It’s time to tackle an outdated, and quite frankly absurd, practice that old-fashioned advertising agencies and second-tier digital marketing companies use. By the title, you can guess what that is.
Just think about it a little bit. If you’re paying a person or persons to actively manage your Google Adwords, BING Ads, Facebook Ads, etc, why should you also pay “markup” on the spend just to run it on an agency’s line of credit versus your own? Or, why is it fair to pay management fees AND a “percentage of spend” on top of that?
Here’s the crazy part…some agencies are charging 15%, 20% or even (gulp) 25% markup as well as some other form of fee. If you’re trying to generate a positive ROI, it’s virtually impossible to accomplish. Even if you’re just focusing on branding and impressions, you’re missing out on a ton if you’re tied to one of these models.
Often times there’s a convenience factor. You may be outsourcing all of your digital marketing to one company (SEO, PPC, Content Marketing, Web Maintenance, etc), and keeping everything under one roof makes sense. But does getting gouged make sense? Often times, companies that use these tactics have pretty severe markup on other passthrough costs. It’s worth exploring if nothing else.
[GET HELP WITH YOUR COMPANY’S PPC MARKETING. CONTACT US TODAY!]
Here’s a few stand-alone models that are reasonable below. If you’re getting sucked into some hybrid that isn’t one of these stand alone models, it’s time to ask some questions.
FLAT FEE FOR MANAGEMENT
This is one of the models that makes the most sense, as long as it’s the only fee incurred. For example, regardless of if you are spending $20,000 annually or $200,000 annually, the rate is the same. It’s predefined and agreed to. It’s not tied to spend, it’s tied to anticipated management time and does not fluctuate. It ensures that any increases in spend are focused on increasing ROI, not lining our pockets.
Particularly in the early stages of the relationship, it allows you as an advertiser to manage costs with a known variable. On the agency side, it also creates a steady known revenue stream that isn’t variable. *Note* This is the model we operate under, and is probably the most transparent of all models.
The drawback to this approach is that when the spend increases, our workload increases too. But the right digital consultant will focus on results, not on “selling you time”. Always remember that.
PERCENT OF SPEND
This is the model that is most widely used within the PPC industry. It comes from the traditional agency model of charging a commission of the client’s budget and thus, it’s something that may be familiar to you. I like this model because it allow agencies to be rewarded whenever your spending increases, hopefully because your seeing real ROI.
The main thing I don’t like about this model is that it can be biased to high cost keywords, or scaling high volume keywords without regards to actual work. Our larger clients would end up suffering if we taxed them a percentage of their spend versus a flat rate, because that number ends up being significant fairly quickly. It is easy to calculate and plan for.
Also, unscrupulous groups will try to force the spend, as it’s in their best interest to jack up spending just for the sake of. It makes for short, short engagements though and doesn’t do either party good in the long run.
DECREASING PERCENT OF SPEND
This is a model that has become popular lately. It’s based on a model of “the more you spend, the cheaper it gets”. For every additional $25,000 in monthly spend, your percentage for that tier may decrease by .5%. So if you’re spending $100,000 a month, you’d pay 10% for the first $50,000 and 9.5% for the second $25,000, and 9% for the last $50,000. This continues sliding as the number scales up. This is a great way to combat the “increasing spend for our own good” angle.
This makes sense when there’s one outlet being used. Juggling Adwords, BING, Facebook, LinkedIN and Instagram with this model may be tricky though. Especially if a spend increases because a new channel is introduced. It’s valid, it’s just not our preference.
This can also lead to confusion if you don’t like detailed invoices or spending time reviewing billing to make sure the numbers all add up. Still, it works.
The overall goal, again, is to make sure that you are only paying ONE of the examples above. If you’re playing flat rate management fees AND some form of spend tax or decreasing spend tax, you’re getting screwed. Hey, even if you are paying JUST a percent of spend and it’s 20% or more, you are getting a very bad deal.
There’s a robust universe of benefits to outsourced digital marketing, and there’s no shortage of companies that specialize specifically on PPC management. And guess what? We’re one of them! So if you liked what you read, drop us a line today…