“You have to spend money to make money.”
At some point in your life, you’ve probably heard this tired adage.
While it’s neither novel nor iron-clad, it’s kind of the mantra the pay-per-click industry lives by. And hey, if the money you’re spending is PPC money, there’s a pretty good chance you’re going to make money on that spend. A 2016 Google report found that for every $1 spent on AdWords, businesses returned an average of $2 in revenue.
When you consider the costs of delivering a product or service, a 2-to-1 return is not awesome. We know that.
But smart, data-driven, marketers can typically do much better than just average with their campaigns. Achieving an excellent ROI on your PPC spend is very doable, so long as you’ve found a good partner to manage your ads and you have a good understanding of what you’re paying them to do.
And, of course, you’ve got to be able to track those leads and sales. So if your business is working with a marketing agency to manage your PPC campaigns, just how much should you be paying?
We jumped on the phone with our friends at New Orleans-based Search Influence to get their perspective on the topic.
Search Influence has been helping businesses succeed online since 2006. The team at Search Influence makes marketing accountable for businesses across a wide range of industries and sizes. Tracking and accountability have always been central to Search Influence’s work with clients.
How much should you be spending on PPC? Use our PPC budget calculator to get a better idea.
Common PPC agency pricing models
Before we answer the “how much” question, it’s important to be familiar with the different pricing models that PPC management agencies use for billing.
Here’s a brief overview of the three most common PPC pricing models:
Percentage of ad spend pricing
If you’re shopping for help with PPC, you’ll probably see a lot of agencies using a “percentage of spend” pricing model. Under this model, clients pay agencies a pre-determined percentage of their spend on the ads that the agency is tasked with managing.
Typically, the agency’s percentage will shrink as its workload increases, but this isn’t always the case.
Good for: Companies with a larger or growing ad spend, given the percentage reduction that comes with a total budget increase. Many agencies that use this model will require a minimum spend.
Not great for: Smaller companies with tiny budgets. Minimum spends are often associated with this model, so if your budget isn’t big enough, you’ll likely be stuck with some hefty fees to make it worthwhile for the agency to work with you.
Management fee + percentage of ad spend pricing
Many mature marketing agencies will charge a management fee to cover overheads related to the PPC ad campaigns they’re managing for clients. Like the first example, this pricing model also uses the percentage of ad spend as its baseline, just with an additional fee.
This model is going to be less prevalent among legacy media companies and commodity PPC houses. More complex campaigns are seldom static, because even small businesses have to consider seasonal marketing and promotion needs.
Good for: Customers who want transparency and ultimate ownership of their accounts. When you’re paying a management fee in addition to percentage of spend, it’s harder for the agency to justify holding accounts as “proprietary.” This model also ensures there is a budget available for A/B testing, as well as advanced conversion tracking both online and by phone, text, etc.
Not great for: Very low-cost accounts. Very small businesses are best served with automated platforms for which a pure percentage of spend makes sense.
Flat fee pricing
Some agencies will charge a flat, pre-determined fee after settling on a scope of work and calculating the static costs related to managing the client’s PPC campaigns. Some businesses prefer the straightforward nature of this model, so long as the activities and services included in the scope are clearly defined.
This is most often a simplification of the management fee plus percentage model, where the value that would accrue per the percent of spend is factored into the flat fee.
Good for: Relatively static campaigns and clients who want fixed expenses each month.
Not great for: Dynamic campaigns. Many businesses are seasonal and/or use specials to drive business. In these cases, both the management burden and the ad-spend will need to be more flexible.
Performance-based pricing
In addition to the three PPC pricing models mentioned above, on occasion, you may see a “performance-based pricing model.”
Under this model, most businesses are paying for lower-funnel actions –– think inbound calls, emails, form conversions, trial signups, demo requests, and the like. Some agencies also set up a commission rate with this model and collect a small percentage of revenue from closed sales, if they can claim responsibility for lead origination. This is most commonly seen in e-commerce and referral-based business models, and is also known as a “CTA pricing model.”
Don’t miss our webinar: How the Pros Track AdWords ROI
A look at today’s PPC rates
Using the framework of the pricing models above, let’s take a look at the costs associated with each. The rates shared below represent middle-of-the-road pricing in the PPC world.
Percentage of ad spend: 15-30%
While it isn’t incredibly common for agencies to charge rates as low as 15 percent of total ad spend, big media conglomerates can offer such terms to promising accounts by utilizing kickbacks, or performance incentives. Most agencies charge upward of 20 percent to manage PPC campaigns.
When considering a proposal that uses this pricing model, the main thing you’re going to want to ask is what’s included: Will the agency be updating ad copy? Building landing pages? Rotating ads?
Some agencies roll these PPC service offerings into a buffet model, while others are more a la carte or pay-as-you-go, where each activity is itemized as its own line on a monthly invoice.
Another variation of the percentage of ad spend PPC pricing model includes a setup fee, which you’ll find to be pretty common. Agencies charge this fee to cover important activities like landing page implementation, lead tracking with forms, calls and creative for display and native advertising.
Search Influence adds some color to the additional costs in their post, “Why Do Digital Agencies Have Setup Fees for Online Ads?”
Percentage of ad spend + management fee: 15-30%, $500-$5,000/ month
Monthly management fees are flat and fixed, and may be assessed in association with activities like ad copy updates, ad rotation, and landing page creation. Depending on the workload related to managing a particular company’s PPC campaigns, a management fee can span a pretty wide range: Typically no less than $500 a month, and up to $5,000 a month or more.
Check out our post, “AdWords and call tracking: How to enhance your PPC campaigns”
How much should you pay an agency for PPC services?
The answer to this requires you to answer a separate question: How hands-on do you want to be with your PPC management?
In Search Influence’s experience, the typical small-to-mid-sized business decision-maker simply wants to see a lift in inbound leads from activities like PPC — you might be able to relate. A lot of times, the details are tiresome and pull you out of your sweet spot.
If that’s the case, a pricing model based on the percentage of ad spend probably makes the most sense. But if you’re looking to tinker and get hands-on with your PPC ad spend, you’ll need to look for agencies that itemize their services so you can carefully manage your budget.
Most of all — as a buyer of marketing services, whether organic or paid — it’s critical for you and your agency to clearly discuss and agree upon goals and timelines before you get started.
To quote Alice and the Cheshire Cat:
“Would you tell me, please, which way I ought to go from here?” Alice asked.
“That depends a good deal on where you want to get to,” said the Cat.
Step one is always about getting clear on that very thing: Where do you want to go?
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