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Common PPC pricing models

Percentage of click spend – a model where agencies add a mark-up to monthly paid advertising spend. Markup can range from 10-20% depending on the agency.

Fixed fee – a set monthly management fee is agreed and paid each month, regardless of advertising spend. Cost is often based on the amount of work required to manage the adverts.

Combo – a monthly management fee is combined with a percentage mark-up on click spend.

Performance based pricing – performance targets are agreed with the client and the agency charges based on performance.

Charging hourly – the agency works on a timesheet and bills only for hours spent on managing the account.

 

Why percentage of Ad Spend doesn’t work for us

Charging a commission on click spend is clearly a popular choice for many advertising agencies and we can see why. It seems only fair that bigger campaigns demand bigger commission, right? We have revisited this thought time and time again when deciding how to bill for our services, each time, we have come to the same conclusion. Percentage based fees are not for us and here is why…

Let’s take two imaginary law firms, each with the same click spend budget, but each with very different requirements.

Scenario 1 – hypothetical law firm A, based in London, approaches us with the view of generating a significant amount of enquiries across London (no problem!). They have a budget of £5,000 per month, spread across campaigns for each of their twenty services. We could approach this in a number of ways but let’s assume we just create a single campaign for each service and have broad geographic targeting to cover those living or searching in London.

Scenario 2 – hypothetical law firm B, based in London, approaches us with the same budget, but they only want to focus on a single affluent area for a single high value service. We would need to set up a few variants, but the work would be nowhere near the scale of setting up and managing law firm A’s campaigns.

From our perspective, we just cannot justify charging the same percentage-based fee for two clients with very different requirements.

There are also issues around trust when charging a commission on paid adverts. Can you ever recommend a budget increase without the client questioning your motives? Would a PPC account manager ever be able to suggest a reduction in budget, how would that be taken by their employers?

 

This is why we stick to our guns and only charge based on the client’s actual requirement. Any discussions around altering PPC budget has no impact on our fees, only changes to our work requirement.

 

The compound negative effect of wanting to be top and charging commission

Over the years we have witnessed many changes to Google Ads; its features, click costs, bidding strategies and the industry as a whole. Something that stands out to us is the colossal difference in cost for an absolute top of page bid (top spot) and a top of page bid (top 2-3 listings). We have witnessed the cost for a top spot click increase by over £100 when compared to positions 2 and 3 and we think we know what’s causing it.

 

The truth about absolute top spot bidding

From what we have seen with client briefs and requests, it’s common for ambitious companies with aggressive growth strategies to want to be first in Google. The truth, however, is that unless you have unlimited funds to starve your competition, bidding for absolute top impressions often leads to higher costs, less visibility, and less conversions. In fact, when selecting the option to bid on absolute top impressions, it flags a warning that other automated bidding strategies lead to better results.

If an agency charges based on click spend, can you actually trust that any advice given won’t be swayed by their drive to generate more commission? We are certain that there are many ethical companies out there that will give fair and honest advice, but the general feedback from our clients is that they were not happy with their previous company.

 

So, you say being top isn’t the best? Prove it!

Let’s have a look at the numbers.

 

The table above displays some keyword research law firm related phrases in London. ‘Top of page bid (low range)’ represents the click cost to be represented in the top 2-3 spots. ‘Top of page bid (high range)’ represents the cost for a click to be in the absolute top spot.

  • Average top of page bid (low range) – £2.90
  • Average top of page bid (high range) – £17.04
  • Total number of searches – 15,780 per month
  • Estimated conversion rate – 3%

Using the data above we have crunched the numbers and created a table that compares a strategy that bids for absolute top impression share against a maximise conversions bidding strategy.

Bid strategy Absolute top impression share with a target of 80% Maximise conversions
Avg. Maximum Bid £17.04 £2.90
Budget £5,000 per month £5,000 per month
Total Clicks 293 per month 1724 per month
Estimated conversions 8-9 per month 52 per month
Outcome In a report it will look fantastic – hey, your adverts were top 80% of the time! Unfortunately, there is no report that can show all of the missed opportunities due to the advert running out of budget and your competitors gaining more clicks than you. A maximise conversion bid strategy uses wizardry to bid on clicks that it believes are most likely to convert using past data. It will squeeze the maximum possible number of quality clicks out of your budget and its performance will increase over time as it collects more conversion data.

As you can see, the absolute top impression share strategy has a high cost per click and low traffic. In contrast, using maximise conversions you can gain more than 5x the amount of traffic and enquiries.

 

Conclusion

Paid advertising companies will always be under pressure to justify every metric in their report and businesses will always want to be top spot in Google, whether it is paid or organic. Charging commission on paid ad spend can muddy the waters, putting account managers in a difficult position because they must deliver results for the client but also increase or maintain billing.

A fixed fee structure based on requirement eliminates any mistrust. Integrity will never be in question, advice given is solely for the benefit of the client and account managers won’t have to worry about any reductions in billing.

 

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