Fee structure in flux

Aug 01, 1998 9:30 PM  By

In the commission structure used by most of the list industry, brokers receive a 20% commission per list transaction. But over the years, as mailers have pressured brokers to cut costs, that 20% has become increasingly negotiable.

Today, to remain competitive, list brokers are often offering reductions in their commission percentage or are negotiating flat-fee payment arrangemens. “The mailer now looks at the list broker as a variable cost,” says Mike Doepke, director of sales and marketing for Des Plaines, IL-based Cahners Business Lists. San Francisco-based catalog consultant John Lenser agrees: “The larger mailers won’t pay that 20% anymore.”

With flat-fee arrangements, the commission is usually factored on a cost-per-thousand basis depending on the gross number of names shipped. Of the participants in the Catalog Age Benchmark Report on Lists and Databases (see July issue), 21% of catalog respondents said they negotiated a flat fee with their broker, up from 13% in 1997 (see chart).

As for a reduction in commission, while 64% of respondents still pay the full 20%, more than 15% of respondents reported that they negotiated a different commission rate. Such negotiations are usually based on volume. Depending on the relationship between a broker and the mailer, a commission could be cut 5 to 10 percentage points.

For example, stock photography cataloger PhotoDisc, which mailed more than 3 million books in 1997, has had a 15% commission arrangement with its broker for nearly three years, says Katy Klinkenberg, database and sales manager for the Seattle-based mailer.

Changing expectations “It’s almost the norm to have to do something on the commission side for the mailer,” says Susan Giampietro, senior vice president of the catalog division for list firm The SpeciaLists. “We work in a number of environments, depending on the client’s needs. We might take a reduction in commission based on volume, or in certain situations, we’ll work on a flat-fee basis.”

List brokers, then, have to work harder for more clients to make the same amount of money they’d made just several years earlier. Making matters worse, these “breaks” on commission come at a time when brokers are already dealing with the rise of cooperative databases, which are syphoning revenue from the list houses.

To prevent co-op databases from eroding their client base, brokers are promoting themselves differently. “The bar has been raised on the broker to provide additional value,” says Ben Perez, president of list firm The Millard Group.

“Brokers are no longer just list pickers,” consultant Lenser explains. “They are providing a highly sophisticated level of consulting, such as providing backend and modeling analysis.”