AUSTIN, TEXAS (August 4, 2020) – Directive, a next-gen and award-winning performance marketing agency for software brands has hired Rodrigo Stockebrand as the VP of Client Strategy. In this role, Stockebrand will guide the operational culture, improving the quality and consistency of Directive’s deliverable, and grow revenue through the success of Directive’s clients. He will […]
As a search marketing agency, one of the first things most clients ask us about our services is, “What is the right PPC agency pricing?”
It’s a fair question, but one that can be hard to answer right away. Numerous factors go into PPC agency pricing, and quite frankly, there is no perfect PPC pricing model.
Almost every agency handles pricing differently, but sometimes these discrepancies can cause distrust between potential clients and the agencies they’re looking to hire.
When it comes down to it, the “best” payment plans for managing PPC campaigns differ based on the exact needs of the client.
In this post, I’m going to dive into the different, most popular PPC agency pricing plans available. Hopefully, this gives you insight on which option works best for your company.
Different Types of PPC Pricing Models
For paid campaigns, there are various pricing models you can choose from. However, the most common ones include:
- Charging hourly
- Charging based on performance
- Charging a monthly flat rate
- Charging a percentage of ad spend
Let’s dive into the different pricing models now, and break down the benefits and pitfalls of each one.
This payment method is straightforward but ensures you fully comprehend the different nuances in creating and managing a Google Ads campaign. You’ll want to keep an eye on your invoices!
Exceptional Google Ads campaigns take time to set up and manage. So, depending on the complexity of your setup, this option may not make the most sense for you.
- Charging hourly is an easy way to budget and plan out.
- This works well within the corporate mindset.
- You get a certain amount of hours per month.
- It’s easy to track and budget for, especially when planning out more timely projects.
It Requires Attention and is Easy to Track
- Paying by the hour ensures your agency is diving into your account and putting in the time to work on the campaign.
- It’s simple to track the amount of attention put into each campaign because you can go into the change history of your account and see what your agency is working on.
It Helps Prevent the Scope Increasing Without Your Knowledge
- If you’re not necessarily worried about increased performance and looking more for simple management, you can set hourly limits each week. This way, you know exactly what you’re paying.
- This isn’t going to push your campaigns forward but can keep them steady and consistent.
Large Up-front Fee
- Most of the time, the initial 30 days requires the agency to do an extensive audit and re-build any parts of the ad campaigns that aren’t working (or building the whole campaign if you have no historical data).
- A strong PPC campaign can quickly take over 50 hours of research and setup to get started, which means a hefty initial investment before seeing returns.
More Hours Doesn’t Mean Better Work/Results
- Busy work doesn’t equal quality work. If your PPC agency is simultaneously building landing pages, they could spend over 10 hours on one page, only to see your conversion rate drop from previous campaigns.
- An hourly rate can encourage a lack of efficiency and additional “fluff” in weekly or monthly updates.
Discourages Speed and Growing of Skills
- When people know they’re getting paid hourly, a two-hour project sometimes turns into three.
- It discourages skill growth because most clients don’t want to get an invoice for five hours of learning/research.
When charging hourly, it may sound appealing and easy to manage. It’s easy for agencies to sell this.
If you only need short-term projects or just consulting, the hourly model might work for you. However, the cons outweigh the pros here. It discourages growth and efficiency, which is something you should be searching for when it comes to PPC management, whether through an agency or in-house.
Charging Based on Performance
There are two ways the “charging based on performance” model can be utilized, either through monthly performance (i.e., leads generated) or through milestone performance (once we hit X amount of leads or revenue from PPC).
- This method encourages results. If the client makes more money, the PPC agency makes more money.
You Get Your Job Done
- If you’re a director of marketing or a marketing manager working on getting approval from upper management, this option covers you.
- You aren’t held responsible for lost costs if the agency doesn’t end up producing.
It Makes Sense to You
- Performance pricing seems to make sense. In-house employees are paid based off of their performance, so why would a PPC agency be any different?
Can Prioritize The Wrong Metrics
- If you’re paying your agency based on leads generated, they may steer clear of higher quality, but lower quantity campaigns.
- In the agency’s mind, driving six SMB leads is better than one enterprise deal.
- If you’re paying your agency on revenue won from PPC, the agency can’t be held responsible for 50% of the sale after the initial conversion. See below:
PPC Success Isn’t Always Black and White
- There are different reasons why a PPC campaign fails, and a lot of those reasons could be entirely out of your agency’s control.
- If your pricing model or your offer doesn’t align with the competition, then a PPC campaign can only do so much.
- If people are engaging with your ads, but not converting or turning into MQLs, it’s not always inherently the campaign setup at fault.
Seasonal Trends and Data Accuracy
- With certain products or services, some months are busier than others, and the performance doesn’t necessarily align with the work going into the campaigns.
- Data discrepancies can arise that affect the performance as well (tracking errors, canceled demo requests, phone orders, etc.)
