2 Big Reasons Not to Pay an Agency Based on Percentage Spend

Written By &Marketing

On October 5, 2020

Agencies use all kinds of methods to determine how much to charge your business for managing your paid advertising. One of these methods is to take a certain percentage of what you’re spending on those ads, like a commission. There are lots of reasons why this approach doesn’t pan out well for growing businesses like yours, but let’s break two of the biggest reasons down together.

Why You Should Stop Paying Your Ad Agency Based on Percentage Spend

Reason #1: The Car Salesmen 

Picture this: you walk into a car dealership. You know exactly what you want and how much you’re willing to spend on that perfect little mini-van you’ve been dreaming about for years. Okay, maybe not a dream minivan. But you’re ready to buy and you’re excited!

Wait! You’ve got that one nerve-wracking hurdle to get past before you put those keys in that ignition and sign on the dotted line.

The car salesmen.

But why? Why is he the obstacle and not the trusted guide?

We know why. There is an inherent conflict of interest. He wants to make money, and the more money YOU SPEND, the more HE MAKES. Put the kindest, most honest salesperson in that position, and they are still going to benefit from talking you into spending more money on that car.

The same applies when you are paying your ad agency based on the percentage of spend. It confuses the motivations and the intentions. Is the agency suggesting you increase spend because it’s the best move for you, or because it’s the best move for them?

Reason #2: Everything is Not Created Equal

Consider the following:

Search Keyword Daily budget Potential cost per click Number of keywords or variances
rehab $300 $50 <20
blouses $300 $1.60 >300

At the time this blog was written, a company showing an ad for the search “rehab” can easily pay up to $50 for each click. They will more than likely need a pretty hefty budget to gain valuable conversions. However, their account structure may be incredibly simple and easy to manage, as they only offer one service. There isn’t a lot of variety to what they’re offering. In this case, a high budget does not necessarily mean a cumbersome account to manage.

On the other hand, a company selling blouses online with the exact same daily budget may require 4 times the work. There are endless combinations of sizes, colors, and styles, which may make the account more complex, therefore requiring more frequent account management.

So why would an agency charge them the same fees for managing their accounts?

Simple. They shouldn’t.

What Should You Be Paying Your Ad Agency? 

If your ad agency is asking you to pay by the percentage of ad spend, maybe it’s time to put some other options on the table.

As you move forward, keep the following things in mind.

You should be fairly paying your agency for their expertise in the area, the work they’ll be putting into improving account performance, and the returns they get for your company. Once you’ve considered these critical factors, navigating a fair agreement is just around the corner!

If you’re interested in knowing more about &Marketing’s approach to paid advertising as an outsourced marketing department, fill out the form below.

&Marketing leverages the power of Business Intelligence to gain insights on paid search performance and help our clients make informed decisions. To learn more about our BI and analytics process, download our eBook

About the Author

Marketing Director Sydney Thomas helps clients create, implement, and optimize campaigns in their Google Ads and Microsoft Advertising accounts. While ensuring that clients are getting the most out of their pay-per-click accounts, she also supports creating websites to improve SEO and supports paid social network advertising on Facebook and LinkedIn.

About &Marketing

&Marketing provides the robust outsourced marketing department growing companies need without the high overhead costs of big agencies or full-time employees. Our variable model empowers businesses to reach their growth goals through access to the guidance and expertise of senior level strategists and a flexible execution team.