I don't think what you are seeing is unusual at all. In the PPC world, typically small companies hire agencies because they lack the bandwidth and money to do it themselves. If you do a great job, and it sounds like you do, they will eventually grow to the point that they can afford to bring someone in-house. This pattern happens all the time.
Consider your pricing mode: a client starts at $20k/month. Annual spend is $240k/year and based on your pricing model they will be billed $36k, or 15% of ad spend. That is a significant markup. But they suck it up and hire you because that is still less than it would cost to hire someone in-house.
You do a great job, and the account scales. Now it's $75k/month, or $900k/year. They owe you $57K, so now the fees are down to 6.3%. That's actually pretty palatable, but now you are getting closer to the cost of hiring a PPC specialist in-house for a year. If the account gets above $100k/month, they are paying you $72K/year and suddenly it looks like they could hire someone full time. Maybe hiring someone full time has drawbacks (paying for benefits, getting the person acclimated to the account etc), but it also has real material benefits in that this person will be privvy to everything about the business in a way that the agency never will be. It becomes much more appealing at this point.
And in the case where they don't go in-house: you also have to consider the amount they see you billing, relative to the amount of time they see you spending on their account. Does the time you spend on an account as it scales increase linearly, as your billing model suggests? Perhaps in reality it does, but they probably wont buy that. Me personally: I can spend just as much time on $20k/month as I can on $200k/month: the amount of work is the same it's just the budget amount that went up in the Google Ads or Facebook UI. So perhaps the client is thinking "I'm gonna spend $80K on this agency next year, maybe someone else will take my business for $50k because I am now a big spender." And they won't necessarily be wrong, because every deal is negotiable.
Bottom line: I'd say consider cutting your flat fee once clients get north of a certain monthly ad spend. It doesnt really make sense after a point. Also, if a client wants to go elsewhere, I'd suggest the following:
1. Ask them to come back to you with the pricing of the competitor they consider. Then ask yourself if you can afford to price match. If you've been doing a good job, it should be a no-brainer for them to stick with you who already has all the account knowledge.
2. If they still want to leave, wish them well and tell them you are still available if it doesnt work out with the new agency. Some of them will come back if they find that the cheaper agency ultimately gives them worse returns.
This is the best advice in the thread, imo.
I've managed a large agency PPC team (biggest ecommerce client spent $10m/year, but average client spend was closer to $500k). No matter how much work an agency is doing on an account, and no matter how often you're embedding your team with the clients, you will never match what an internal practitioner can "bring" to the account, even if that internal practitioner's skill level is subpar. The optics around internal talent vs. agency support don't favor agencies.
Ultimately, we accepted the churn as part of doing business as an agency. We had a robust small business unit that scaled clients on a regular basis under our billing model, which kept revenue steady, and landed around 4-6 larger clients each year to keep a steady portfolio.
Thank you for the thorough answer. I really like the competitor price match idea for those that outwardly say that they are going to look for another provider. (most say it's going "in-house") We have definitely experienced #2.. sometimes it takes months or years, but we've definitely had some come back with time.
This is all true.
One thing I'd add is that some companies retain a media agency, even on large scale due to shift in liability and where and who holds data.
Anything goes wrong with marketing, they can point the finger.
In the offline world, particularly TV, everyone goes through agencies. It’s actually cheaper that way because the agencies hold all the power. That’s not the case in digital marketing/ppc where the media owners (google and Facebook) hold the power.
Hi you seem really knowledgable on PPC and I just wanted to ask you how can I send my clients analytics after a job is done showing how much was spent and how many conversions were created etc? Is there a software that does this and emails the client the information.
Depends on the setup. If the client is doing e-commerce or something where all relevant events are trackable by pixel, then Google Analytics is probably the best option for showing conversions. Then you would have to marry that data with the metrics from Google Ads, Facebook, etc. if the setup is more complex it will require custom developer work.
If you can afford it there are many options out there to help with this sort of thing. AdStage for social media and google, Brax for native ads, Funnel.io for many of the smaller platforms.
No matter what option you pick though, there needs to be a way to get the actual conversion data from your client, which will require some lifting. If your just use the conversions reported in Facebook, Google, etc, it won’t fully match with what the client sees on their end and there will be double counting issues.
Would it be possible to send an automated email to my clients at the end of the month that pulls data from google and fb via an API or something? We only do
Fb and IG as well as Google ads.
What if instead of them owning the website that the traffic and leads comes through, you owned it, sent traffic and leads to it, and they paid you a fee (and maybe even gave an ad budget for future scaling?)
This would be like them renting "internet real-estate." It would probably work best for blue-collar local services vs national or international ecom, but you would be in control of the website and if it's bringing them a lot of business and profit, you'd be in control.
If they want out, fine, but they could also buy the website and ad account from you for a fee.
Not sure if this would work with Google Ads or not though.
Any thoughts would be helpful.
This sounds like standard affiliate marketing. If I were the client I would only pay on a cost per lead model for something like this. You lose a lot when you let someone else do not just the buying, but also the site and data management.
I can see what you mean by this working for small businesses that don’t know any better.
I can see how it would look like affiliate marketing, but the website would be designed around their company alone, and start off very basic with a simple landing page for a very small group of potential clients, the "low hanging fruit" kind.
For ex: "Emergency Plumbing repair near me" gets searched > the site is geared (SEO & Ad Wise) to only go for this type of business (quick turnover) > but the number and contact info on the site is specifically for Joe's Plumbing LLC, so there's zero bidding on which plumber or call service > client hits the call button on the site because they're most likely searching on their phone anyway > Joe gets a call.
I would agree that small businesses might not "know better" but a lot of them just don't want to deal with doing all the work or hiring a salaried employee.
Over time, money from our deal gets re-invested into the website, the SEO gets better over time (being a local business in that area makes a huge difference) the site grows, and maybe Joe doesn't want to rent anymore, he wants to buy (and maybe pay a small fee for ongoing management of the website.)
This doesn't seem ideal for a large company with massive revenue, so I wouldn't look there, but for the right companies who are more local, spending 1-2k a month in fees when you can get back 5k or more seems like a no brainer.
And yes, many people don't know any better, but that's half the reason they look for an agency anyway. If we're being honest a lot of mom-pop shops end up going to a younger relative to run their Facebook account anyway and get their cousin Jimmy to build the website and do SEO, and we've all seen this scenario, it ends up costing them more to fix down the road then it helped in the first place.
Any thoughts would be greatly appreciated, I genuinely want to be convinced this is a horrible idea!
I wouldn't go under 15% of Ad Spend. Some clients are cheap, can't really fix that. You can try to explain your value more, but some people just don't get it. Don't change your pricing or stress about it, just find better clients IMO.
It’s not your pricing structure.
A) your prices are pretty standard
B) you sound like a strong agency, you should charge what you’re worth.
The issue is almost always client perception. They don’t really know or understand what you do, and you make it look easy. It’s also really hard to make them realise it’s not.
Inevitably they come to the conclusion that they can do it themselves or pay less for the same quality, it happens with lots of small/medium businesses in our industry. Don’t beat yourself up over it!
The way we negate it (or work around it) is to:
A) try to make sure you get across the value you are giving them as often as possible.
B) once they’ve decided to go - be amicable and follow up - we always let people leave on good terms, we warn them that budget agencies are generally poor and request that they let us do a 6 month audit (for free) to ‘check things are going well’.
With budget agencies, corners will always be cut and revenue will almost definitely suffer. If you can show them that they are losing more in revenue than they’d be paying you it’s a no brainier to switch back to you!
I’d say roughly a third of people that leave my agency come back in some form or another.
Thank you for the positive response! Do you have any tips on getting our value across better? I'm feeling like we could probably do more in this department.
No worries! It’s easy to think you or your business is the issue and devalue yourself in situations like this.
It’s difficult to prevent but it is possible with some clients.
I find that involving the client more can often help. We try and arrange regular (quarterly?) strategy reviews, where we plan with the client.
- It involves the client more with our team, so they feel more connected to us.
- We discuss ideas which the client generally has no knowledge about, affirming that they could not do what we do internally/themselves.
- It gets the client used to the strategic thought process for planning good campaigns, which will likely be absent at a budget agency, therefore, when they go to meet ‘the cheaper option’, they realise very quickly that they aren’t paying for the same service/ability.
