One of the reasons we try so hard to demystify how a pay-per-click (PPC) agency works is because, well, there is just so much going on when it comes to getting the perfect PPC solution for your needs.
Given there is so much to consider when choosing a PPC agency, some of our clients worry it’s either too involved, or there are too many risks to consider. While understandable, we actually believe the opposite to be true — despite there being so many options to consider, that actually means (with the right guidance), you are far more likely to find a bespoke PPC solution tailored for your individual needs.
With that in mind, as part of our content series “Working with a PPC Agency”, we’ve already talked about what you can expect from a PPC agency, as well as whether you should hire an agency or do it in-house.
Next, we want to simplify the different types of pricing models you will encounter when hiring a PPC Agency. Now intuitively, you’re probably just thinking you’ll be charged a fee that you agree on, and all is well — right?
If the world was a simple place, then yes, that’d be the case. In the slightly less simple real world however, Google alone made $32.6 billion (with a b) last year in PPC advertising. The result of this massive earning potential means that entire industries and pricing models are built around this larger industry, in an effort to be more competitive and serve each customer better.
Onward then, to the four main pricing models for hiring a PPC agency, as well as the pros and cons of each one.
1. Fixed Price/Project Based Pricing Model
Perhaps the simplest of the main PPC pricing models, fixed pricing is just that — paying the same fee per month, no matter how much time the PPC agency puts into their work for you. Another way of thinking about a fixed price/project based model is like a retainer where the PPC agency provides a wide array of services working towards a larger goal for the client.
PPC agencies that boast a fixed price model will most likely tout the fact that they are looking to provide their clients with long-term value and the relationship that comes with it. If the scope of the services required by the PPC agency are clearly defined, this theory of long-term value can work very well for both PPC agency and client.
Conversely, the PPC agency can be taking a risk by committing to a large amount of time and resources over the long-term, so they may ask for a setup fee and a long standing contract. For you, this will mean more investment upfront, and not everyone has the cash for work that technically doesn’t yield any results.
As you might imagine, for these reasons a fixed price model is not for the client who is faint of heart, and is better suited to larger or enterprise clients.
Fixed Price Pricing Model – Pros
- Easy to budget with no surprises
- Long-term value for larger clients
- Encourages the PPC agency to be efficient but industrious
- If the agency is performing efficiently, they can spend spare time on innovation and experimentation
Fixed Price Pricing Model – Cons
- Generally more expensive
- Not suited for smaller clients
- If your scope of work suddenly changes, you’ll need to discuss with your PPC agency
- May require a setup fee and a contract
2. Performance by Milestone Pricing Model
We all like the idea of our agencies working harder for their fee, but there are a few caveats that definitely need to be considered to ensure the PPC agency is actually getting the results you need.
There are usually two main types of models within the performance by milestone model, the first and most common of which is measuring performance by leads acquired. So in theory, the more leads (enquiries) the PPC agency can gather for you, the more they can charge you. Generally speaking you are happy to pay, as those leads should lead to more revenue for you.
The danger here is that a sneaky PPC agency might include less-than-perfect leads on your invoice, which in effect is overcharging you for leads that don’t grow your business. This can encourage a PPC agency to go for quantity over quality, and be less than transparent with their data.
The second pricing model within the performance by milestone pricing model is set by setting milestones that aren’t strictly based on simple lead generation.
So this can include metrics like increasing click-through rate, conversion rates, or even increased revenue at your end. These are much more focused metrics, so they will take some time and effort to negotiate.
Whatever form of milestone pricing model you choose, your PPC agency should be absolutely crystal clear on what the milestones are, and exactly how they help grow your business. Keep asking questions until you are completely satisfied they are offering the perfect solution for your business.
Performance by Milestone Pricing Model – Pros
- In theory, encourages the PPC agency to work harder for their fee
- PPC agency remains focused at all times
- Results are plain to see
- When the PPC agency’s fee grows, that’s actually a good thing, as it means your business is growing according to the goals you set
- Assuming the process is transparent (which it should be!), your relationship with your PPC agency will be terrific, and require little intervention.
