3 Reasons Profit-based PPC Agency Fees Are a Mistake

When searching for a PPC agency, you’ll receive different PPC management prices. Usually, you can split these into two categories – fixed-fee and profit-based. Of course, there are pros and cons to both of these, but in this article, we will discuss why profit-based fees are often a mistake – for both agencies and clients. 

How Much Do PPC Agencies Charge?

45% of small businesses do some form of PPC, so the average cost for PPC management varies drastically based on the pricing model and contract type you choose.

a. Fixed Fee

Are you looking for your next PPC agency partner? Listen to our colleague, Jason, to learn about our approach & process for your next PPC campaign.

Firstly, you may agree to a fixed monthly figure, no matter the size of your budget or the number of campaigns. With this type of contract, you’ll agree on the required tasks each month, and there are no additional bonus incentives for the agency.

Another option is a percentage of ad spend. As another fixed fee type, you’ll pay the agency more if you have a higher budget. For example, if your ad budget is $50,000 and the agency changes a 10% fee, you’ll pay $5,000 per month for their services. Based on the assumptions that PPC fees, the fees on a larger budget take more time to manage.

b. Profit-Based

There are a few variations of profit-based PPC agency costs. For example, if your business is an eCommerce store, you can implement a revenue-generated contract percentage. However, some may use a price-per-lead for those who don’t sell directly online, calculated by the expected value of every lead generated through your website.

There are many variables to consider with profit-based contracts – we’ll talk through three of the most important ones below and how they can be detrimental to all parties.

     1. Who Takes Credit for Sales?

Assuming who was responsible for a sale can be challenging unless you have a completely eCommerce business. While many people view PPC as a sales-focused advertising method, it’s supposed to target people at every level of the sales funnel.

Unless someone is a new user, visits your site for the first time from a PPC ad, and converts immediately, there is no way of knowing if your agency or someone else within your sales funnel generated that sale. The problem with introducing fees for sales into a PPC contract is that it assumes an agency had a hand in the entire sales process – which, for established businesses, is highly unlikely.

When a returning customer lands on your website via a PPC ad and purchases a product similar to or the same as something they’ve already purchased – should you give a fee to your PPC agency then? Probably not. However, no PPC management contracts are that sophisticated, meaning you may lose out on revenue.

On the flip side, what happens if your website goes down and users aren’t able to purchase for a specified period? Your PPC campaigns are still running and receiving clicks, meaning your ad spend hasn’t stopped. In this instance, your agency will be missing out. It’s not their fault your site is down, and their hard work is going to waste – if people can’t order, they don’t get paid.

     2. What Attribution Model Works Best?

Following on from the first point, you need to agree on an attribution model that works for you and your agency. As we’ve discovered, a first click or last-click attribution model completely negates the entire sales process. In addition, all attribution models require guesswork. There isn’t an exact science to deciding the most important factor, channel, or touch-point within a conversion.

Additionally, it will vary for every user. Yes, tools have advanced, you can easily compare models, and creating a more accurate representation of who’s responsible for sales has improved, but it will never be crystal clear.

It would be best if you found a finely-tuned attribution model that benefits both client and agency for profit-based digital ad pricing to work. We know this can be challenging. As a client, you don’t want to give 100% credit to an agency for your entire sales process.

On the other hand, your agency wants to take as much responsibility as possible, meaning paying more. Too often, PPC companies will use the last click model, piggyback off the hard work of all other channels, and implement remarketing, which skyrockets sales.

     3. Whose Data Tracking Do You Believe?

In a world where data is king, you’d think all platforms, tools, and models would give the same data output and analysis. They don’t. Unfortunately, some agencies have given the industry a bad rep by manipulating data and analyzing it in a way that always makes them look good.

They’ll gloss over their poor numbers and highlight their wins. Clients need to be wary of this when agreeing on what constitutes a sale. Allowing a PPC agency to take credit for a deal they didn’t contribute to is a slippery slope to paying an agency a lot of money for little work.

Also, you need to factor in the potential for third-party data tracking tools to malfunction, go down, or lose data. For example, many people use Google Analytics, so let’s assume you and your agency have agreed to use the tracking data from here. As a result, you could get a random injection of spam traffic, there could be an update that causes data loss, or another interruption could occur. All of these things impact your complex and fragile attribution model.

In Summary

Google estimates that businesses make $8 from every $1 spent on Google Ads, meaning an expert PPC agency can drastically improve your revenue. However, a profit-based contract is not the way to go. While you may think it motivates your agency to generate sales – sometimes it does – more often than not, they’ll infiltrate your existing sales funnel and claim those customers as their own.

If you opt for this model, your PPC ad costs can go through the roof, resulting in your business missing out on a considerable portion of your profits. Finally, it’s incredibly confusing, difficult to monitor, and strains relationships. Simply put, profit-based fees are not worth it.