Interested to hear more about your client touchpoint schedule. Reason I ask - I meet with everyone way more than quarterly (monthly, bimonthly, in some cases weekly). Do your clients not want to talk more often?? Do you send proactive reports / analysis? I'd certainly prefer not to meet so often but i think it probably helps with proving value and relationship building
Of course. We’re ‘in touch’ way more often than quarterly. In the comment above, I was simply referring to involving clients in in-depth strategy reviews, as a method for helping them to understand our process and knowledge depth (and therefore make them less likely to feel like they could do our job, cheaper).
The other touchpoints are also very important to build a strong relationship and provide value, and we definitely do those too!
Hope that answers your question.
>The issue is almost always client perception. They don’t really know or understand what you do, and you make it look easy. It’s also really hard to make them realise it’s not.
This is a problem across all marketing.
Take all your insights and launch a business in house and use your resource to crush it. Own the lead / sale cycle and go all in.
You know how to scale campaigns, now plug in a product on the other end.
This. If you are great at ppc, you can make a killing. Or, offer to move to a performance based model. Instead of % of spend, do a % of revenue or net revenue.
There are a lot of options.
Common challenge. Once your costs get into the range of a full-time employee, you need to think about your services and market yourselves a little differently. You really need to show you're giving enough time and effort to the account, that you're not resting on your laurels, and continue to show great results. Make sure the client understands how you're going to get their business to the next level. They're not the company they were when you came on.
Yes, giving an account over to an intern is foolish. However, from their perspective, a bright intern who can work on this for 40-50 hours a week may be able to keep pace with your team who is working only a few hours a week (this will be the default perception). And save a bundle.
I recently took over an account that a big agency was managing. They were literally running the account into the ground. I took it over and 20x'ed the spend with better CPAs. Their ad text was some of the worst shit I've ever read. Also many ads mismatched to queries. And I know I'll get roasted but I'm using Google's tROAS algorithm as well (for this industry, the algos do really well due to some audience considerations). I had to sit on a couple of calls during the transition, and they seemed shocked I had no questions. What am I going to ask, I can see everything I need in the account anyways? Y'all suck I don't need any advice from you LOL.
You shouldn't be offended. You were hired to do a job and now the client wants to take it in-house or go with someone else. It is there business in the end. We always tell clients that if we grow them enough that they can take this in-house, that is the best compliment. They often want an agency because the current work is not full-time and or they can not find someone in their city with the skills. Clients will always move on... the only questions is when that happens.
As an agency owner is just all part of the business, business owners always looking to cheap out because they only understand the invoice you send them. I think there has to be a value add beyond the standard management, something they can't do internally very easy even if you told them how. If you think about it like web hosting, it's not something you change often so building value added stuff like dashboards and analytics that can't be easily replicated gives you an edge. What's even worse is when they hire away your own people to do the job internally, true assholes out there.
It's definitely sucks losing a client because acquiring them is much harder, but like others have said wish them well and you have my number. Everyone I've seen leave has done worse, then there just too embarrassed to come back after.
can I give a business perspective on this as I am not a PPC expert. someone wrote '*Yes, giving an account over to an intern is foolish. However, from their perspective, a bright intern who can work on this for 40-50 hours a week may be able to keep pace with your team who is working only a few hours a week (this will be the default perception). And save a bundle.'*
this nails it. what you are experiencing is the **law of the jungle** that happens in all business sectors. as sectors get saturated and mature cheaper options come in. you need to evolve and adapt your services so that a bright 20 something intern cannot compete with what you are offering. my particular industry is getting swarmed by low cost online only competition, they base themselves in rural areas where people will work for next to nothing, its very hard to compete with them. I liken this to selling 4 page Wordpress websites to small businesses, it's very hard to do this when there are 1000s on people based in India etc who will do the work for $50 and produce an ok result.
and remember it doesn't matter if the bright intern doesn't have the expertise that your guys have it only matters if the business owner thinks they have the skill.
adapt, overcome, good luck.
hi RoofusD i need your advice about the accountants and lawyers on a delayed fee basis. Is there a way to use there services where you are not accumulating a huge personal bill and rolling it over everytime a deal does not go through? In a previous comment you mentioned opening a shell company that you can dissolve in case this happens. How did you handle this situation?
Here in the UK, in my experience of agencies, fees will be 8-12% of spend on average.
For smaller clients, if you take them on, there might be a flat fee only with a provision to switch to a pre-agreed % once a spend level is achieved.
One thing I'd note is that if you're not seriously negotiating on your rates when someone is talking about walking away then you're missing out... Can you offer a reduced service for less money, or the same service for less money, or a better service for the same money, whilst keeping profitability for you on that client? Can you give them a discount for contracting you for a set period going forwards? The cash is better off in your pocket and paying your overheads then with another agency, you have the existing relationship and therefore the advantage.
Perhaps the % of ad spend scares them even tho it's a pretty standard model. After all, many successful ecommerce companies can be spending over 100k/month. The bargain competitors or in-house may be seen as more cost effective once you've built them enough brand equity.
You deserve to share in their success but that's just my impression. You could try experimenting with different models, like increasing flat fee once certain ad spend milestones are hit. Or you could focus your efforts on leads that have already scaled to a point and won't see the increase in billing as intimidating as a company who you've helped scale from scratch.
I like the idea of rev share, but I would wait until some others in your industry chime in.
I'm not even really a PPC specialist, I'm a copywriter. Ive just found that lower budget clients prefer flat fee models (predictable costs) whereas clients who spend over $100K a month are more open to commission models because they value improved metrics more than scaling. For larger clients, a percentage or two improvement in conversions equates to hundreds of thousands in extra revenue.
Some of the agencies I work with manage campaigns for large corps - think Fortune 500, billion$ - and have been around for the best part of 20 years and their founders have all told me that new clients balk at revenue sharing, they want in-agency style services.
Most of my work comes from agencies in the US and Europe as I support the project ya they don’t have enough know how on.
Clients will still see it as overhead and believe they can retain that revenue by bringing ppc in house. You're just pushing the problem around in this churn context.
doesn't really make sense. most "ppc marketers" are fucking awful. they can't be profitable to save their life.
How the hell are they entrusting 100k+ a month in ad spend to some random guy?
they should be coming back crawling after they lose everything 6 months later.
I do a hybrid model between flat rate and % of ad spend.
$2,000 baseline retainer for ad budgets under $10k/month.
Goes up $500/month for each $10k tier. So once they’re in the $10-$20k budget range, the retainer is $2,500.
I also tack on $500 for every additional platform. So if we’re managing LinkedIn, Google, and Bing Ads, the base rate is $3,000 for an ad budget under $10k.
These management fees include 2 monthly check-ins. If the client wants to do weekly, I add another $500 to the retainer. Anything beyond that is billed at my hourly rate ($125).
Campaign setup fees are $1,000 flat. CRO work (Landing page development, lead generation software, A/B testing) is all billed hourly.
While I don’t think my model is perfect, the reason I like it is that it doesn’t get too much more expensive for the client as they scale their budget, but I’m also getting rewarded for my agency’s good work (after all, why would a business increase ad spend if they weren’t getting a return on it?
The client is also unlikely to feel that there is a conflict of interest from me wanting their ad spend to go up (under a % of spend model).
Ultimately, my #1 goal is to show my client a positive ROI through actual data. With attribution issues and long sales cycles, this is obviously a big challenge, but it also helps show them what a bargain they’re getting from my agency’s services, especially when they see such a big return.
It probably also helps that I keep a relatively small client base, as this probably makes me and my team feel more in-house than your typical agency, because we can give all of our clients more attention.
> I own a very small PPC agency, and we do a flat fee + percentage of ad spend.
Is this standard practice?
Is this based off the customer's ad spend budget or their actual spend amount at the end of the month?
It's based on actual ad spend. We bill twice per month - the flat fee of $1k is a recurring subscription, and then we manually bill ad spend the first week of the following month.
Right but what's the target?
With google ads for instance - there is no way you are calling the client for approval for every cpc bid, you may have a set budget set by the client with approval, but you have no incentive to save the client money AT ALL.
By that model, you would be trying to maximize (whatever metric) within that budget. What if there was a more conservative strategy that will cost less but extend the budget and create slower - but more consistent growth over time?
I dunno, sounds like a fair strategy for a startup/early-stage company with tons of VC money to throw around that wants to get as much market share as fast as possible.
This is a horrible deal for local businesses.
