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The truth behind PPC management fees

Are you shopping around for a PPC management company? If so, you’ll soon find out you can pay for it in a number of different ways. What are the pros and cons of each, and what vested interests are lurking out of sight? Here are the most common fee models:

Model 1: Percentage of PPC spend

A typical example:

  • You spend £1,000 on PPC
  • Agency charges 10% fee – £100
  • Your total bill: £1,100.

This model is still very common, but fundamentally flawed. The main problem is that it’s not scalable: if you want to ramp spend up – say for a special promotion – the agency is suddenly getting a fatter paycheck, even though they’re doing no extra work. Say you upped your spend from £1k to £10k:

  • You spend £10,000 on PPC
  • Agency charges 10% fee – £1000
  • Your new total bill: £11,000.

All of a sudden the agency’s fee has multiplied ten times! And unless your site has changed drastically in either content or structure, they won’t have much extra work to do. Clearly, this agency has a vested interest in getting you to throw as much money at PPC as possible, even if it’s not in your interests. It’s even in their interests to bump up your average cost-per-click unneccesarily – whether they would give in to this temptation would be down to their integrity.

Model 2: Flat rate / paid by the hour

A typical example (at £50/hour):

  • 30 hours for initial one-off setup – £1,500
  • 8 hours monthly maintenance retainer – £400 / month
  • Major maintenance jobs charged separately, e.g. 15 hours annual stock refresh – £750.

When coupled with a strong client/agency relationship, this model is highly transparent, and in my opinion, the closest match for how Paid Search really works. 99% of PPC jobs have a larger initial build time, and then a smaller (but essential) requirement for monthly optimisation, and a good agency will be able to predict the build time fairly accurately.

So how many hours does it take, exactly? That depends on many factors, including:

  • How large your website is. 3 products or 3,000?
  • How often PPC updates are required. Quarterly stock changes or twice daily?
  • Reporting requirements. Simple monthly summary, or daily reports and conference call?

Like any service charged by the hour, the potential downside is you are over-quoted and over-charged. A bad agency won’t think twice about doing this, while a good one will value their reputation over making a quick buck. So, this is a pricing model that lives or dies on trust, and the integrity of the agency involved.

Model 3: Paid On Results

A typical example:

  • You agree to pay the agency £25 per-sale
  • Agency spends £1,000 on pure media spend, and generates 100 sales for you
  • 100 sales x £25 fee = £2,500
  • Your total bill: £1,000 + £2,500 = £3,500.

This model sounds so simple – one flat-rate fee for one sale. Look under the hood, though, and a myriad of complicating factors spring out at you:

  • What about phone sales? How does the PPC agency get attributed those sales?
  • Who is responsible for your website? What if it goes down over the whole weekend?
  • What about lifetime value of the customer? The initial sale may well be the first of many.
  • What if PPC contributes indirectly, but not directly, to a sale?
  • Is an identical £100 sale worth the same to you, coming from any keyword?

The last point sounds like a no-brainer, but actually reveals a hidden vested interest of the agency. Naturally, they will want to generate as many sales as possible – any sales – to maximise their fees. Which keywords are the most likely to generate direct sales? Your brand terms! So, you can expect a paid-on-results PPC agency to max out on brand-name bidding, delivering people who are unlikely to be valuable new prospects – because they’ve typed out your company name in their search. Is this really all you want to achieve from a PPC campaign?

If your agency offers the paid-on-results model, here are some pointers for your initial meeting:

  • If your average order value varies significantly from product-to-product, you should agree on multiple fee tiers for differently-priced products (you don’t want to be charged the same £25 fee for a £20 sale). Consider removing lower-priced products from the equation altogether.
  • Discuss the brand terms issue (see above), and either cap the allowed monthly spend for these terms, or eliminate them altogether. Watch the agency run for the hills!
  • Agree on a site freeze for the duration of the campaign – i.e. no major changes to the site which the agency could later argue have lowered conversion rates, and sales volume.
  • Agree on what happens if your site goes offline for an extended period.

Model 4: Freebie

A typical example:

  • Agency spends £1,000 pure media spend
  • Agency charges no fee for PPC
  • Your total bill: £1,000.

There’s no such thing as a free lunch, and paid search is no exception. Free PPC (i.e. you pay for media spend only, with no management fee) is often thrown in as part of a bigger media package, by the bigger media agencies. Don’t expect great results – if the agency isn’t getting paid for their work, you can bet they’re not doing much of the maintenance and optimisation that’s so critical to PPC success. They’ve probably built a bare-bones account which has remained mostly untouched since launch.

This is the PPC equivalent of a cut & shut – because today’s PPC algorithms penalise low quality accounts with higher cost-per-click, you may end up paying more in click costs than a fee would have cost you anyway! So you lose twice – higher fees and lower conversion rates. The bottom line? It’s worth paying a bit extra for quality PPC management, as the lower click costs will more than make up for slightly higher fees.

In Summary

No PPC price model is perfect out of the box, but model number 2 (flat rate / paid by the hour) is often the best choice… if you have a strong relationship with your agency based on trust. But you wouldn’t want it any other way, right?

 

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