Gross versus net based rate cards
|Requires the "Administrator" role or roles with similar permissions to configure network settings|
Agencies often collect a commission for their part in managing a campaign for an advertiser. Sales representatives can account for this fee in proposals. The pricing model in a rate card determines how Ad Manager calculates agency commission in a proposal. One option allows you to pass the agency fee to the publisher during billing, while the other allows you to absorb the cost of this fee. This article provides details about the two possible pricing models and how Ad Manager calculates agency commission under each model.
We'll cover the following:
You can set the pricing model to "Net" (for net-based rate cards) or "Gross" (for gross-based rate cards).
Under a net-based rate card, the agency fee is initially paid by you, the publisher, and then later passed on to the advertiser during billing. Under a gross-based rate card, you absorb the cost of the agency fee for the advertiser. Most Ad Manager networks exclusively subscribe to one model or the other and, therefore, you will only create either net-based rate cards or gross-based rate cards. However, a network with mixed rate cards is possible.
The pricing model set in rate cards does not determine if there is an agency commission for a given transaction with an advertiser. Whether or not there's an agency commission to account for is determined by sales representatives on a proposal-by-proposal basis. The pricing model set in rate cards only determines how Ad Manager is to calculate agency commission if a given proposal has to account for an agency commission.
In proposals, there are two important monetary values: the net cost and the gross cost. The net cost of a proposal is the amount you, as the publisher, keep as a result of the transaction (after billing and reconciliation). The gross cost is the amount you use to bill the advertiser. In the examples below, you'll see how these values are used differently to calculate agency commission depending on which pricing model is set in the rate card.
- Agencies can be configured with a default agency commission on their company details page. Whenever these agencies are selected as part of a proposal, the default agency commission specified on the company details page is automatically populated in the proposal. This value can still be modified by the sales representative if agency commission should vary from the default.
Specify "Net" as the pricing model for rate cards if you want to initially pay agency commission and then later pass on this cost to the advertiser during billing.
For each product you add to the rate card, you specify a product rate—that is, a starting price: for example, a $10 CPM. When a sales representative uses products from this rate card to create proposal line items, the product rate is duplicated to the proposal line item as the net rate. In turn, the net rate is used to calculate the net cost for the proposal by multiplying the net rate against the contracted quantity. For example, a net rate of $10 CPM and a contracted quantity of 10,000 impressions results in a net cost of $100 for the proposal line item.
Sales representative enter an agency commission as a percentage in proposal settings. This cost is reflected in "Cost" section of each proposal line item in the proposal. The percentage indicated for agency commission is added to the net cost and results in gross cost of proposal line items. The net cost of the proposal line item is not impacted by agency commission, and the additional up-charge is used to obtain gross cost. The agency commission can then be passed on to the advertiser during billing.
The formula for calculating gross cost is:
Each proposal line item's net cost and gross cost are summed, and these values are represented as total net cost and total gross cost respectively in the "Financial details" section in proposal settings.
Example of net-based rate card with agency commission in a proposal
Suppose that you set the product rate in a rate card as $10 CPM. A sales representative uses a product under this rate card to create a proposal line item, and the $10 CPM is replicated as a $10 CPM net rate.
For this example, assume that the net rate has not been adjusted (something possible for sales representative to do in a proposal line item) and that there are no premiums (additional charges for customized targeting). The sales representative adds a 10% agency commission, and specifies a contracted quantity of 10,000 in the proposal line item. The cost breakdown for this proposal line item would look like this:
Product rate: $10.00 CPM
Applying the formula:
$100 / (1 - 10%) = $111.11
In this case, agency commission is added to the net cost and results in the gross cost for a proposal line item.
Specify "Gross" as the pricing model for rate cards if you want to absorb the cost for agency commission.
The product rate you specify for products added to the rate card continues to be the starting price, just as in the case of net-based rate cards. However, when a sales representative uses products from a gross-based rate card, the product rate is duplicated to the proposal line item as the gross rate (instead of the net rate in the case of net-based rate cards). If a sales representative enters agency commission in this case, the agency cost is subtracted from the net cost. Under a gross-based rate card, the gross rate is not impacted. Instead, the net rate (and consequently the net cost) is reduced to accommodate the agency commission. You, as the publisher, are absorbing this fee as a result.
Since the gross rate is the starting point for proposal line items using a gross-based rate card, the formula is slightly different for deriving net cost and can be expressed as follows:
Example of gross-based rate card with agency commission in a proposal
As in the previous example, suppose that you set the product rate in a rate card as $10 CPM. A sales representative uses a product under this rate card to crate a proposal line item, and the $10 CPM is replicated as a $10 CPM gross rate.
Also as before, assume that neither the net rate nor the gross rate have been adjusted and that there are no premiums. A 10% agency commission is configured for the proposal and a contracted quantity of 10,000 specified. The cost breakdown for this proposal line item would look like this:
Product rate: $10.00 CPM
Applying the formula:
$100.00 x (1 - 10%) = $90.00
Here, we start with gross cost to calculate the net cost. The net cost is what you keep as the publisher and the gross cost is what you pass on to the advertiser. The end result is that you've absorbed the agency commission.