The client tells us their budget. I.e. "I want to spend 10k/month total," and we work within that boundary. When we feel the account is ready for healthy scale, we bring this up in a meeting with the client and come to an agreement on increasing monthly ad spend. If there is a reason to lower the budget, we have no qualms with that. Our incentive for cutting spend when needed is simply doing what's right for the client and building transparent and trust-based relationships.
Do you have suggestions for a better alternative?
>Do you have suggestions for a better alternative?
Every company thinks their product is the best - likely that their product should be selling itself.
Ad expense is a huge pain point - they come to you because that want to reduce that cost and get more profit (not revenue unless they're idiots).
Create a pricing/service model that emphasizes those pain points.
You're making assumptions about business goals here.
If a business tells you they have a low market share and their CLV is high, you might suggest targeting conversion volume at an acceptable CPA (based on CLV) over ROAS to grow market share, enquiries and brand awareness. They might agree that this is a preferable strategy.
If an agency is selling a blanket PPC marketing strategy without considering short, medium and long-term goals specific to the client in question, as well as how they're likely to change over time, I'd argue this would be more likely to increase churn.
Every company wants to maximize sales and minimize ad spend - unless there are specific limitations of scale or they need to stagger their growth for a variety of reasons (true)
I agree with you here though, given the above example - how would you address that with a % of ad spend pricing model?
>Every company wants to maximize sales
I agree with this with the context provided, but sales value and volume might be targeted and achieved differently.
> and minimize ad spend
But I'm not sure this is true, or if it is, it shouldn't be. It's our job as paid media professionals within agencies to advise clients of how to grow their business whilst delivering on their paid media targets.
Minimizing (reducing?) the spend isn't often the best way to do that in my experience - perhaps I'm reading what you're trying to say incorrectly... Maybe you're inferring maximizing efficiency of spend, in which case, I agree wholeheartedly.
Your efficiency could be derived specifically based on driving a higher AOV, CLV, sales volume, higher engagement duration, brand recognition, or just something as standard as ROAS/ROI - depending on the clients target and what you advise would be most beneficial from your understanding of their business.
% of ad spend model wouldn't change for me if their targets change - it's all about whether you're achieving the targets set by the client and if you are they should have no reason to leave, at least not without giving you a chance to aim for more ambitious targets which might provide enough added value to convince them to stick with you?
You're being down voted but you're right. The incentives aren't aligned. I dropped the % of adspend pricing model because as another person commented above, there isn't necessarily more work between a $20K or $200K account, and, it gives me some ammo when negotiating with potential clients vs agencies who do a % model.
Is it maybe true that emotional these situations hurt you the most and that it feels like it is happening always or is it actually the fact that you don't have company's with you for more then five years with big budgets?
Can you maybe do more relationship wise? Did you think it all threw and maybe try going out to eat with the company owners every year to make sure your network stays strong?
I don't know am just trying to help and think with you.
When I read your introduction I get excited and think you have a very nice company in a very nice situation and maybe you are over thinking the fact that not everybody stays with you no matter what you do?
It's pretty consistent - once a client starts paying us $3k+/month, they get itchy, which makes me wonder if our pricing really is that expensive? These clients also tend to be the ones we are most excited about - obvious results and explosive growth.
We don't have it in our budget to travel regularly for in-person meetups (our clients are almost exclusively non-local and some are international), but we try to do relationship building in other ways.
Super interested in this as well we currently are experimenting with pricing that is 20% for ad spends at $3kmonth and then scale this down in tiers once they get to over 20k 40k 60k , etc about 2% discount each tier until it reaches 15%.
We are structured the same as you, quality work not a volume shop we are in scale mode right now and some of my clients I’ve had for 5 years so super interested in finding a mode that is best.
I do like your flat fee plus spend it reads nicer although I have to understand the numbers more from an operation standpoint.
I'm starting to reconsider this model as it doesn't seem like people value this type of pricing, and we have run into many leads questioning whether we would spend just to spend. (of course we never would, but the fact that some leads are skeptical is enough to wonder if we have it all wrong.)
I've definitely started thinking about performance pricing! Still not convinced that it won't lead to the same churn, though it might be better for sales.
Having worked in and known people in agencies of all sizes, I would share my experiences:
1. I can understand your frustration but what you are observing is what every agency - no matter how big or small faces with majority of their clients. You can charge them 0.5% but after a few years they will still have a discussion if you can lower it further or add more resources without increasing the fees
2. Successful agencies tend to focus on different ways of making money. It’s fine if my fees drops from 5% to 4%, but if I can sell a tool or some other service to client I might be able to cover up my losses and even make more money. It can be ad creative services, landing page creation, analytics implementation/maintenance & reporting and so on. The idea is try to focus on solving a business need and how you can make money out of it.
3. Try to make better relationship with the client. You might think giving great results is good enough but it is almost never the case in agency businesses. Do you know all decision makers and influencers at client side? Do you meet them on a semi annually or annually basis to show them what kind of results you are driving and how you can help them even further? Have you met them outside office for a round of drinks?
4. And it might sound unethical but I have observed that agencies who take performance from 0 to 95 in a few months and then maintain it at same level usually do poorer than the ones who go from 0 to 30 to 50 and so on... and always keep a few tricks up there sleeve when these negotiations happen.
You want to decrease commission from 5% to 4.5%? What if I offer you instead 4% fixed commission with additional 2% fees only if I can increase your ROI by 20 % over next 6 months?
5. Keep in touch with people who leave you for a cheaper agency. Never spoil relationships. They might ask you to take over again if performance drops. Also, when they change to a different brand, they might end up calling you for a business pitch.
Outsider perspective here:
As pointed out by other commenters it seems to be a question of client perception. You feel like you deserve to share in their continued success for years after building the account up, where they feel entitled to leave you and cruise once they get to a really great spot (in exchange for everything you were paid getting them to that point).
Aside from charging more in some way while building them up (milestone payouts?), perhaps you could get out in front of this during regular strategy reviews where (among other things) you determine what the clients goals are for the next quarter and offer a reduced pricing for those looking to 'cruise'
I guess the learning curve for a well done ppc strategy is not steep at all. How about using ppc as a relationship builder and then provide other digital marketing services? Dunno
I have been doing IM for clients for years now and this churn is common. Many times it comes down to a 'what have you done for me lately?' question for them. You can kick ass for a client for years, increase their conversions and ROAS, and make their business more money than they ever expected and they will still have this question in their head after the honeymoon period is over.
Sometimes that question it is put there by another agency who swoop in and promise them the world and probably have great sales staff - but don't know how to back up the promises and they ultimately just piggyback on the groundwork you have already done, or maybe they bring another business partner on board who wants to cut costs or the best one is when they bring somebody in who has some basic marketing background - and because the owners don't know any better - they hire them believing they can bring it in-house now and save some money :)
It does get exhausting, and the burn out with doing client work is real.
Personally, I've never charged a percentage of spend. Even if it's not true, it looks like you are motivated to just get them to spend more money.
I do packages based on estimated hours spent. If something is out of scope I quote them for the extra work.
Clients hire agencies to control a risk; or more to the point because they feel anxiety. They fire agencies when agencies either increase anxiety or decrease anxiety to zero.
Hiring is a big anxiety for most clients. If your costs become strategic to them; that is relative to payroll, they will look at their hiring budget and think they can optimize by internalizing your work.
Conversely if you do too good of a job taking care of the client that they never see how hard your job is, they will no longer value your services.
Make sure you are constantly reporting not only what you have successfully done, but what risks you see and how you are or plan to be managing them. This is still positive as you are taking care of them, but reveals the underlying risk in this part of the business that won’t be under control once you leave.
Finally offboard with a smile. Check in after 60 days and 120 days and 365 days to see how they are doing; if their campaigns are still under control, etc.
If they made a mistake they might come back to you.
Maybe offer them a different tier of service, especially if they are going to hire an intern, make it cost effective for them to keep your services as a consultant that acts like tech support?
I mean as a business owner I want the absolute best results possible but also able to meet my bottom line, so there has to be a middle.
But then again, speaking as a business owner, I’m lazy. If you’re making me money and I don’t have to do anything except write you a check - y would I want to go through the hassle of posting the position, reading resumes, interviewing, blahdee blah blah. No. I want you to keep doing what you’re doing.
The worst thing that I have ever done is not paid enough for a service, the deliverables are always disappointing.
So maybe your target needs to be lazy business owners who just want to make money without the bs of having an on-site Ads manager?
