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PPC Agency Pricing and Costs: The Definitive Buyer’s Guide in 2016

PPC Agency Pricing and Costs: The Definitive Buyer’s Guide in 2016

As a marketing agency, one of the first things a client might ask us is, “How much will my PPC management cost?” It’s a fair question, but one that can be hard to answer right away. There are a lot of factors that go into pricing for PPC management, and quite frankly, there is no perfect PPC pricing model. Almost every agency does it 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 pricing plans that agencies offer, and hopefully give you some insight on which pricing option is the best for you.

What’s Most Valuable for You?

Determining what pay structure is right for you depends on what you believe is the most valuable aspect of a PPC Agency. Are you looking for expertise, time, results, or a combination of all of those?

The obvious choice for defining value probably seems like the results of your campaigns. However, if you’re completely new to running PPC campaigns, you may think a 5% conversion rate is incredible, but with a little more time or expertise, that conversion rate could soar to 15%.

Figuring out the most necessary qualities that define value is the best place to start when determining what pricing model works best for you. In my opinion, value is a combination of expertise, time and results.

Think about what is most valuable for you, though. Each pricing model has pros and cons, but depending on your definition of value, the pros of some pricing models greatly outweigh the cons.

Different Types of PPC Pricing Models

There are an insane amount of different pricing models that can be used for managing PPC campaigns. But the most common ones are:

  1. Charging hourly
  2. Charging based on performance
  3. Charging a flat monthly rate
  4. 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.

Charging Hourly

Pros:

  • It’s Simple: Charging hourly is an easy way to budget and it works well within the corporate mindset. You get a certain amount of hours a month, making it 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 that the agency is diving into the account and putting in the hours to work on the campaign. It’s also easy to track the amount of attention put into each campaign.
  • It Helps Prevent the Scope Increasing Without Your Knowledge: When you initially agreed on a contract with your PPC agency, the scope is laid out clearly. However, as campaigns change, so does the scope. After a year, the scope could be completely different. If you’re paying by tasks, you could be completely caught off guard by a giant invoice down the road. If you’re paying hourly, you know the price stays the same.

Cons:

  • Pricing Disconnect: Hourly makes sense to a corporate mindset, but usually that cost is around $15-$20 an hour. Most agencies charge anywhere from $100-$300 an hour, and that can stack up quickly.
  • Lots of Hours Doesn’t Necessarily Translate to Good Work/Results: Busy work doesn’t equal good work. If your PPC Agency is also building landing pages, they could spend over 10 hours on one page, only to see conversion rates drop from their previous builds.
  • Discourages Speed and Growing of Skills: When people know they’re getting paid hourly, a 2-hour project can turn into a 3 hour project. It also discourages skill growth because most clients don’t want to get an invoice for five hours of learning/research.

With the pay model of charging hourly, it may sound appealing and easy to manage. It’s easy for agencies to sell this. This model may work for you if you only need short term work or even just consulting. However, overall we don’t think paying your PPC agency hourly is the best route to take.

Charging Based on Performance

Pros:

  • Rewarding: It encourages great results. If the client makes more money, the PPC agency makes more money.
  • It’s Easy to Scale: It doesn’t take any additional negotiating or haggling. Once the price and bonuses are set, it’s easy to adjust when certain KPIs or goals are hit.
  • It Sounds Great: Performance pricing sounds like it makes the most sense. In-house employees are paid based on their performance, so why would a PPC agency be any different?

Cons:

  • Negotiating Can be Time Consuming and Complicated: While on the surface level this seems like an easy process, it can be incredibly difficult. Questions can arise like: How much weight and percentage should be put on conversions from view through attribution? How much do we take in account management costs? Service charges? Shipping costs?
  • Mistakes Made by Clients: Many times, clients want to go in and check the performance of their ad campaigns. This is fair. However, if they change something that negatively affects the campaigns, who swallows that cost? Issues like this can cause huge problems in the pay by performance model.
  • 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 that affect the performance can arise as well (tracking errors, cancelled orders, phone orders, etc.)

While paying based on performance seems like a great option from the surface level, there are so many factors that go into the performance of a PPC campaign. When things are working, paying by performance is an awesome options. When things go wrong, it’s easy to play the blame game between the PPC agency and the client, which can turn the relationship ugly.

Charging a Flat Rate

Pros:

  • It’s Simple: Again, much like the hourly rate, getting charged a flat monthly rate is easy to budget and plan for. There are no surprises when the invoice comes at the end of the month.
  • Transparency in Pricing: What you pay for is what you get. The scope of services won’t change, and you know exactly what you’re going to get out of the agency. The more you pay, the more attention you’ll get, and vice versa.

Cons:

  • It’s not Focused on Growth: If your PPC agency is getting paid a flat rate regardless, there’s no incentive for them to go the extra mile to make sure your campaigns are exceeding expectations. You want to see exponential growth, but you won’t get that with a flat rate.
  • Month to Month Prices Can Change: If you do want to see exponential growth, then the scope of services needs to change. With that comes a higher cost. Slowly increasing the scope of services over time can greatly raise the price, and the negotiation process can get complicated and messy.

Be wary of flat rate agreements. They’re easy to sell and can be appealing at first, but most of the time there is no plan to grow in the future.

Percentage of Spend

Pros:

  • Easy to Budget Originally: As the amount of Adwords spend goes up, so does the fee. If the agency is clear about their pricing models, you get a good idea right off the bat how the fees will change depending on the total spend.
  • Scalable: This goes along with the “pro” above, but it doesn’t require additional negotiating. Once you know how much percentage they take, it scales as your budget increases.
  • It’s Easy to Track: Once you know the percentage your agency takes, all you need to do is some simple math and you can align your budget in the best way to work for you.

Cons:

  • Different Goals for Client and Agency: In some cases, the agency can be more worried about the amount spent in Adwords than the ROI gained from it.
  • Client Issues: If an issue arises on the client’s site (i.e. the site goes down and Google can’t access product pages, disallowing your shopping ads), the ad account could be put on hold. If that happens and no money is spent in a week, but it isn’t the agencies fault, do they still get paid?
  • Issues with Small Accounts: If the agency works with multiple sized accounts, more time could be spent on the accounts paying more. Plus, most agencies charge the same rate for any budget under $5,000. A small business spending $1,000 on Adwords could potentially be paying the same management fee as a business spending $5,000 a month.

While this tactic can scale well for larger clients, smaller businesses can be ignored or overwhelmed.

What’s the Directive Consulting Approach?

We take a simplified approach to how we arrange pricing and costs for our AdWords management. With a simple fixed rate based on the scope of campaigns, we can optimize our efforts towards delivering the highest ROI for your campaigns regardless of spend. The true magic that results from a well managed PPC campaign is not the result of simply spending more or less; but instead, thoughtful insight. We believe that compensation should align with value created, not ad spend or time spent.