Some agencies charge a flat fee based on your company’s advertising spend. Because there’s a correlation between the number of campaigns you have and how much you spend, your monthly fee will be higher as your ad spend budget increases because more campaigns require more time to manage. In this model, you’re simply just paying for an agency’s time. The marketing agency has already done their own research to determine how much work the average advertiser spending a certain amount will need and they’ve priced their serviced based on that average. As a result, they can simply say, “if you spend $X, we’ll charge you $X.” This probably the most common pricing model, and the one that we use for our out-of-the-box affordable PPC plans.
Pro: Fees are very predictable and easy to understand, which makes budgeting a breeze.
Con: Not typically scalable for very high ad spends.
Percentage of Ad Spend
Other agencies may charge either a percentage of your ad spend or a flat fee in combination with a percentage of your ad spend. This is a more sophisticated pricing structure that aims to charge each advertiser precisely for only what they use of an agency’s time. (This is often what we use when we provide custom quotes to prospective clients.) Typically, the percentage charged will be anywhere from 5-15%, with numbers closer to the 5% mark being reserved for larger advertisers and numbers closer to the 15% mark going toward smaller advertisers. Some agencies will offer pricing tiers where they’ll say “for an ad spend of $X-X you’ll pay X%, an ad spend of $X-X you’ll pay X%, etc.” to provide a sort of discount as you scale up your advertising efforts. The assumption here is that you’ll bring in more sales as you spend more on your marketing, which basically means that you’re paying an agency “a cut” of your profits.
Pro: Fees are highly customized and can vary significantly from month-to-month (which is helpful for seasonal businesses).
Con: Failing to shop around might cause you to pay a higher price and budgeting is not as clean month-over-month.
Bundled Marketing Plan
If an agency offers a broad assortment of marketing services, they may bundle the services into a plan that provides some of each thing. This is basically the sampler platter on the agency menu. While this approach can give you exposure to types of services that you may not have previously considered, it often also results in you being charged for things that you don’t particularly want. For instance, you may want PPC advertising, ghost blogging, email newsletters, and Facebook management, but not feel too hot about video advertising and Instagram management. With a bundled plan, you can often add-on additional services, but not remove services from the bundle or select a la carte services.
Pro: Can be cost-effective if you were already planning to use all those forms of marketing.
Con: Not customized at all, which can result in budget waste.
Tiered Service Levels
A less common form of pricing is the tiered service level model, which separates PPC offerings by the type of service you’ll receive. Under this model, an agency will often cap ad spend at a certain dollar amount and then differentiate plans using service components like phone support, regular reporting, a dedicated account representative/account manager, a performance portal to view real-time data, etc. Plans are broken down based on what kind of access to premium features they have and priced accordingly. Plans with more bells and whistles cost more and advertisers can select the one that best suits their wants and needs.
Pro: Only pay for the service features that you need.
Con: It can be difficult to anticipate ahead of time which of these features you’ll need, and each agency will have their own restrictions on how/when you can move between plans.
Bonus: Pay for Performance
Every so often you’ll find an agency pitching the idea of paying based on performance. It’s the PPC equivalent of those TV commercials for slimy lawyers shouting “You don’t pay until we win!” These always have a catch (or the amount you pay them for each sale brought in is astronomically high). Definitely stay away from this pricing model, or read the fine print REALLY carefully! (Don’t say I didn’t warn you.)
Kate Pierce is the owner of LionShark Digital Marketing LLC, a West Michigan internet marketing company. Her areas of expertise include Paid Search, Search Engine Optimization, Business Blogging and Web Copywriting. She lives in the Grand Rapids area with her husband and son and enjoys cooking, watching sports, and spending time together as a family. Like a true digital marketing expert (i.e. geek), she loves talking about current marketing trends… so don’t say you weren’t warned!