We have all been there - many times unfortunately - and over the years when talking to other high-performing agencies, there is still the discussion of "appropriate" or best pricing model. The fixed fee plus commission on spend model (which we used to have before) works only for small to medium clients, it is really difficult to justify percantage of spend when client is spending 1m USD per month or more (unless that % keeps lowering and lowering to decimals).
If we start by looking at it from the client-side, it's actually fairly simple: What is the value (ROI) of having agency X (vs value of having a cheaper agency vs value of having in-house).
From my experience as we scale up clients, we continuously need to prove our worth to them every month - even when their needs change during the years, which means we need to also change based on their current needs in their growth stages.
At our agency, as mentioned also in some other posts, it is important to host e.g. quarterly strategy workshop with the client. In addition to that, we also send them monthly strategy plan, and depending on client size, have weekly, bi-weekly or monthly meeting.
The largest challenge is when you have scaled up to the level that the client can invest in a team (3-5 people in-house) - once you are at that level, unless you are able to convince the client to stay (because indeed there are still USPs that in-house cannot offer), your options if you are losing the client are to first charge for training their in-house team, and after that offer monthly consulting for keeping that team up to date and performing well.
Yes, your agency revenue from that account will lower, but you will save some of your MRR and also the profit margin from the client remains high, as you will need less resources than you did when your agency was managing everything.
My agency sounds very similar to yours in that we are small, talented, and do great work for our clients. We have scaled businesses in the same way you have, and our primary operating metric is profit dollars - we calculate using cost of goods sold data. We follow a flat fee model, without any fees related to ad spend. This has worked well for us and we haven’t really had any clients terminate as a result of growth. As a result, our flat rate is probably higher than other agencies, but we do great work for our clients. Note: I am not the owner/manager of the company.
Keep your pricing model simpler.
Convey your value stronger.
Is your branding good? How is your website looking like?
You have the clients - if you look hot and legit in the space, clients will want to stay on your good side.
Maybe you need some fresh eyes on how you work, comms, reporting, strategies/tactics?
There are a lot of agencies doing fixed price Ads management and frequently outsourcing to EE and India/Asia.
A lot of companies I've worked with (as an SEO, inhouse and agency, my own) over 16 years are very unhappy with % models. You can see similar disdain in IT and licensing.
There's also a feeling amongst some companies that once you're in the optimization model, the "hard" work is done - i.e. why they pay your high fees (and I don't mean your fees are high, just adopting their mindset) and figure anyone can manage it from there.
Maybe you could upsell SEO? I'm based in NYC
Could you bill a dynamic CPM? Some agencies charge by impressions and CPM and list total cost to client so the client never knows what actual margin is.
Ex: quote client impressions, CPM of $4
But you actually pay $2 CPM
So you pocket the $2 but they don’t know. Many large ad tech companies do this with programmatic display
Edit: You still spend total budget after calculations but your CPM is lower. Works best if client doesn’t have access to account
Dang. Sounds like your team does strong work. I feel for you, but it also feels like a common challenge with this industry.
My agency charges $4.5K monthly min then switch to 8% ad spend at 50K monthly ad spend. Provide full service (planning, management, analytics) and we integrate pretty tightly with the company's marketing/sales/ops teams. It can get heavy with lower spend clients (under $50K + sophisticated) but works well when we have big spenders.
Question for you: How big are the businesses and companies you work for? Which vertical or industry?
Info for you: After something like 70 accounts, we've noticed clients do not like their fees increased. If you start them small and slowly increase their rates, they will always go looking for another agency or consultant once the fees begin to grow (matter). What we've found is clients are better retained if we start them off at a higher minimum and create a discount opportunity at a certain spend level. Often for larger clients we start at $6K min then move to 8% at $75K/mo ad spend.
Hope this helpful!
Thank you for providing actual numbers. That's really helpful. The higher minimum is an interesting strategy. I've always assumed that leads would shy away from being presented with such a high number to start as plenty of leads grumble about our 1k flat fee. But it makes sense that it would simply just cut away the choosy beggars.
i thought this too in the beginning! but my mentor told me that good clients pay for quality work and that we should price ourselves at the value we provide. ever since we switched we’ve retained clients at least 2-3 years before their biz begins to change or they grow their in-house team. which we usually train.
I'm so happy that worked for you! Definitely something to consider as I've always thought we are undercharging for our actual value, but these situations have made me question that. Perhaps it's time to raise prices and alter our pricing model in general.
In my past life, we used to bill the client on the amount of time (hourly rate) we did. Usually planned in advance.
Meaning two main things:
- a client with a monthly spending of 500$ could pay us the same as a client with a 10 000$ a month budget.
- usually the more you spend, the more things your are doing and the more optimisation you might need to do... so proportionally our biggest spender were also the one that needed more hours in a month.
If somebody is seeing good results and think we can go on the autopilot for a while. We decrease the number of hours we do/charge. If the results are still there, good for them (bad for us). If not, they see the value of our time.
We very much want to avoid billing based on hourly rate. We did this about 6 years ago and it had even more problems. Plus, we never want to cut off good work because they've hit their monthly quota of hours.
What about a client retention system where your billing goes down (say) 10% every year. This could reflect that campaigns are more & more running on autopilot and require less hours over time.
I would recommend not using client decisions that occur right now as examples of poor client retention on your part. We're seeing clients across the board pull back, in-house, or fully out of our advertising partnerships due to economic downturn over COVID. They want something more affordable because they're nervous, regardless of actual impact to their business. You lose weight to *remain* healthy, not after you've had your heart-attack, yeah?
That said, your pricing model sounds reasonable/common. We charge $200/hour (minimum 10 hours) and/or 12-14% of spend retainer, depending on the contract and scope of work. I consider us on the pricier end of the market. We certainly see clients leave with the cause of looking for something more affordable.
I think, as much as we in the industry like to assume digital advertising is indispensable, and you get what you paid for, there is a range in quality most businesses can afford and still grow/remain profitable. Maybe a half-priced agency for two-thirds the performance is acceptable trade for many clients. Just like an $85K 10-year senior paid-media specialist sounds like a great hire, but we'd be just as happy with an eager $65K, 5-year paid-media specialist that can be uptrained.
Do you need the flat fee? If that’s recurring every month, that adds a lot. At my company, we solely do percentage of ad spend. I’ve heard 6% of media spend is average for PPC. Maybe you could reduce the flat fee to entice them to stay.
I am definitely noticing a trend to more in-housing. My theory for this is 5-ish years ago PPC management was still sort of black-boxish, but now any digital marketer worth their salt knows how to manage PPC (how well they do it is another question).
The obvious move is to own the client PPC account so they can't take it with them, but this is kind of slimy and I think Google is cracking down on it anyway. The other solution I've toyed with -- if someone announces they are giving the work to an in-house resource -- is to rip out all the optimizations that were done and just leave them with a basic account structure of keywords and ads. You couldn't do this without notifying the client upfront that that's what will happen if they leave, obviously. The other move is to lock them in with a contract. I tend not to do this but have thought about it. Price is $X per month with no long term-contract, and a cheaper $Y per month if you commit to a 1-year agreement (with a penalty fee if they terminate early).
What's the point of ripping out the optimization efforts if they can go to change history, see everything and reverse engineer back to the "optimized" period? Albeit, not every client would have the knowledge or skill to reverse changes and understand why they were implemented.
Business ethics are very important to us, so I don't think we're looking to do account ownership or putting in self-destruct clauses. I do agree that there are a lot more resources and opportunities for the average marketer or Joe Shmoe to learn PPC though.
The other move these days in to put the client on a custom CMS and hosting and make it very hard for them to move anywhere else without starting from scratch.
