As a campaign vendor, understanding billing practices and the distinction between commission and markup is essential. In this blog post, we’ll explore these concepts in detail and demonstrate how to accurately calculate each option.
Gross vs. Net Rates
First, let’s clarify the difference between gross and net rates. The gross rate represents the total amount billed to the client, while the net rate refers to the hard cost of media or other items before applying markup or other fees.
Commission vs. Markup
Now, let’s examine the differences between commission and markup. Commission is a percentage-based compensation taken from the gross amount, whereas markup is the difference between your net cost and the gross rate.
For instance, suppose you purchased $10,000 in television airtime billed to the client. The station would typically pay a 15% commission. In this case, the commission equals $1,500, and $8,500 remains for media spend. It’s important to note that it is uncommon to add markup to the $8,500 media spend for television, unlike other media types.
In contrast, let’s consider markup. If you facilitated the purchase of a printed flyer for a client with a hard cost of $8,500, the additional amount charged to the client would be the markup.
Calculating Commission vs. Markup
Calculating the commission is straightforward. Multiply the gross amount by the commission percentage. In our example of a $10,000 TV ad buy with a 15% commission, the commission amount is $1,500.
Calculating markup requires a different approach. If you wanted to apply a 15% markup to the $8,500 print media cost, you might be tempted to multiply the net rate by (1 + 0.15), resulting in $9,775. However, this calculation would short you by over $200.
Instead, the correct way to calculate a percentage markup is to divide the net rate by (1 – 0.15). In our example, dividing $8,500 by (1 – 0.15) gives us a gross rate of $10,000.
As a campaign vendor, it’s crucial to comprehend the nuances between commission and markup and calculate them accurately. Doing so ensures that you neither overcharge nor undercharge your clients, contributing to the success of both parties. By understanding not just the terms but the calculations, you will manage your billing and accounting practices effectively, maintain transparency with your clients, and foster successful partnerships in the realm of political campaigns.