Types of PPC Agency Pricing Models

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PPC agency pricing models

Sometimes it seems like there are as many ways to pay for pay-per-click advertising (PPC) as there are PPC agencies.

This might be confusing if you’re new to the market, but the variety of PPC agency pricing models is actually good for businesses.

Every company has different needs and resources to devote to PPC, and the right pricing model for one client might be very different for another.

Understanding how PPC agencies price their services will help you make the right decision when you partner with a digital advertiser.

An informed choice could be the difference between a campaign that succeeds right away and one that struggles to move the needle.

We’ll spend some time breaking down the most common forms of PPC pricing, and try to answer the not-so-secret question on every prospective PPC’ers mind: “What am I going to get for my money?”

Define Campaign Goals and Values First

To be clear, when we say goals, we aren’t talking about New Year’s resolution-type stuff. And when we say values, we don’t mean things like honor and integrity (although none of those things are bad to have.)

What we’re talking about are the goals and priorities of your PPC campaign.

Figuring out which PPC agency pricing model works best for you will depend on your answers to these questions.

Basically, what’s most valuable for your business?

Most company’s PPC goals fall somewhere on the purchase funnel.

By determining the priorities of your campaign, you can more easily identify the agency and pricing structure that will fit your needs.

Choosing An Agency Vs. In-House PPC

Before we start breaking down which PPC agency pricing model is right for your business, we should address an underlying question: do you even need a PPC agency?

Some companies would rather bring on an in-house PPC manager rather than an agency, which does offer a few unique advantages.

For example, an employee will learn about the intricacies of your organization much faster than a third party. Also, you’ll never have to worry about getting lost in the shuffle — your in-house manager is only worried about your campaigns, and isn’t juggling other clients at the same time.

So with these benefits, why would anyone hire an agency?

Well, the fact is that most in-house PPC managers don’t work on PPC exclusively.

Usually someone with a title like “Digital Marketing Director” is responsible for multiple online initiatives like PPC, SEO, email marketing, social media outreach, and various other things.

Unfortunately, these employees rarely have the time to develop effective PPC campaigns.

The specialized knowledge, testing, and analysis required to succeed are often too much work for one person.

5 Types of PPC Agency Pricing Models

If you choose to hire an agency, even if you’re spending the same amount you’d spend on an employee’s yearly salary, you’re getting an entire team of specialists at your disposal who can provide a range of services that would be cost-prohibitive as an in-house division. Further, you aren’t limited by geography — many top PPC agencies work with nationwide or even international clients.

If an agency sounds like a better choice for your business, read on to see what types of pricing models will fit with your advertising strategies.

We’ve identified five common types of pricing models that PPC agencies use with clients:

We’ll examine the basic concept behind each model, why they work, and what to watch out for when you engage with a PPC partner.

1. Charging Hourly

We’ll start with the simplest pricing model — paying for your PPC agency’s hours on a monthly or quarterly basis, as you would for any other service or utility.

Why it Works

Types of PPC Agency Pricing Models 1Paying for a fixed amount of hours of PPC services per month is easy to budget and track.

Your monthly spend also ensures that your PPC managers have to give your campaign attention and provide regular updates on your account. And if their work isn’t successful, you’ll be able to change course quickly without throwing good money after bad.

What to Watch Out For

PPC agencies that charge for hourly work aren’t always incentivized to be proactive on your behalf. In other words, they may not benefit from growing your campaign or pursuing dynamic opportunities — they just work until your hourly budget is used up, and the rest is left up to the whims of the market.

Similarly, if your agency’s scope includes PPC, custom graphics, content and landing page generation, conversion rate optimization (CRO), and other related services, those hours can be used up awfully fast. New campaigns and initiatives might take longer to launch and test if your monthly investment has a hard hours cap.

2. Percentage of Ad Spend

In this pricing model, your PPC agency’s payment is dependent on your business’s ad spend budget. This system is far more common in the PPC world than charging an hourly rate for services.

The concept, however, is similar — as your budget increases, the amount of work your agency does increases too. Agency percentages typically range from 10-20% of ad spend, depending on the size and scope of the client.

Some PPC agencies use tiered pricing scales to standardize their clients’ monthly fees. In this example, the percentage paid to the agency adjusts according to the total budget.

