The pay-per-click industry is driven by the idea that ‘money makes money’. In this sense, the more you spend, the more you earn. This is not always the case. In some instances, partner companies offer pricing structures that are designed to suit every client’s needs specifically. The various structures range in price and offering, and they all have definite benefits and drawbacks. PPC agencies help to take the mystery out of PPC ad-campaigns, and turn your investment into profit. However, when it comes to the charging of fees, you have to compare the various structures. Here are the pros and cons of each structure, to help decide on which option is best.
Pricing Structures – Which is Worth It?
The Hourly Rate
This model is a favourite amongst clients. It is easy to see the amount of work that is being put into a task, and how it affects the cost to the business. The client is charged hourly, and the time is multiplied by an hourly rate. It is a rather simple equation.
While it may be easy to see the maths of it, this structure does not inspire efficiency. If a person works quickly and efficiently, this model will not benefit them in the same way it would a person who works at a slower rate. The more time spent on a task, the greater the earning potential. This can be detrimental to clients, as they have little control over how much time a person spends on a task. Furthermore, quantity does not necessarily mean quality when it comes to hours spent on a task.
The Management Fee + Percentage of Ad Spend
Widely seen as an industry norm, agencies can charge anywhere between 10-20% of total ad spend, with an increase as the client increases its budget. This is not, however, something to worry about, as a higher budget means there is more work to be done. Bigger budgets should generate more leads. Consider the fee a mark-up on each lead obtained by the agency. One of the pros of this structure is that you are able to see how the growth of your account will scale your spending.
Monthly management fees are often added to this structure and may be assessed by activities like ad copy updates, ad rotation, and landing page creation. Depending on the workload related to managing a particular company’s PPC campaigns, a management fee can vary.
While fairly simple to execute, this structure can be difficult for a company to understand, as it involves both a management fee and a mark-up. In this sense, the client can feel as though they are paying twice for one service. Furthermore, the agency’s income is directly based on the percentage of ad spend, so they are often less concerned about ROI, and more concerned about increasing ad spend. Added to this is the monthly management fee, which is charged regardless of actual lead procurement, meaning that even if there is no work, you still have to pay.
The Performance-Based Fee
Another favourite amongst clients, this structure makes them feel as though they are getting what they pay for. The PPC agency is paid based on how well the campaign performs, which encourages better performance overall. This does not, however, consider the ‘real world’ factors that most managers face. PPC agencies do not always have control over every aspect of a campaign and can be penalised for an outcome that is not their fault. It can also be difficult to prove exactly where a lead has come from, making it difficult to show positive performance.
Flat Rate / Fixed Pricing
This structure does exactly what it says on the tin – it charges a fixed rate based on each individual campaign and the amount of work needed in order to get the job done. This is the most straightforward and open of all the structures, as it sets a clear and defined price from the first meeting. Certainty is the most obvious benefit, but it also offers the chance for agencies to clearly define their worth.
One of the drawbacks of this structure is that it can be difficult for agencies who are just starting out to determine how long a specific project may take, which makes it difficult to determine the price. However, fixed rates are set on a project to project basis, and can be increased with the next project, based on previous experience.
This structure is not based solely on the number of leads generated. Agencies that use this structure set goals with the client, who will pay based on the achievement of said goals. If they achieve all their goals in the set time frame, they will be paid more.
The greatest pro of this structure is that it aligns the goals of the client with the goals of the agency, giving the team a clear direction to follow. It is also easy to keep track of performance this way, as there are clear parameters that encourage performance. However, the drawback of this structure is that it can be time-consuming to establish the goals and parameters, whilst trying to keep to a deadline. This is not the best choice for quick projects or small campaigns, as it requires an in-depth consultation.
So Which Structure is Right for Me?
When it comes to making the right decision for your business, it is always a good idea to keep things simple. Payment structures such as the fixed-rate structure offer clarity and certainty, which is good for any business, as they are able to set a budget and stick to it. There are no hidden costs or extra fees when it comes to this structure. Should your business need something more complex in the future, have a look at the pros and cons of each structure. In the end, efficiency and certainty are the cornerstones of success.
Please do get in touch with us to learn more about PPC for you and your business.
Marketing Assistant at Proven Concept and Trained BBC Digital Journalist. A passionate marketer and digital creator. I am dedicated to designing exciting and compelling strategies to promote business growth and development. Obsessed with anything digital or creative.