While paying based on performance seems like the best option from the surface level, keep in mind, other factors go into PPC campaign performance.
When your campaigns are working, paying by performance is a great option. However, if issues creep in, it’s easy to play the blame game between the PPC agency and the client, and can turn the relationship ugly.
From our experience, we tend to stay away from performance-based payment options.
Charging a Flat Rate
With the flat rate payment option, your PPC agency receives an understanding of your current account setup and estimates the time it will take to manage and optimize your campaign moving forward.
Caution: be wary of project or onboarding fees in this setup. Many agencies charge an initial onboarding/research fee that is much higher than the ongoing monthly management fee.
- Much like the hourly rate, getting charged a flat monthly rate is easy to budget and plan for.
- There are no surprises when your invoice comes at the end of the month.
Prioritizes Efficiency and Creativity
- Because you have a flat monthly rate, this method encourages efficiency and growth.
- As long as you get the results that you need, your agency can spend time on research, trying out new platforms to expand to, etc.
Potential Addition to Scope
- The flat rate is based on your initial scope of work (SOW) or contract. If you prefer to build out a new campaign because you launch a new product/service, this will increase the scope.
May Be Difficult to Start Small
- This model depends on the size of the agency, but for the most part, you’re not going to get an agency charging less than $3,000 for quality PPC management.
- If you have a $1,500 Google Ads budget, it’s hard to justify spending twice as much on the management fee.
A flat rate agreement makes the most sense for established brands and companies who don’t have an internal person with weekly time to manage PPC campaigns. If you’re a company who has never run PPC campaigns, it may be hard to “test the waters” with an agency that charges a flat fee.
Percentage of Spend
With the percentage of spend model, as the amount of Google Ads spend goes up, so does the fee. If your agency is clear about their pricing models, you get a good idea of how prices will change, depending on the total spend. However, you could get stuck paying more than you realized.
It’s Scalable – No Scope Creep
- This model doesn’t require additional negotiating. You should know the prices immediately.
- You don’t have to worry if adding more campaigns will drastically increase pricing because you know the additional budget and percentage that goes along with it.
It’s Good for Test Campaigns
- If you’re starting on your PPC journey and don’t have historical data or campaigns, percentage of spend may make sense for a test campaign.
- If you only want to spend $1,000 a month, the management fee will be very affordable.
It De-values Efficiency
- This type of setup encourages your agency to find costly ways to manage your campaign.
- Areas of wasted spend won’t be cut because it will directly take away from your agency’s management fee.
- If an agency convinces you to spend more money, are they prioritizing the campaign performance?
Possible Client Issues
- If an issue arises on your site (i.e., your dev. team accidentally messes up the robot.txt and Google can’t access product pages, disallowing the ads), the ad account can be put on hold.
- If that happens and no money is spent in a week, but it isn’t the agency’s fault, do they still get paid?
Small Account Struggles
- As a small account, you’re going to get either the least amount of attention or the least experienced team members, which means getting reactive solutions on your account rather than proactive.
- This could lead to more mistakes being made because of a lack of experienced specialists managing your campaigns.
While the percentage of spend can be appealing for smaller companies, it can quickly get out of hand when looking to grow by leaps in bounds. In some cases, a cap should be implemented. Fifteen percent of ad spend may make sense when you’re spending $50,000, but starts to lose its appeal when spending creeps up to $250,000 and up.
What’s Most Valuable for You?
There are many different optimizations an agency can implement when running PPC campaigns. Your goals may impact the type of payment structure that can increase ROI and bring in the right traffic to your site.
If you’re in a competitive market where the average cost per clicks are $50, a percentage of spend model may not make the most sense
The obvious choice for defining value may seem like the results your campaign sees. However, if you’re entirely new to running PPC campaigns, you may think a 5% conversion rate is incredible, when really, with a little more time or expertise, that conversion rate could soar to 15%.
Laying out the most necessary qualities that define value is the best place to start when determining your pricing model. In my opinion, value is a combination of expertise, time, and results.
Remember, each pricing model has pros and cons, but depending on your definition of value, the advantages of some pricing models greatly outweigh the contrary.
What’s the Directive Approach?
At Directive, we primarily use the flat retainer model. To us, this makes the most sense, especially in the B2B and enterprise space.
The percentage of spend and hourly rates can easily lead to a conflict of interest. We want to ensure our clients’ performance is our number one priority, and we give them the quality services they deserve. This also allows our team to take learning and research time seriously.
Also, a flat fee allows our teams to spark creativity in how they approach search engine advertising. If a Google Ads campaign is struggling, we can position our clients on third-party directories like Capterra or Software Advice. It’s important to not settle with what’s not working and discover new ways that can move the needle for clients.
Additionally, it allows our PPC specialists to regularly collaborate with our CRO designers, without jacking up hourly prices, and ensure that design elements are of the highest quality.
In the end, assess your current needs and goals to figure out which pricing model makes the most sense for your business.
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