I know there are a lot of informed people in the industry here, so thought I'd pick your brains! :)

My production company is wanting to start up a TV ad agency. But, I'm not really sure how they typically operate? How do they price things? Where do they make their money, etc? Obviously, they buy the airtime as well...do they do that for cost, or try to make overhead on that as well? Is all their money made on airtime overhead or do they make most of their money on the actual making of the commercial? What's a typical going rate agencies charge local companies?

Anything I need to know to prevent mistakes? Thanks so much!!!

With all due respect, Jonathan, if you don't know the answers to these very basic questions you are not even remotely ready to start a business you know nothing about.

There are many similar threads in this forum; read them all going back a year or so and you'll have your answers. Google is your friend as well.

Reading between the lines, my best guess as to your motivation in being interested in this is that you think you have some great ideas for commercials. And that's possible. But read the threads and you'll find out that the idea is the single *least* important commodity in this business.

As harsh as it sounds, your best bet is to go to work for an ad agency for five years... then you'll understand how they work.

Here's a similar, although not identical, discussion:

http://www.dvinfo.net/conf/taking-care-business/145555-selling-tv-ad.html

Thanks, I understand many just want to make clever and funny videos to put on air. But, actually my background is more in marketing than video production. Trust me, I know how to sell to businesses, I can easily demonstrate my expertise to them in the area of influence/marketing.

I'm just not sure how local TV ad agencies do their pricing and how they are set up. I'd like to know the common process they use. Again, we are talking local here, not national ad agency stuff...that's a whole other ball-game.

Thanks for any help anyone can give!

TV Ad Agencies. Just saying those words out loud is enough to make me want to shut off my computer, go home, and then go to sleep. For a week.

YOUR production company? As in your own? Or a production company that you work for?

TV Ad Agencies can vary widely from one to another. Some are run by one person, others have several employees and take up lots of office space. There are agencies that are very exclusive, catering only to very specific kinds of advertising (e.g. Medical or Dental professions), and others that will fight for any and every client they can get. Some places provide video production and other services in-house, and others outsource everything to local freelancers or other businesses. I can go on, but I think you get the picture. Like video production, it is an EXTREMELY competitive industry with more than enough stuffed-shirts and over-inflated egos to go around. Consider yourself warned.

As for operation, there's not all that much special going on, but once again, different places do things differently. It is a service industry, so the best places to deal with typically have outstanding customer service and will trip over themselves in an effort to help their clients. In a typical agency, you'll probably have a sales force that seeks out new clients and maintains current client relationships. Some places will have Creative Directors or Art Directors on staff, and some won't. Lots and lots of networking is involved! Businesses may call the Agency directly or a Sales Exec. might make a cold/warm call. Sales needs to bring the revenue in, so its up to them to get clients to start paying to advertise their business. The simplified mission here is to help businesses (your clients) advertise so it can grow and then advertise more- and make more money for everyone in the process.

Where is the money made? For agencies that deal strictly with TV, the vast majority of money is made by selling airtime. Still, most agencies make their money wherever and however they can. I know some places that pad their production budget when they never did any production at all. I've dealt with agencies that nit-pick and lowball my employer's rates to the point of lunacy just so they can turn around and fatten up their own profit-margins. Some places charge extra for creative work, like script-writing or coming up with concepts. Some places have an a la carte kind of system that looks less expensive than the next agency, but it doesn't turn out that way once you've added everything up! Other places will actually charge the video production company that does the work- because the agency "awarded" that specific job to that specific company. Once again, different places do different things.

So what about airtime? Airtime is an ever-changing creature, but it's also a commodity. Depending on your market and target demographics, airtime costs can and do vary. The rules of supply and demand apply here, and it's a full-time job keeping track of trends and fads and all the things that go into making a decision about which networks to air a spot on, what times to air, and how often. Networks change the rates to keep up with trends and the current market. For instance, a couple of years ago I could buy a 30-second time slot during Good Morning America for $5. Conversely, if I wanted a 30-second slot during Lost or Grey's Anatomy, it would've cost about $350 per spot. Now, This was what 2 prices were, 2 years ago, in Anchorage, Alaska. If you go to New York City, or even St. Louis, those time slots will cost more because you're broadcasting out to a much larger audience. To find out what rates are around you, you'll need to ask around at the different on-air and cable networks. However, just asking flat out isn't always the best route. It's like walking in to a car dealership and asking how much the shiny red car with no price sticker will cost! You'll get a response that might be similar to "how much you got?"

If that's not difficult as it is, wait until you start dealing with businesses that aren't familiar with TV advertising. Annual advertising budgets of $20k are mere peanuts in the scheme of things. Of course, the million-dollar budgets are what everyone wants, but those don't come around all that often- especially if you're only sticking with locals. the big challenge is educating clients that aren't familiar with how the process is supposed to work, and re-educating those with unrealistic expectations. You'll need to know and understand how TV advertising works to succeed. If you don't know or don't want to know, then you'll need to surround yourself with those that can and will, because buying cheap blocks of time in bulk and playing the guessing game will only cause more headaches down the road.

The very short answer to your question about pricing is that it's extremely subjective. If you're only dealing locally, you'll be dealing with sales reps from the local broadcasters.

Adam's suggestion of working for an ad agency is a good one- if you want insider knowledge of how those kinds of places operate. Another way to start getting a feel for them is see if your production company can start doing some work for them. If you do lots of commercials to begin with, you'll be on the right track, but it will still take some time to get used to and fully understand how each different place works. Hope this helps.

Oh, and if you want to see what really goes down even though it's slightly out of proportion, have a look here: YouTube - Truth in Advertising (http://www.youtube.com/watch?v=Go_VtqtxCHY) It's a humorous look at putting everyone in their place.

Thanks! All good stuff. I'm not worried about getting clients as I'm a salesman and I don't mind going around and talking to business owners.

The biggest issue is the small budgets. Is there information online or somewhere that would be a great resource in what I would need to know in order to convince them? I'm thinking specifically of statistics and numbers (of local TV ads, obviously totally different than national).

All of your local TV stations as well as your cable company have ad salespeople who have already prepared elaborate PowerPoints that show all the statistics about why TV advertising is a great idea. Contact them and tell them you want to see their sales kits to show your clients.