Performance by Milestone Pricing Model – Cons
- You must make sure your PPC agency is not padding metrics by including unqualified or poorly qualified leads
- A subpar agency may not be concerned about what happens once you get the lead — a great agency will help you convert them to customers
- Will require a significant time investment at the beginning to negotiate the right metrics for you
- There can be a danger of chasing “vanity” metrics (e.g. unqualified leads) that don’t actually grow your business
- You must absolutely ensure that your PPC agency is being completely transparent with this pricing model
3. Hourly Pricing Model
This PPC pricing model really is just as it sounds — the PPC agency will charge you for each and every hour they work for you. It’s very easy to track your spending against your budget, and it allows you the flexibility to change your scope of work very quickly if you have an emergency project.
It does have its downside though, as it is easy for there to be a drifting scope of work and a lack of specific goals to work towards. In the PPC agency’s eyes, as long as they spend your monthly budget, they are fulfilling their duties.
This lack of focus from the PPC agency’s perspective can also lead to them being slow and inefficient. This means just because you are paying for a certain amount of hours, it doesn’t mean you are getting the full value of those hours you are paying for.
If however you are well organized and are happy to keep an eye on your PPC agency, the hourly price model can work out well for budget conscious clients.
Hourly Pricing Model – Pros
- Very simple
- A model that everyone is familiar with
- Easy to budget for and track
- It encourages the client to be invested in the process
- Good for budget conscious clients
Fixed Price Pricing Model – Cons
- There might be a heavy upfront cost due to initial market research being charged by the hour
- If the PPC agency is slow/inefficient, more hours might not mean better or even more work.
- Encourages the PPC agency to be inefficient given they are being paid by the hour.
4. Percentage of Ad Spend Price Model
On the surface, it might not seem as straightforward as some of the other PPC pricing models, however the percentage of ad spend model quite often becomes the model that makes the most sense. For that reason it is frequently the model of choice for PPC agencies that genuinely look to help their clients.
Put simply, the more you invest in your PPC marketing and advertising, the PPC agency will do more work for you, and in turn, charge you more. The PPC agency’s fee (usually 10-20%) is calculated on your total ad spend.
Here’s quick and simplified view of how the percentage of ad spend model might look like:
The great benefit of this pricing model is the transparency — there will never be any doubt in terms of projecting your spending, whether it’s spending on the PPC advertising, or your agency fees. This means it’s great for clients of all sizes, even those with modest budgets.
We would warn you though, some less than scrupulous PPC agencies might ask you to increase your PPC budget just to increase their agency fee, or they might even overcharge you by hiding it in what is an invoice that covers a lot of components.
Percentage of Ad Spend Model – Pros
- Transparency — no changes in scope or spend without you knowing
- You can add whatever you want to the scope, because you can see the cost easily
- Great for all clients, from small to large budgets
Percentage of Ad Spend Model – Cons
- A poor PPC agency might use this model as opportunity to be less efficient to protect or increase their fee
- You will need to question why an agency is asking you to increase your budget — is it for performance, or just to increase their fee?
- Lazy PPC agencies might assign their least qualified staff to smaller accounts to maximize profits
Conclusion — What’s the Best PPC Pricing Model for You?
We’ll admit, while we’ve done our best to give you an overview of the PPC pricing models, you will still likely have questions — after all, there is only so much information we can give you in one article before your eyes glaze over.
Our running theme in our “Working with a PPC Agency” explainer series is to always find an agency that talks to you like a human who may not understand all the ones and zeros going on behind the scene. And frankly, you shouldn’t have to know — your job is to run your business, and the PPC agency’s job is to help you increase your bottom line.
So while choosing a pricing model may seem yet another steep step on the way to PPC paradise, we believe that if you are armed with the right information, you will be able to choose the pricing model that serves you, and not the other way around.
Within reason, ask your prospective PPC agency as many questions as you can think of so that you can be fully informed on what pricing model is right for your needs. A truly good PPC agency will be more than happy to help you understand, as they genuinely want to help you and business, not just sign up another client holding a cheque.
Holding ourselves to that ethos, please do not hesitate to contact us if you have any questions about PPC pricing models, as we’d be glad to help.
Need more help? SOLID Marketing are first-class operators when it comes to finding more customers for marketers and owners of brands looking to grow online. We’re not just good at it — we really do enjoy the challenge of growing your business with the help of paid ads and conversion rate optimization. If you think your business has room to grow, please do reach out to us — our team would be glad to help you.