Why it Works

Types of PPC Agency Pricing Models 1Pricing based on a percentage of ad spend is essentially transparent. All you have to do is follow your budget numbers to see how the growth of your account scales with your spending.

Committing to a percentage of ad spend also creates a more reliable relationship with your agency, because you aren’t re-negotiating monthly fees based on the performance of your campaigns.

What to Watch Out For

Charging based on a percentage of ad spend can incentivize agencies to focus on growing your monthly PPC budget, rather than your campaign’s ROI or ROAS. This misalignment of goals can cause friction and a less-than-successful engagement for the client and agency.

Further, this model often requires a minimum level of spending, so companies with limited budgets can get hit with fees to reach an agency’s threshold to work with you.

Also, watch out for agencies that want to “own your account” and limit your access to your campaign information.

While this can simplify your PPC efforts because you’re only paying one bill, shady agencies can use this opportunity to overcharge what you pay for your clicks without your knowledge.

2a. Management Fee + Percentage Of Ad Spend

As you might have guessed, this PPC agency pricing model is basically the same as the one above. The major addition is a management fee to cover agency overhead related to the campaigns they’re managing for you.

Why it Works

Types of PPC Agency Pricing Models 1When your PPC agency can rely on a minimum monthly payment regardless of how much they lower your ad spend, they can use that breathing room to focus properly on the actual ROI of your campaigns.

This brings the agency’s goals more in line with yours, which is a better foundation for a successful partnership.

The management fee can also be used to ensure that your agency will always have a dedicated budget for A/B testing, conversion tracking across platforms, and other tools and resources to optimize your campaign.

What to Watch Out For

Since you’re paying a higher premium for your PPC agency’s services, communicating your expectations clearly is crucial.

Take time to set the right goals and emphasize ROI and ROAS improvements over other metrics, or you could end up wasting your budget.

On a similar note, smaller businesses might be better served by automated platforms with zero or minimal fees, so that a higher percentage of the PPC budget can be devoted to ad spend.

WARNING: For Facebook ads, many unethical agencies don’t let clients access the account to check results or have access to their own audiences.

Make sure yours is not one of those.

3. Flat Rate Pricing

Flat rate or tiered pricing means that clients pay the same fee no matter the hours spent or performance from month to month.

Unlike charging hourly for specific projects and tasks, this pricing model usually serves as a retainer for a range of services and a team of specialists working toward client goals.

Why it Works

Types of PPC Agency Pricing Models 1Agencies that charge a flat rate typically focus on providing value and long-term client retention.

Because the client and agency goals are in sync, the PPC partner is motivated to improve quality across a range of indicators and improve efficiency with tools and automation.

Also, when the scope of PPC services and goals are clearly defined in the client-agency agreement, the flat rate pricing model is extremely straightforward.

What to Watch Out For

Going with an agency that uses a flat rate pricing model typically includes a commitment of both time and resources.

Many PPC partners in this niche require a setup fee and a long-term contract that will allow the campaigns to evolve and improve over time.

If you commit to a months-long contract and a guaranteed level ad spend, you could burn through your budget quickly.

Also, businesses that use specials or seasonal swings to drive business may need a more flexible ad spend and management system.

4. Performance-Based Pricing

As self-explanatory titles go, “Performance-Based PPC Pricing” is pretty strong. In this model, the agency charges per lead, so clients only pay for results. The key metric the agency typically drives is monthly lead volume.

Why it Works

Types of PPC Agency Pricing Models 1As a client, paying for performance empowers your PPC agency to produce results, which simplifies the transaction.

Setting cost-per-lead terms early also eliminates the need to renegotiate if your account grows, whereas other models might require additional investments.

What to Watch Out For

This pricing model is notorious for valuing quantity over quality. Without the right filters and criteria in place, your attention and resources will be diluted by pursuing unqualified leads.

Some PPC agencies rely on tactics that drive down a campaign’s cost per acquisition (CPA) to increase lead totals that have a lower chance of converting to qualified prospects. A narrow focus on increasing lead totals can actually bring down your ROI. (If this happens, you might as well light your money on fire.)

Not exactly a sound investment strategy.

5. Milestone-Based Pricing

Milestones are another form of performance-based pricing, but with a broader range of metrics to choose from.

