THE HIDDEN TAX IN DIGITAL ADVERTISING: How are your online marketing dollars working for you?

Author:Chandler, Adam

The Internet is the most-consumed media form, but whether you&'re an experienced advertiser or new to the space, digital advertising can be complex. There are countless avenues to share your message --from Facebook and Instagram to Google Ads and retargeting--each with its own rules, algorithms and reporting methods. It&'s an extremely time-consuming, yet necessary, part of your business.


There are many details to think about when purchasing digital media and the cost of digital marketing campaigns can be expensive. Particularly with respect to local marketing, budgets are often significantly less than national budgets, so every dollar counts. Without an in-house marketing manager to guide a brand&'s digital marketing efforts, many franchisors will hire an agency.

How do agencies make money? A common practice is to charge a fee, typically a percentage of the media spend. For example, if your monthly budget is $10,000 and you agree to a 40 percent fee, you&'ll pay $4,000 in fees--leaving only $6,000 for your actual media spend, called "working media." Over the course of a year, that&'s $48,000 in management fees. When every dollar counts to help you reach consumers, that money should--and can--be spent more wisely.


What&'s more is that there are other ways many agencies are deriving additional profit from clients that aren&'t always straightforward. Another common method of lowering your working media is marking up your media cost.

For example, if an agency buys media impressions (the number of ads shown per campaign) for a $5 CPM (cost per thousand impressions), they often sell those same impressions to a client for a $15 CPM. That&'s easy math. They&'re making a $10 spread on the media.

Consider this, using that same $10,000 monthly budget. At a rate of $5 CPM, you&'d receive 2 million ad impressions. But at a $15 CPM, your ad impressions are significantly reduced (666,666). You lose 1.33 million impressions that could be used to reach potential consumers. That&'s the equivalent of $6,500 in working media.

Now, if you add in the management fee previously discussed, the total working media a brand has left is further reduced. Here&'s the math:

* On a $10,000 budget with a 40-percent management fee, that leaves a $6,000 working media budget.

* At a $5 CPM, $6,000 equates...

To continue reading