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» Paid Search in General, PPC Analysis & Case Studies » Why We Should Stop Measuring Our Fees By A Client’s PPC Ad Budget

Why We Should Stop Measuring Our Fees By A Client’s PPC Ad Budget

Ppc-quality-score-tshirt Regardless of you're personal and professional opinion on whether to charge a client "more" or "less" based a the client's Ad Budget, we must ask the question: Just because one client spends $1,000 more than another, does that mean I am doing less work and I have to compensate myself for that? Am I really gonna spend more time managing a $5000 per month Ad budget than say a $500 budget, especially since my rate is based on achieving a specific set of conversions or leads? Well, this SemGeek feels that it, in most cases, it should require roughly the same amount of work to optimize both. In fact, wouldn't it be more difficult to manage a smaller budget and be responsible for achieving an expected ROAS%, especially when there are less options at your disposal to optimize? Or maybe the client doesn't know what is going on behind the scenes and that's ok with them. Let's discuss a little further……

Most Agencies/Freelancers are paid by their clients in (at least) three different ways:

  1. 15% percentage of the client's PPC Ad Spend
  2. Flat monthly rate based on agreed upon responsibilities
  3. Agreed upon Performance-based Fee

Client Drawbacks from the 15% Percent of Ad Spend Monthly Service Fee

I know this is not a popular viewpoint that most agencies and CEO's may agree with, but another perspective must be given it's due. The biggest issue I have with this 15% fee business model is the fact that, (generally speaking), it's in the best interest of the Agency and not so much of the Client. Remember, in order to keep that Ad spend up and ensure they are getting the most of that 15% fee, this means that there will be very little attention to Quality Score because those best practices would mean lower CPCs and that would be detrimental to the agencies income for that client.

Screen shot 2009-12-08 at 11.09.42 AM It is this lack of focus, that will lead to an unhappy client which will then be forced to shop around for another Agency or make the investment of bringing it "in-house". It is this "Production-Line" style of PPC work that keeps Google's stock price high and the Cafeteria's continuing to serve Filet Mignon and Italian Gelato. Also,please keep in mind, this is a generalization and does not reflect any specific agency or consulting company.

The Benefits of a Flat or Performance Based Fee:

As you can tell by my opinion and content of this article, I am not a big supporter of the 15% ad spend fee structure. On the other hand, there are at least two (2) other fee structures that make more sense and are better for the client's investment. A performance based fee is a HIGH Risk scenario for the agency/freelancer that can depend greatly on some of the following outcomes:

  1. History of the company past successes
  2. Overall Profit margins to work with
  3. Attainable AOV = Average order values
  4. Limited or Unlimited Promos and offers
  5. Offline Advertising and other Media Budgets (Print Catalog, Radio & TV Spots, Spokesperson Co-Branding Deals with other Manufacturers or sponsors)
  6. Competitive Saturation and/or De-saturation
  7. Inherit nature of the products or services offered

Inherit Nature Example: (Selling complex products that require expert installation or customer service rep via live chat or phone which often leads to incorrect attribution)

As you can see, there are many ways to break down how a performance based fee would be highly beneficial for both parties based on the types of business profiles mentioned above. So, in contrary to the percentage based fee structure, it's in the best interest of the agency/freelancer to perform at their highest level in order to achieve their highest possible return in which everyone WINS.

In a similar situation, is the Flat Fee structure in that the Agency/Freelancer is required to meet and or beat the client's set of objectives and goals in order to maintain the agreed upon monthly rate. The risk is lessened because even though goals and objectives must be met to keep the relationship in good standing and increasing the potential for a contract renewal, the agency will continue to receive the same flat monthly rate regardless of increased or decrease in Ad spend.

In conclusion: Whether your a company looking for a PPC Agency or an Agency looking to expand your PPC Client base, there needs to be a better solution for both companies to not take advantage of one another. In my opinion, percentage of Ad spend of a monthly fee needs to go away because in our "Quality Score World, it's not being honest with the client. The days of bidding your way to the TOP are over, and more companies are catching one and shopping around. Furthermore, the "Production line" style of PPC is a bad habit and should not be encouraged as an ethical business practice.

Filed under: Paid Search in General, PPC Analysis & Case Studies · Tags: , , ,

4 Responses to "Why We Should Stop Measuring Our Fees By A Client’s PPC Ad Budget"

  1. andré says:

    Agree with you about the 15%, the less work you do, the better is your hour- earnings..
    We almost always use “fee pr hour”, but have agreement with the clients about max hour to work with the account by month.
    André – Norway

  2. Robert Brady says:

    I agree with you that a percentage of spend model creates incentive for the agency to act contrary to the clients’ best interests. As long as the flat fee is based on clearly defined criteria, it creates as win-win scenario for both the agency and client.

  3. Mike says:

    Good article. I totally agree that the percent of ad spend model does not place the incentives in the right place. Our search agency uses a combination of the latter two solutions. Our fees are based on certain performance criteria such as CPC savings or overall sales, etc. But, we also implement a minimum set fee, to cover us, and sometimes a maximum set fee, to cover the client, with the performance-based variable operating in the middle.
    That protects everyone involved and places the incentives in the proper role. That way, we can get compensated not just for our time, but our expertise.

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