Custom milestones for each client can include qualified lead generation, lower cost-per-acquisition, increased click-through-rate, and more. The goals and time frame agreed to by the client and the PPC agency determine the success of the campaigns.

Why it Works

Types of PPC Agency Pricing Models 1When an agency and a client collaborate on data-driven milestones, their goals become closely aligned.

Meeting milestones helps keep the PPC agency focused on genuine growth and account optimization.

Unlike the “percentage of ad spend” models discussed above, decreasing the cost per click in these campaigns will not negatively impact the agency’s margin.

What to Watch Out For

Working with a PPC agency that uses milestone-based pricing can require a lot of time early in the relationship.

Technical details like defining conversions and lead quality must be negotiated during the onboarding process.

Further, you’ll need to establish what metrics to track to determine the campaign’s success, and how the agency will be compensated for reaching or surpassing their milestones.

When you commit to tracking specific data with your agency, make sure you’re focused on metrics that drive results.

Numbers like Return on Investment (ROI), Return on Ad Spend (ROAS), Cost Per Conversion, Conversion Volume, and Cost Per Click (CPC) will have a noticeable impact on your PPC campaignAvoid “vanity metrics” like impressions and time on site that don’t directly affect conversions.

Finally, milestone-based agencies should be proactive and transparent with their campaign information and what they’re doing to improve.

If your PPC agency isn’t willing to share or explain their tracking data, you’re probably better of with an agency that will.

4 Questions To Avoid Getting Burned By A PPC Agency

So now you have a solid understanding of how different PPC agencies price their services. But there are still some questions to ask before you sign a contract with a PPC provider.

These four questions will help you identify any red flags during the proposal and negotiation process so you won’t get burned by an ineffective or shady agency.

1. How Long Have You Been Doing PPC?

As of right now, there isn’t an official sanctioning body for digital advertising.

Yes, there are partnerships and certifications available through Google Ads, but badges and stickers won’t tell you how effective the campaigns will be.

We recommend asking PPC agencies questions about their average client lifetime and what they do to retain clients. If the agency has been around for a while, they should be able to provide answers that put your mind at ease. Speaking with current clients and other references can also help you answer the experience question.

2. Who Will Manage My Account?

If you’re investing serious money in your digital ad spend, you probably don’t want to work with an account manager who is still learning the industry.

Ask who your account manager will be before signing up, so you can see how long they’ve done PPC or worked in the PPC field through LinkedIn.

Even if this spot check feels a little creepy, you’ll feel better knowing that someone with experience is making decisions for your campaign.

3. How Many Other Accounts Does My Manager Have?

Agencies more focused on client acquisition than results usually overload their account managers with too many clients. If your business is one of 50 semi-anonymous names in an overworked AM’s spreadsheet, your odds of success will drop every time someone else has a crisis.

Find out how many clients the account managers at your prospective agency work with at a time. The lower the number, the more time they’ll have time to do more than spin plates and put out fires whenever they pop up.

We’ve found that a ratio of roughly 10 clients per AM is best for maintaining your account and creating opportunities for success.

4. Do You Provide Other Advertising/Marketing Services?

At first glance, this might seem like a good fit.

“Hey, I’ve found someone to do my PPC and my SEO and my social media! This is great!”

To that, we say: beware the one-stop shop.

Like the in-house PPC manager discussed earlier, agencies that try to provide every digital marketing service under the sun are more than likely not going to be great at any one of them.

Of course, if you have the resources to hire an all-encompassing brand management firm that will look after your online presence, more power to you.

If not, though, stick with the specialists, especially when it comes to PPC. An effective agency should be able to produce measurable results within the timeline you agree to.

Each of the PPC agency pricing models discussed above emphasizes different metrics for success — increased lead traffic, greater client lifetime value, and everything in between.

Whatever pricing model your agency of choice uses, your campaign’s success will always be built on the goals and values you establish at the outset.

Proactive communication and understanding between client and agency are always crucial.

Oh, and investing in PPC can have an enormous impact on your business.

According to Google, the average Google Ads advertiser makes two dollars for every dollar they spend.

So choose wisely, but choose soon!

Have you worked with PPC agencies that use one of the pricing models discussed above? Tell us about your experience in the comments below!

 

Guest Writer: Johnathan Dane is the CEO & Founder of KlientBoost

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