With PPC, it’s easy to find a chunk of the spend eaten away by management fees – so is there a smarter way to handle spend that’s kinder on your budgets?
At present, most agencies work via a ‘percentage of spend’ model, which sees them charge a percentage of total costs as a management fee. Typically, this is between 10 and 20 per cent, but increasingly, both agencies and their clients are starting to look at new ways of handling fees.
The current model works by delivering a ‘percentage of spend’ fee that’s usually calculated on a sliding scale, dependant on the amount invested in ads. A 20 per cent fee is a typical starting rate, with a reduction usually resulting from a higher overall spend. For example, a client with a £5,000 monthly PPC budget might pay £1,000 extra per month in fees – while one spending £30,000 might see its management fee discounted to around 15 per cent (£4,500), in line with the higher budget.
Calculating management fees as a percentage spend is a throwback to a time when PPC was seen as an extension of traditional media buying. Just as print and broadcast ad agencies would typically charge fees as a percentage of total spend, so too did digital agencies. In fact, when search engines first emerged, it was the domain of traditional ad agencies to book space on them as they would with any other medium.
It was only due to the complexity of paid search, SEO, content marketing and so on that digital agencies began to emerge as a specialism in their own right.
Agencies have been pressured into being increasingly flexible with their fees for clients with a high spend thanks to the huge amount of competition out there, as well as the need to make outsourced management preferential to taking PPC advertising in-house.
Calculating fees in the traditional way assumes that there is a proportional and constant relationship between the budget amount and the time that is needed to manage the account. However, that isn’t necessarily the case. Indeed, it’s often the smaller accounts that require more work, as they invariably need to work harder to be profitable – that means lots of hours spent fine-tuning and tweaking things to ensure they perform as well as possible.
Done properly, fees allow agencies to work profitably – charging out their team’s time in such a manner that allows them to dedicate enough to each client, but also allows them to cover the cost of the work.
Take, for example, the client with a £1,000 monthly spend and 20 per cent management fee. With an agency with an hourly rate of £80, their £200 fee would provide two and a half hours per month spent working on the account: not much time at all. In fact, this is so little time as to disservice the client – they would be unlikely to see their campaign return profitable results due to the minimal time spent evaluating impact and altering strategy to match. This is when agencies find themselves drawn into over-servicing accounts to bridge that gap – impacting on their own ability to make a profit.
It’s for this reason that many agencies now have minimum management fees as they look to ensure that each client gets a meaningful amount of time per month.
That’s all well and good for the smaller accounts, but what happens when an agency receives a much larger monthly spend? Of course, the amount of work needed here can be huge – but it’s not a given that it will be a proportionally larger amount.
Consider a £50,000 monthly spend, with a £20,000 increase in a key month. If that client pays a 10 per cent management fee, they should find themselves with 25 hours more in that month to play with. There’s no doubting that there will be extra work required – such as creating specific ad copy and keyword lists – but assigning 25 hours to these tasks based purely on the fact that that’s what the fee demands, seems arbitrary.
There are many factors at play to alter marketers’ monthly spends. They may need to account for seasonality, a competitor’s campaign, some negative press or even simply pressure from above to boost referrals – my question is whether it should automatically follow that their management fees adjust according to a pre-determined formula.
I argue not. In my view, the digital marketing industry needs to take a good, hard look at charging PPC management fees on a fixed fee basis, as they do with many other elements of online marketing campaigns.
This would equal a transparent, honest and fair system that would benefit agencies and their clients – giving client side marketers a clear understanding of how much time they should expect to see on their account each month and agencies a chance to plan their resource and team properly.
Whether client side or agency, digital marketers need to address the issue of PPC management in order to prevent spiraling costs, unfair processes and the resulting mistrust – the end result can only mean a fruitful collaboration with a successful campaign; and surely that’s what we’re all in this game for?
By Daniel Nolan, Managing Director of theEword.
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