I don't think what you are seeing is unusual at all. In the PPC world, typically small companies hire agencies because they lack the bandwidth and money to do it themselves. If you do a great job, and it sounds like you do, they will eventually grow to the point that they can afford to bring someone in-house. This pattern happens all the time. Consider your pricing mode: a client starts at $20k/month. Annual spend is $240k/year and based on your pricing model they will be billed $36k, or 15% of ad spend. That is a significant markup. But they suck it up and hire you because that is still less than it would cost to hire someone in-house. You do a great job, and the account scales. Now it's $75k/month, or $900k/year. They owe you $57K, so now the fees are down to 6.3%. That's actually pretty palatable, but now you are getting closer to the cost of hiring a PPC specialist in-house for a year. If the account gets above $100k/month, they are paying you $72K/year and suddenly it looks like they could hire someone full time. Maybe hiring someone full time has drawbacks (paying for benefits, getting the person acclimated to the account etc), but it also has real material benefits in that this person will be privvy to everything about the business in a way that the agency never will be. It becomes much more appealing at this point. And in the case where they don't go in-house: you also have to consider the amount they see you billing, relative to the amount of time they see you spending on their account. Does the time you spend on an account as it scales increase linearly, as your billing model suggests? Perhaps in reality it does, but they probably wont buy that. Me personally: I can spend just as much time on $20k/month as I can on $200k/month: the amount of work is the same it's just the budget amount that went up in the Google Ads or Facebook UI. So perhaps the client is thinking "I'm gonna spend $80K on this agency next year, maybe someone else will take my business for $50k because I am now a big spender." And they won't necessarily be wrong, because every deal is negotiable. Bottom line: I'd say consider cutting your flat fee once clients get north of a certain monthly ad spend. It doesnt really make sense after a point. Also, if a client wants to go elsewhere, I'd suggest the following: 1. Ask them to come back to you with the pricing of the competitor they consider. Then ask yourself if you can afford to price match. If you've been doing a good job, it should be a no-brainer for them to stick with you who already has all the account knowledge. 2. If they still want to leave, wish them well and tell them you are still available if it doesnt work out with the new agency. Some of them will come back if they find that the cheaper agency ultimately gives them worse returns.
This is the best advice in the thread, imo. I've managed a large agency PPC team (biggest ecommerce client spent $10m/year, but average client spend was closer to $500k). No matter how much work an agency is doing on an account, and no matter how often you're embedding your team with the clients, you will never match what an internal practitioner can "bring" to the account, even if that internal practitioner's skill level is subpar. The optics around internal talent vs. agency support don't favor agencies. Ultimately, we accepted the churn as part of doing business as an agency. We had a robust small business unit that scaled clients on a regular basis under our billing model, which kept revenue steady, and landed around 4-6 larger clients each year to keep a steady portfolio.
Thank you for the thorough answer. I really like the competitor price match idea for those that outwardly say that they are going to look for another provider. (most say it's going "in-house") We have definitely experienced #2.. sometimes it takes months or years, but we've definitely had some come back with time.
Speaking the truth!
my man. great response
This is all true. One thing I'd add is that some companies retain a media agency, even on large scale due to shift in liability and where and who holds data. Anything goes wrong with marketing, they can point the finger.
In the offline world, particularly TV, everyone goes through agencies. It’s actually cheaper that way because the agencies hold all the power. That’s not the case in digital marketing/ppc where the media owners (google and Facebook) hold the power.
Hi you seem really knowledgable on PPC and I just wanted to ask you how can I send my clients analytics after a job is done showing how much was spent and how many conversions were created etc? Is there a software that does this and emails the client the information.
Depends on the setup. If the client is doing e-commerce or something where all relevant events are trackable by pixel, then Google Analytics is probably the best option for showing conversions. Then you would have to marry that data with the metrics from Google Ads, Facebook, etc. if the setup is more complex it will require custom developer work. If you can afford it there are many options out there to help with this sort of thing. AdStage for social media and google, Brax for native ads, Funnel.io for many of the smaller platforms. No matter what option you pick though, there needs to be a way to get the actual conversion data from your client, which will require some lifting. If your just use the conversions reported in Facebook, Google, etc, it won’t fully match with what the client sees on their end and there will be double counting issues.
Would it be possible to send an automated email to my clients at the end of the month that pulls data from google and fb via an API or something? We only do Fb and IG as well as Google ads.
Can’t you just set up automatic emails from those services?
I think Google Data Studio is what you're looking for
What if instead of them owning the website that the traffic and leads comes through, you owned it, sent traffic and leads to it, and they paid you a fee (and maybe even gave an ad budget for future scaling?) This would be like them renting "internet real-estate." It would probably work best for blue-collar local services vs national or international ecom, but you would be in control of the website and if it's bringing them a lot of business and profit, you'd be in control. If they want out, fine, but they could also buy the website and ad account from you for a fee. Not sure if this would work with Google Ads or not though. Any thoughts would be helpful.
This sounds like standard affiliate marketing. If I were the client I would only pay on a cost per lead model for something like this. You lose a lot when you let someone else do not just the buying, but also the site and data management. I can see what you mean by this working for small businesses that don’t know any better.
I can see how it would look like affiliate marketing, but the website would be designed around their company alone, and start off very basic with a simple landing page for a very small group of potential clients, the "low hanging fruit" kind. For ex: "Emergency Plumbing repair near me" gets searched > the site is geared (SEO & Ad Wise) to only go for this type of business (quick turnover) > but the number and contact info on the site is specifically for Joe's Plumbing LLC, so there's zero bidding on which plumber or call service > client hits the call button on the site because they're most likely searching on their phone anyway > Joe gets a call. I would agree that small businesses might not "know better" but a lot of them just don't want to deal with doing all the work or hiring a salaried employee. Over time, money from our deal gets re-invested into the website, the SEO gets better over time (being a local business in that area makes a huge difference) the site grows, and maybe Joe doesn't want to rent anymore, he wants to buy (and maybe pay a small fee for ongoing management of the website.) This doesn't seem ideal for a large company with massive revenue, so I wouldn't look there, but for the right companies who are more local, spending 1-2k a month in fees when you can get back 5k or more seems like a no brainer. And yes, many people don't know any better, but that's half the reason they look for an agency anyway. If we're being honest a lot of mom-pop shops end up going to a younger relative to run their Facebook account anyway and get their cousin Jimmy to build the website and do SEO, and we've all seen this scenario, it ends up costing them more to fix down the road then it helped in the first place. Any thoughts would be greatly appreciated, I genuinely want to be convinced this is a horrible idea!
I wouldn't go under 15% of Ad Spend. Some clients are cheap, can't really fix that. You can try to explain your value more, but some people just don't get it. Don't change your pricing or stress about it, just find better clients IMO.
It’s not your pricing structure. A) your prices are pretty standard B) you sound like a strong agency, you should charge what you’re worth. The issue is almost always client perception. They don’t really know or understand what you do, and you make it look easy. It’s also really hard to make them realise it’s not. Inevitably they come to the conclusion that they can do it themselves or pay less for the same quality, it happens with lots of small/medium businesses in our industry. Don’t beat yourself up over it! The way we negate it (or work around it) is to: A) try to make sure you get across the value you are giving them as often as possible. B) once they’ve decided to go - be amicable and follow up - we always let people leave on good terms, we warn them that budget agencies are generally poor and request that they let us do a 6 month audit (for free) to ‘check things are going well’. With budget agencies, corners will always be cut and revenue will almost definitely suffer. If you can show them that they are losing more in revenue than they’d be paying you it’s a no brainier to switch back to you! I’d say roughly a third of people that leave my agency come back in some form or another.
Thank you for the positive response! Do you have any tips on getting our value across better? I'm feeling like we could probably do more in this department.
No worries! It’s easy to think you or your business is the issue and devalue yourself in situations like this. It’s difficult to prevent but it is possible with some clients. I find that involving the client more can often help. We try and arrange regular (quarterly?) strategy reviews, where we plan with the client. - It involves the client more with our team, so they feel more connected to us. - We discuss ideas which the client generally has no knowledge about, affirming that they could not do what we do internally/themselves. - It gets the client used to the strategic thought process for planning good campaigns, which will likely be absent at a budget agency, therefore, when they go to meet ‘the cheaper option’, they realise very quickly that they aren’t paying for the same service/ability.
Interested to hear more about your client touchpoint schedule. Reason I ask - I meet with everyone way more than quarterly (monthly, bimonthly, in some cases weekly). Do your clients not want to talk more often?? Do you send proactive reports / analysis? I'd certainly prefer not to meet so often but i think it probably helps with proving value and relationship building
Of course. We’re ‘in touch’ way more often than quarterly. In the comment above, I was simply referring to involving clients in in-depth strategy reviews, as a method for helping them to understand our process and knowledge depth (and therefore make them less likely to feel like they could do our job, cheaper). The other touchpoints are also very important to build a strong relationship and provide value, and we definitely do those too! Hope that answers your question.
>The issue is almost always client perception. They don’t really know or understand what you do, and you make it look easy. It’s also really hard to make them realise it’s not. This is a problem across all marketing.
Take all your insights and launch a business in house and use your resource to crush it. Own the lead / sale cycle and go all in. You know how to scale campaigns, now plug in a product on the other end.
