Much has been said and written about how agencies should charge for PPC management. A lively discussion usually ensues when the topic comes up in social media. So what is the best way to charge for PPC management, anyway?
Types Of Fee Structures
Pat East of PPC Hero did a great series of posts on the various ways to charge for PPC management, so I won’t go into them in detail here. In summary, the most common methods of charging for PPC management are:
• Percent of spend
• Hourly rate
• Flat monthly fee
• A hybrid of the above
Percent of Spend Is Common
In my conversations with PPC managers, percent of spend seems to be a common way to charge. Percent of spend is a holdover from the Mad Men days of ad agencies. Back in the old days, when I started working in advertising, agencies added an upcharge over what the media charged for space or time.
For example, if a print ad cost $100, the agency would charge $115 to place the ad – they’d pay the publication $100 and pocket $15. In reality, all the agency was doing was brokering space. They weren’t “managing” any media because really, what’s to manage? Unlike PPC, which requires daily oversight, placing newspaper or TV ads is one-and-done – you buy the space or time, send in your creative, and collect a check. Agencies charged separate fees for creative, so the percent of spend was there solely to cover their time to call the newspaper or TV station.
Early in my career, I worked in advertising for a couple radio stations and the local newspaper. We hated working with agencies because of the percent of spend upcharges. Often the clients didn’t want to pay any more than the space was worth, so the agency would come to us and beat us up for a lower price.
While PPC is much different from traditional media, the percent of spend model penalizes clients for increasing their budget. And it doesn’t account for the difficulty of account management. A competitive industry could have a huge spend for a relatively simple account to manage, while a less competitive industry could spend half as much, but require a lot more work in their account to reach enough of an audience to move the needle.
An account running paid social and paid search is going to take a lot more time to manage than an account running just paid search. And what happens when a client shifts budget from search to social? I’ve seen that happen before, and suddenly as an agency you’re in the hole – you’re spending a lot more time for the same fees.
Hybrid Models Are A Bit Better
At the agency I worked for before gyro, we used a hybrid pricing model. We charged a base fee plus a percent of spend. The base fee was intended to cover routine tasks that we’d be performing regardless of the size of the account: reporting, client calls, technology, etc.
In general, the model worked well, but clients frequently got upset when their fees went up with their budgets. The base fee was still rooted in total spend – those who spent more were charged a higher base – so in essence the base wasn’t really a flat fee at all. And we still had challenges with fees not matching the workload, especially with smaller accounts that were often high-maintenance.
Flat Fee Is Easier
At gyro, we charge a flat fee. We estimate the amount of time and effort the account is going to take to manage, and arrive at the fee from there. Spend is factored in, but fees aren’t based solely on spend. Accounts with multiple programs or very complex campaigns might pay more than a simple account spending the same budget. If the client drastically changes their budget or the amount of work they’re asking us to do, we adjust the fees. We don’t change fees if the budget change is so small as to not impact the amount of work we’ll be doing.
Freelance PPC managers are a separate breed, to an extent. I’ve done some freelance work, and know a lot of people who do, too. I’ve charged both a flat fee and an hourly rate for freelance. I’m not a fan of hourly rates for agencies, but when I’m doing work outside of my “day job,” it seems to make sense. I’ll use the hourly rate for clients I’m managing indefinitely. For one-off projects, such as account audits, I usually charge a flat rate.
I’m sure some freelancers charge a percent of spend, but honestly, I wouldn’t want to do the work of calculating my fees every month, nor would I want my compensation to be at the whim of client budgets.
The Best Way To Charge
You know I’m going to say it – the best way to charge is whatever works for you. I personally am not a fan of percent of spend, but that doesn’t mean it’s wrong. Nor does it mean that a flat rate is always right. Clients with flexible budgets can get frustrated with fees that are a moving, unpredictable target as they often are with flat rates; whereas with a percent of spend, they expect fluctuations in fees.
Whatever method you choose, be clear and transparent with your clients. Make sure you’re getting paid what you’re worth and for the work you’re putting in. I see a lot of PPC pros who vastly undercharge and undervalue their time. We’re a special breed – make sure you’re paid for it!
What do you think? What are the pros and cons of the various fee structures? Share in the comments!