Methodology for the 63rd annual Agency Report

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The 63rd annual Advertising Age Agency Report, published April 30, 2007, bases all rankings on revenue, except for media agencies, which are ranked by billings from media and diversified services.

Revenue for this report reflects the sum of agency fees; markup on materials and services; and commissions on media billings. Revenue for marketing services shops often is equivalent to gross profit (sales minus cost of sales).

Agencies generally submit revenue and other data on an Ad Age questionnaire, posted online at adage.com/arq. However, Ad Age estimates revenue for most agencies owned by publicly held marketing organizations, virtually all of whom do not disclose their financial statements to the agency level. These agency parents have not provided revenue on their agency brands since Congress passed the Sarbanes-Oxley Act in July 2002. The act was designed to tighten rules on disclosure and make the books more transparent.

In preparing rankings, Ad Age first determines an agency's type. Agencies are defined either as traditional or as marketing services. Classification as to type depends on what draws the majority of the agency's revenue. An agency must be either traditional or marketing services for purposes of the rankings. For agency rankings, marketing services is defined as direct marketing plus sales promotion plus interactive.

A shop identified as traditional appears in the agency brands ranking (Pages S-3 through S-12 in the print edition) by 100% of its revenue. An agency identified as marketing services is ranked at 100% of its revenue in the top 100 marketing services agencies ranked on Page S-15. A lengthier ranking of marketing services shops can be found in the DataCenter at adage.com.

Direct marketing, sales promotion and interactive, the three disciplines that make up marketing services in the rankings, are listed 50-deep for each discipline on Page S-16. For these rankings, Ad Age applies a 75%-rule:

Any agency, whether classified as traditional or marketing services, can appear on these discipline charts. If revenue from the discipline in question represents less than 75% of an agency's total, only the discipline's amount is shown for that agency in the chart. However, if the discipline's amount is greater than or equal to 75% of an agency's total revenue, an agency is included in that discipline at 100%--the rationale being that when interactive, for example, accounts for 75%-plus of an agency's revenue, other disciplines such as direct marketing largely support the agency's primary business.

Breakouts by discipline are becoming more difficult for agencies to determine as lines blur among marketing services offerings. Where Ad Age estimates breakouts, it runs those estimates by the agencies.

Shops classified as healthcare, more than 50% of revenue generated by healthcare, are not ranked among traditional agencies or marketing services shops in the report. They are ranked separately (see Top Healthcare Agencies, Page S-14). However, an agency with a healthcare discipline in which revenue from that discipline is less than 50% of total revenue is considered a traditional agency and ranked among agency brands.

Billings are the ranking metric for media agencies (see Page S-7). Paris-based Recma Institute projected 2006 billings for media agencies. For the 2007 Agency Profiles Yearbook (available free at DataCenter on adage.com) that accompanies the print-edition report, Ad Age converted those billings to revenue for each media agency, calling those conversions estimates.

Average annual exchange rates, posted with the questionnaires available at the website, are applied to foreign currencies. Ad Age's historic treatment of currencies leaves each year with its own rate.

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