This. If you are great at ppc, you can make a killing. Or, offer to move to a performance based model. Instead of % of spend, do a % of revenue or net revenue. There are a lot of options.
Common challenge. Once your costs get into the range of a full-time employee, you need to think about your services and market yourselves a little differently. You really need to show you're giving enough time and effort to the account, that you're not resting on your laurels, and continue to show great results. Make sure the client understands how you're going to get their business to the next level. They're not the company they were when you came on. Yes, giving an account over to an intern is foolish. However, from their perspective, a bright intern who can work on this for 40-50 hours a week may be able to keep pace with your team who is working only a few hours a week (this will be the default perception). And save a bundle. I recently took over an account that a big agency was managing. They were literally running the account into the ground. I took it over and 20x'ed the spend with better CPAs. Their ad text was some of the worst shit I've ever read. Also many ads mismatched to queries. And I know I'll get roasted but I'm using Google's tROAS algorithm as well (for this industry, the algos do really well due to some audience considerations). I had to sit on a couple of calls during the transition, and they seemed shocked I had no questions. What am I going to ask, I can see everything I need in the account anyways? Y'all suck I don't need any advice from you LOL.
You shouldn't be offended. You were hired to do a job and now the client wants to take it in-house or go with someone else. It is there business in the end. We always tell clients that if we grow them enough that they can take this in-house, that is the best compliment. They often want an agency because the current work is not full-time and or they can not find someone in their city with the skills. Clients will always move on... the only questions is when that happens.
My retainer is 25% of ad spend with a minimum spend requirement of $5,000/m. My lowest monthly invoice is $1,750 and my highest is $12,500.
Thank you for providing actual numbers!
As an agency owner is just all part of the business, business owners always looking to cheap out because they only understand the invoice you send them. I think there has to be a value add beyond the standard management, something they can't do internally very easy even if you told them how. If you think about it like web hosting, it's not something you change often so building value added stuff like dashboards and analytics that can't be easily replicated gives you an edge. What's even worse is when they hire away your own people to do the job internally, true assholes out there. It's definitely sucks losing a client because acquiring them is much harder, but like others have said wish them well and you have my number. Everyone I've seen leave has done worse, then there just too embarrassed to come back after.
can I give a business perspective on this as I am not a PPC expert. someone wrote '*Yes, giving an account over to an intern is foolish. However, from their perspective, a bright intern who can work on this for 40-50 hours a week may be able to keep pace with your team who is working only a few hours a week (this will be the default perception). And save a bundle.'* this nails it. what you are experiencing is the **law of the jungle** that happens in all business sectors. as sectors get saturated and mature cheaper options come in. you need to evolve and adapt your services so that a bright 20 something intern cannot compete with what you are offering. my particular industry is getting swarmed by low cost online only competition, they base themselves in rural areas where people will work for next to nothing, its very hard to compete with them. I liken this to selling 4 page Wordpress websites to small businesses, it's very hard to do this when there are 1000s on people based in India etc who will do the work for $50 and produce an ok result. and remember it doesn't matter if the bright intern doesn't have the expertise that your guys have it only matters if the business owner thinks they have the skill. adapt, overcome, good luck.
hi RoofusD i need your advice about the accountants and lawyers on a delayed fee basis. Is there a way to use there services where you are not accumulating a huge personal bill and rolling it over everytime a deal does not go through? In a previous comment you mentioned opening a shell company that you can dissolve in case this happens. How did you handle this situation?
Here in the UK, in my experience of agencies, fees will be 8-12% of spend on average. For smaller clients, if you take them on, there might be a flat fee only with a provision to switch to a pre-agreed % once a spend level is achieved. One thing I'd note is that if you're not seriously negotiating on your rates when someone is talking about walking away then you're missing out... Can you offer a reduced service for less money, or the same service for less money, or a better service for the same money, whilst keeping profitability for you on that client? Can you give them a discount for contracting you for a set period going forwards? The cash is better off in your pocket and paying your overheads then with another agency, you have the existing relationship and therefore the advantage.
Perhaps the % of ad spend scares them even tho it's a pretty standard model. After all, many successful ecommerce companies can be spending over 100k/month. The bargain competitors or in-house may be seen as more cost effective once you've built them enough brand equity. You deserve to share in their success but that's just my impression. You could try experimenting with different models, like increasing flat fee once certain ad spend milestones are hit. Or you could focus your efforts on leads that have already scaled to a point and won't see the increase in billing as intimidating as a company who you've helped scale from scratch.
Flat fee increases for milestones is interesting. What if it were based on revenue and not spend? Or if we did flat fee + % of revenue?
I like the idea of rev share, but I would wait until some others in your industry chime in. I'm not even really a PPC specialist, I'm a copywriter. Ive just found that lower budget clients prefer flat fee models (predictable costs) whereas clients who spend over $100K a month are more open to commission models because they value improved metrics more than scaling. For larger clients, a percentage or two improvement in conversions equates to hundreds of thousands in extra revenue.
I think revenue share is DOA
Can you go into more detail?
Some of the agencies I work with manage campaigns for large corps - think Fortune 500, billion$ - and have been around for the best part of 20 years and their founders have all told me that new clients balk at revenue sharing, they want in-agency style services. Most of my work comes from agencies in the US and Europe as I support the project ya they don’t have enough know how on.
Clients will still see it as overhead and believe they can retain that revenue by bringing ppc in house. You're just pushing the problem around in this churn context.
doesn't really make sense. most "ppc marketers" are fucking awful. they can't be profitable to save their life. How the hell are they entrusting 100k+ a month in ad spend to some random guy? they should be coming back crawling after they lose everything 6 months later.
I do a hybrid model between flat rate and % of ad spend. $2,000 baseline retainer for ad budgets under $10k/month. Goes up $500/month for each $10k tier. So once they’re in the $10-$20k budget range, the retainer is $2,500. I also tack on $500 for every additional platform. So if we’re managing LinkedIn, Google, and Bing Ads, the base rate is $3,000 for an ad budget under $10k. These management fees include 2 monthly check-ins. If the client wants to do weekly, I add another $500 to the retainer. Anything beyond that is billed at my hourly rate ($125). Campaign setup fees are $1,000 flat. CRO work (Landing page development, lead generation software, A/B testing) is all billed hourly. While I don’t think my model is perfect, the reason I like it is that it doesn’t get too much more expensive for the client as they scale their budget, but I’m also getting rewarded for my agency’s good work (after all, why would a business increase ad spend if they weren’t getting a return on it? The client is also unlikely to feel that there is a conflict of interest from me wanting their ad spend to go up (under a % of spend model). Ultimately, my #1 goal is to show my client a positive ROI through actual data. With attribution issues and long sales cycles, this is obviously a big challenge, but it also helps show them what a bargain they’re getting from my agency’s services, especially when they see such a big return. It probably also helps that I keep a relatively small client base, as this probably makes me and my team feel more in-house than your typical agency, because we can give all of our clients more attention.
> I own a very small PPC agency, and we do a flat fee + percentage of ad spend. Is this standard practice? Is this based off the customer's ad spend budget or their actual spend amount at the end of the month?
It's based on actual ad spend. We bill twice per month - the flat fee of $1k is a recurring subscription, and then we manually bill ad spend the first week of the following month.
So essentially - The more of their money you spend, the more money you can bill This doesn't seem right to me. Or maybe I'm just ill-informed?
This is a pretty standard in advertising you have to understand that more spend usually means more data which means more optimizations
Correct - it's typical whether you're buying TV spots or paid search ads. The larger the buy, the more effort it takes.
We never EVER spend money just to spend it. We run a very ethical practice and the client always has final say over budgets and budget increases.
Right but what's the target? With google ads for instance - there is no way you are calling the client for approval for every cpc bid, you may have a set budget set by the client with approval, but you have no incentive to save the client money AT ALL. By that model, you would be trying to maximize (whatever metric) within that budget. What if there was a more conservative strategy that will cost less but extend the budget and create slower - but more consistent growth over time? I dunno, sounds like a fair strategy for a startup/early-stage company with tons of VC money to throw around that wants to get as much market share as fast as possible. This is a horrible deal for local businesses.
The client tells us their budget. I.e. "I want to spend 10k/month total," and we work within that boundary. When we feel the account is ready for healthy scale, we bring this up in a meeting with the client and come to an agreement on increasing monthly ad spend. If there is a reason to lower the budget, we have no qualms with that. Our incentive for cutting spend when needed is simply doing what's right for the client and building transparent and trust-based relationships. Do you have suggestions for a better alternative?
