with media, are classified in Industry Group 733.

Government Advertising Agency (Ad Agency) Category: NAICS 541810

This industry comprises establishments primarily engaged in creating advertising campaigns and placing such advertising in periodicals, newspapers, radio and television, or other media. These establishments are organized to provide a full range of services (i.e., through in-house capabilities or subcontracting), including advice, creative services, account management, production of advertising material, media planning, and buying (i.e., placing advertising).

Industry Advertising Agency Definition

An advertising agency is a professional services firm, generally hired to conceive, produce and manage the showing of commercial messages (radio, TV, outdoor, print, Internet, etc.) as well as provide marketing and merchandising advice and general business and promotional counsel regarding the goods or services produced, distributed and/or sold by the agency’s client(s).

An advertising agency (ad agency) is independent from the client and provides a third-party perspective on the selling of the client’s goods or services. Typical agency clients include businesses (sole proprietorships, partnerships, LLC’s) and corporations, non-profit organizations and government agencies. An ad agency may be hired to produce single commercial messages or an ongoing series of related commercial messages, called an advertising campaign.

An advertising agency can be as small as one person (sole practitioner) or more than 1,000 employees. The majority of Advertising Agencies (86%) in the US have fewer than 9 employees. In general, those are considered to be small advertising agencies. If an ad agency has 10 – 75 employees, that is considered a medium-sized agency. More than 75 employees is generally considered a large agency.

The size of an advertising agency is also measured in “capitalized billings.” Capitalized billings are the aggregate total of all the measured business that passes through the agency’s hands. By example, if an agency had one client that spends $5 million each year with the agency (on print and broadcast media, etc.), that agency might declare itself with $5 million in capitalized billings. The calculation of capitalized billings becomes more complicated when a client only calls upon the agency for collateral (sales literature, flyers, etc.) work. In that case, in order to calculate the “equivalent” capitalized billings for that account, the agency may adjust those expenditures as a function of that work’s gross income to the agency. It is for this reason that capitalized billings, as an indication of agency size, is often debated.

An advertising agency with a large number of employees generally has multiple locations. In some situations, the additional offices are “service offices” located near a client facility and located there to provide nearby or local “service.” In such cases, the essence of the agency that includes creative services, production, etc. are at the headquarters location. “Service offices” are generally staffed with account personnel.

The continuing evolution of the advertising agency is such that an agency can provide far more than advertising. A full service agency is one that provides a comprehensive menu of services, including advertising, branding, direct marketing, sales promotion, package design, product placement, media planning and buying, traffic, event planning, public relations, sports marketing and an ever-evolving list of attributes that contribute to the marketing and selling of their client’s goods and/or services.

For economic reasons, and because taking on a new client includes many initial internal agency expenses that are generally meant to be amortized over time, advertising agencies prefer to establish an Agency of Record (AOR) relationship with their clients. An AOR relationship includes a contract for a stipulated duration, encompassing details regarding fees, commissions, ownership and rights, as well as termination clauses.

Work done by advertising agencies without the benefit of a contract (or written agreement) is referred to as “project work.” In that case, each and every “project” stands on its own and is priced and managed accordingly.

In considering agency candidates for hire, it is no longer sufficient to accept the term advertising agency as indicative of what the firm might provide or to assume that the firm only produces advertising.

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