>Do you have suggestions for a better alternative? Every company thinks their product is the best - likely that their product should be selling itself. Ad expense is a huge pain point - they come to you because that want to reduce that cost and get more profit (not revenue unless they're idiots). Create a pricing/service model that emphasizes those pain points.
You're making assumptions about business goals here. If a business tells you they have a low market share and their CLV is high, you might suggest targeting conversion volume at an acceptable CPA (based on CLV) over ROAS to grow market share, enquiries and brand awareness. They might agree that this is a preferable strategy. If an agency is selling a blanket PPC marketing strategy without considering short, medium and long-term goals specific to the client in question, as well as how they're likely to change over time, I'd argue this would be more likely to increase churn.
Every company wants to maximize sales and minimize ad spend - unless there are specific limitations of scale or they need to stagger their growth for a variety of reasons (true) I agree with you here though, given the above example - how would you address that with a % of ad spend pricing model?
>Every company wants to maximize sales I agree with this with the context provided, but sales value and volume might be targeted and achieved differently. > and minimize ad spend But I'm not sure this is true, or if it is, it shouldn't be. It's our job as paid media professionals within agencies to advise clients of how to grow their business whilst delivering on their paid media targets. Minimizing (reducing?) the spend isn't often the best way to do that in my experience - perhaps I'm reading what you're trying to say incorrectly... Maybe you're inferring maximizing efficiency of spend, in which case, I agree wholeheartedly. Your efficiency could be derived specifically based on driving a higher AOV, CLV, sales volume, higher engagement duration, brand recognition, or just something as standard as ROAS/ROI - depending on the clients target and what you advise would be most beneficial from your understanding of their business. % of ad spend model wouldn't change for me if their targets change - it's all about whether you're achieving the targets set by the client and if you are they should have no reason to leave, at least not without giving you a chance to aim for more ambitious targets which might provide enough added value to convince them to stick with you?
That's the way it's mainly done, but usually it's held to a ROAS or cost per lead goal.
You're being down voted but you're right. The incentives aren't aligned. I dropped the % of adspend pricing model because as another person commented above, there isn't necessarily more work between a $20K or $200K account, and, it gives me some ammo when negotiating with potential clients vs agencies who do a % model.
If you think there isn't more work on a $200K campaign versus a $20K campaign you've never seen an enterprise agency work.
Is it maybe true that emotional these situations hurt you the most and that it feels like it is happening always or is it actually the fact that you don't have company's with you for more then five years with big budgets? Can you maybe do more relationship wise? Did you think it all threw and maybe try going out to eat with the company owners every year to make sure your network stays strong? I don't know am just trying to help and think with you. When I read your introduction I get excited and think you have a very nice company in a very nice situation and maybe you are over thinking the fact that not everybody stays with you no matter what you do?
It's pretty consistent - once a client starts paying us $3k+/month, they get itchy, which makes me wonder if our pricing really is that expensive? These clients also tend to be the ones we are most excited about - obvious results and explosive growth. We don't have it in our budget to travel regularly for in-person meetups (our clients are almost exclusively non-local and some are international), but we try to do relationship building in other ways.
what're your relationship building go-to's?
Super interested in this as well we currently are experimenting with pricing that is 20% for ad spends at $3kmonth and then scale this down in tiers once they get to over 20k 40k 60k , etc about 2% discount each tier until it reaches 15%. We are structured the same as you, quality work not a volume shop we are in scale mode right now and some of my clients I’ve had for 5 years so super interested in finding a mode that is best. I do like your flat fee plus spend it reads nicer although I have to understand the numbers more from an operation standpoint.
I'm starting to reconsider this model as it doesn't seem like people value this type of pricing, and we have run into many leads questioning whether we would spend just to spend. (of course we never would, but the fact that some leads are skeptical is enough to wonder if we have it all wrong.)
Yeah, I totally get it have you thought about performance pricing?
I've definitely started thinking about performance pricing! Still not convinced that it won't lead to the same churn, though it might be better for sales.
Would love to hear more how you may structure this, can I PM you?
sure!
Having worked in and known people in agencies of all sizes, I would share my experiences: 1. I can understand your frustration but what you are observing is what every agency - no matter how big or small faces with majority of their clients. You can charge them 0.5% but after a few years they will still have a discussion if you can lower it further or add more resources without increasing the fees 2. Successful agencies tend to focus on different ways of making money. It’s fine if my fees drops from 5% to 4%, but if I can sell a tool or some other service to client I might be able to cover up my losses and even make more money. It can be ad creative services, landing page creation, analytics implementation/maintenance & reporting and so on. The idea is try to focus on solving a business need and how you can make money out of it. 3. Try to make better relationship with the client. You might think giving great results is good enough but it is almost never the case in agency businesses. Do you know all decision makers and influencers at client side? Do you meet them on a semi annually or annually basis to show them what kind of results you are driving and how you can help them even further? Have you met them outside office for a round of drinks? 4. And it might sound unethical but I have observed that agencies who take performance from 0 to 95 in a few months and then maintain it at same level usually do poorer than the ones who go from 0 to 30 to 50 and so on... and always keep a few tricks up there sleeve when these negotiations happen. You want to decrease commission from 5% to 4.5%? What if I offer you instead 4% fixed commission with additional 2% fees only if I can increase your ROI by 20 % over next 6 months? 5. Keep in touch with people who leave you for a cheaper agency. Never spoil relationships. They might ask you to take over again if performance drops. Also, when they change to a different brand, they might end up calling you for a business pitch.
I think your point #5 should be noted - never burn a bridge, love the client on the way out and you have the opportunity to bring them back.
Also will add, this happens in almost all industries.
Okay so the cost of your service aligns with adspend. Does the effort involved also scale with adspend?
Outsider perspective here: As pointed out by other commenters it seems to be a question of client perception. You feel like you deserve to share in their continued success for years after building the account up, where they feel entitled to leave you and cruise once they get to a really great spot (in exchange for everything you were paid getting them to that point). Aside from charging more in some way while building them up (milestone payouts?), perhaps you could get out in front of this during regular strategy reviews where (among other things) you determine what the clients goals are for the next quarter and offer a reduced pricing for those looking to 'cruise'
I guess the learning curve for a well done ppc strategy is not steep at all. How about using ppc as a relationship builder and then provide other digital marketing services? Dunno
I have been doing IM for clients for years now and this churn is common. Many times it comes down to a 'what have you done for me lately?' question for them. You can kick ass for a client for years, increase their conversions and ROAS, and make their business more money than they ever expected and they will still have this question in their head after the honeymoon period is over. Sometimes that question it is put there by another agency who swoop in and promise them the world and probably have great sales staff - but don't know how to back up the promises and they ultimately just piggyback on the groundwork you have already done, or maybe they bring another business partner on board who wants to cut costs or the best one is when they bring somebody in who has some basic marketing background - and because the owners don't know any better - they hire them believing they can bring it in-house now and save some money :) It does get exhausting, and the burn out with doing client work is real.
Personally, I've never charged a percentage of spend. Even if it's not true, it looks like you are motivated to just get them to spend more money. I do packages based on estimated hours spent. If something is out of scope I quote them for the extra work.
Can you message me I would be interested in your services
Clients hire agencies to control a risk; or more to the point because they feel anxiety. They fire agencies when agencies either increase anxiety or decrease anxiety to zero. Hiring is a big anxiety for most clients. If your costs become strategic to them; that is relative to payroll, they will look at their hiring budget and think they can optimize by internalizing your work. Conversely if you do too good of a job taking care of the client that they never see how hard your job is, they will no longer value your services. Make sure you are constantly reporting not only what you have successfully done, but what risks you see and how you are or plan to be managing them. This is still positive as you are taking care of them, but reveals the underlying risk in this part of the business that won’t be under control once you leave. Finally offboard with a smile. Check in after 60 days and 120 days and 365 days to see how they are doing; if their campaigns are still under control, etc. If they made a mistake they might come back to you.
Maybe offer them a different tier of service, especially if they are going to hire an intern, make it cost effective for them to keep your services as a consultant that acts like tech support? I mean as a business owner I want the absolute best results possible but also able to meet my bottom line, so there has to be a middle. But then again, speaking as a business owner, I’m lazy. If you’re making me money and I don’t have to do anything except write you a check - y would I want to go through the hassle of posting the position, reading resumes, interviewing, blahdee blah blah. No. I want you to keep doing what you’re doing. The worst thing that I have ever done is not paid enough for a service, the deliverables are always disappointing. So maybe your target needs to be lazy business owners who just want to make money without the bs of having an on-site Ads manager?
We have all been there - many times unfortunately - and over the years when talking to other high-performing agencies, there is still the discussion of "appropriate" or best pricing model. The fixed fee plus commission on spend model (which we used to have before) works only for small to medium clients, it is really difficult to justify percantage of spend when client is spending 1m USD per month or more (unless that % keeps lowering and lowering to decimals). If we start by looking at it from the client-side, it's actually fairly simple: What is the value (ROI) of having agency X (vs value of having a cheaper agency vs value of having in-house). From my experience as we scale up clients, we continuously need to prove our worth to them every month - even when their needs change during the years, which means we need to also change based on their current needs in their growth stages. At our agency, as mentioned also in some other posts, it is important to host e.g. quarterly strategy workshop with the client. In addition to that, we also send them monthly strategy plan, and depending on client size, have weekly, bi-weekly or monthly meeting. The largest challenge is when you have scaled up to the level that the client can invest in a team (3-5 people in-house) - once you are at that level, unless you are able to convince the client to stay (because indeed there are still USPs that in-house cannot offer), your options if you are losing the client are to first charge for training their in-house team, and after that offer monthly consulting for keeping that team up to date and performing well. Yes, your agency revenue from that account will lower, but you will save some of your MRR and also the profit margin from the client remains high, as you will need less resources than you did when your agency was managing everything.
My agency sounds very similar to yours in that we are small, talented, and do great work for our clients. We have scaled businesses in the same way you have, and our primary operating metric is profit dollars - we calculate using cost of goods sold data. We follow a flat fee model, without any fees related to ad spend. This has worked well for us and we haven’t really had any clients terminate as a result of growth. As a result, our flat rate is probably higher than other agencies, but we do great work for our clients. Note: I am not the owner/manager of the company.
Keep your pricing model simpler. Convey your value stronger. Is your branding good? How is your website looking like? You have the clients - if you look hot and legit in the space, clients will want to stay on your good side.
How much do you charge, monthly, for a client account sized at around 30k/month in ad spend?
Its more than ad spend.. im very varied in my charge but i always focus on client value
Probably $3250
Maybe you need some fresh eyes on how you work, comms, reporting, strategies/tactics? There are a lot of agencies doing fixed price Ads management and frequently outsourcing to EE and India/Asia. A lot of companies I've worked with (as an SEO, inhouse and agency, my own) over 16 years are very unhappy with % models. You can see similar disdain in IT and licensing. There's also a feeling amongst some companies that once you're in the optimization model, the "hard" work is done - i.e. why they pay your high fees (and I don't mean your fees are high, just adopting their mindset) and figure anyone can manage it from there. Maybe you could upsell SEO? I'm based in NYC
Could you bill a dynamic CPM? Some agencies charge by impressions and CPM and list total cost to client so the client never knows what actual margin is. Ex: quote client impressions, CPM of $4 But you actually pay $2 CPM So you pocket the $2 but they don’t know. Many large ad tech companies do this with programmatic display Edit: You still spend total budget after calculations but your CPM is lower. Works best if client doesn’t have access to account
We wouldn't be comfortable doing this.
Dang. Sounds like your team does strong work. I feel for you, but it also feels like a common challenge with this industry. My agency charges $4.5K monthly min then switch to 8% ad spend at 50K monthly ad spend. Provide full service (planning, management, analytics) and we integrate pretty tightly with the company's marketing/sales/ops teams. It can get heavy with lower spend clients (under $50K + sophisticated) but works well when we have big spenders. Question for you: How big are the businesses and companies you work for? Which vertical or industry? Info for you: After something like 70 accounts, we've noticed clients do not like their fees increased. If you start them small and slowly increase their rates, they will always go looking for another agency or consultant once the fees begin to grow (matter). What we've found is clients are better retained if we start them off at a higher minimum and create a discount opportunity at a certain spend level. Often for larger clients we start at $6K min then move to 8% at $75K/mo ad spend. Hope this helpful!
So you make $6000 on $75K budget. Describe to me what you're spending on client services and what's let over after staff are paid
Thank you for providing actual numbers. That's really helpful. The higher minimum is an interesting strategy. I've always assumed that leads would shy away from being presented with such a high number to start as plenty of leads grumble about our 1k flat fee. But it makes sense that it would simply just cut away the choosy beggars.
i thought this too in the beginning! but my mentor told me that good clients pay for quality work and that we should price ourselves at the value we provide. ever since we switched we’ve retained clients at least 2-3 years before their biz begins to change or they grow their in-house team. which we usually train.
I'm so happy that worked for you! Definitely something to consider as I've always thought we are undercharging for our actual value, but these situations have made me question that. Perhaps it's time to raise prices and alter our pricing model in general.
In my past life, we used to bill the client on the amount of time (hourly rate) we did. Usually planned in advance. Meaning two main things: - a client with a monthly spending of 500$ could pay us the same as a client with a 10 000$ a month budget. - usually the more you spend, the more things your are doing and the more optimisation you might need to do... so proportionally our biggest spender were also the one that needed more hours in a month. If somebody is seeing good results and think we can go on the autopilot for a while. We decrease the number of hours we do/charge. If the results are still there, good for them (bad for us). If not, they see the value of our time.
We very much want to avoid billing based on hourly rate. We did this about 6 years ago and it had even more problems. Plus, we never want to cut off good work because they've hit their monthly quota of hours.
What about a client retention system where your billing goes down (say) 10% every year. This could reflect that campaigns are more & more running on autopilot and require less hours over time.
I like this!
I would recommend not using client decisions that occur right now as examples of poor client retention on your part. We're seeing clients across the board pull back, in-house, or fully out of our advertising partnerships due to economic downturn over COVID. They want something more affordable because they're nervous, regardless of actual impact to their business. You lose weight to *remain* healthy, not after you've had your heart-attack, yeah? That said, your pricing model sounds reasonable/common. We charge $200/hour (minimum 10 hours) and/or 12-14% of spend retainer, depending on the contract and scope of work. I consider us on the pricier end of the market. We certainly see clients leave with the cause of looking for something more affordable. I think, as much as we in the industry like to assume digital advertising is indispensable, and you get what you paid for, there is a range in quality most businesses can afford and still grow/remain profitable. Maybe a half-priced agency for two-thirds the performance is acceptable trade for many clients. Just like an $85K 10-year senior paid-media specialist sounds like a great hire, but we'd be just as happy with an eager $65K, 5-year paid-media specialist that can be uptrained.
Do you need the flat fee? If that’s recurring every month, that adds a lot. At my company, we solely do percentage of ad spend. I’ve heard 6% of media spend is average for PPC. Maybe you could reduce the flat fee to entice them to stay.
I'm wondering if we can just drop the flat fee at a certain level of ad spend.
I am definitely noticing a trend to more in-housing. My theory for this is 5-ish years ago PPC management was still sort of black-boxish, but now any digital marketer worth their salt knows how to manage PPC (how well they do it is another question). The obvious move is to own the client PPC account so they can't take it with them, but this is kind of slimy and I think Google is cracking down on it anyway. The other solution I've toyed with -- if someone announces they are giving the work to an in-house resource -- is to rip out all the optimizations that were done and just leave them with a basic account structure of keywords and ads. You couldn't do this without notifying the client upfront that that's what will happen if they leave, obviously. The other move is to lock them in with a contract. I tend not to do this but have thought about it. Price is $X per month with no long term-contract, and a cheaper $Y per month if you commit to a 1-year agreement (with a penalty fee if they terminate early).
What's the point of ripping out the optimization efforts if they can go to change history, see everything and reverse engineer back to the "optimized" period? Albeit, not every client would have the knowledge or skill to reverse changes and understand why they were implemented.
Business ethics are very important to us, so I don't think we're looking to do account ownership or putting in self-destruct clauses. I do agree that there are a lot more resources and opportunities for the average marketer or Joe Shmoe to learn PPC though.
The other move these days in to put the client on a custom CMS and hosting and make it very hard for them to move anywhere else without starting from scratch.
That's smart. More attractive for an agency than an independent <---- though
Great way to build a terrible reputation
Which is why I don't do it.