If you’re like many agencies we speak with, your client list and PPC spend-under-management are on the rise. That’s great news for many reasons, but it’s not without some growing pains.
Every new PPC client brings unique challenges that pressure test your current workflow. Existing (often messy) ad accounts, unique seasonal spend fluctuations, and varying levels of service make it difficult to plan staffing and expenses.
With so much uncertainty on the backend, the key to predictable revenue is setting the right PPC management pricing up front. In this article, you’ll learn about the most popular PPC pricing models and get lots of context and tips to help you pick the right one for your agency.
What affects PPC management costs?
Most reports say the average PPC management fee comes out to around 10% to 20% of ad spend. So the amount of money a client devotes to PPC ads has a direct impact on the fee you’ll charge. But there are nuances in the calculation that can nudge your fees up or down.
Client industry
Since some industries pay more for a click than others, it’s logical that some industries also pay more to agencies that manage those campaigns.
In our Google Ads benchmark study, we saw that real estate and arts and entertainment get off relatively cheap at $1.55 per click. But your legal clients will shell out over $9 for every ad click from Google.
At a 450% premium, the law firms you work with will likely pay you more than a real estate broker for the same goals. (Although their ROAS is going to differ, so ROI could be similar.)
Additionally, some industries like healthcare come with stricter advertising rules. An agency that specializes in these regulated businesses may charge more for the extra work and knowledge required to run their ads.
Scope
Some clients just want you to keep track of their Google or Bing PPC budgets. Some want a more comprehensive service including ad creative, reporting, campaign optimization, and strategy. The amount of work you do for each client will reflect in the amount you charge each.
Number of channels under management
Google is still the $280 billion gorilla in the PPC ad space. But other platforms like Bing ($11.5 billion in ad revenue) and Facebook ($113.6 billion in ad revenue) shouldn’t be ignored. And since the average CPC is lower on Bing, you may find clients diverting some of their funds that way.
When clients do want exposure on multiple ad networks, you’ll want to account for the additional work that takes. A $10,000 PPC budget requires more time to manage when it’s split across three or four platforms. Agencies that do so should charge a premium to cover the added people power to do it.
What are the common PPC management pricing models?
As we’ve mentioned, clients come in all sorts of flavors. It’s expected that your PPC pricing arrangements can vary as well. Pick the right one and you’ll get more from your clients and give more in return.
Flat rate or flat fee
A flat fee is a set dollar amount billed each month to cover all the costs of managing PPC campaigns for a client. Sometimes those fees include the ad spend, but often they’re charged as a separate line item.
A flat rate structure offers stable monthly revenue, so it’s easier to predict on profit and loss statements. It’s also less complex for those in charge of billing. That’s probably why a third of agencies we polled said flat rates were the way to go.
There’s a cautionary tale about flat rate fees, though. If you don’t have a great grasp of the effort and cost it’ll take to manage PPC campaigns for a specific client, you run the risk of losing money when things get complicated.
Percent of ad spend
In the percent of ad spend fee structure, an agency charges their client a set portion of the total ad spend under management. As the client’s ad spend increases, so does the agency's bill to manage it.
When PPC budgets get bigger, they also often become more complex. There are more keywords to research and target, more campaigns to run, and sometimes additional PPC platforms to engage with. The obvious benefit to this PPC pricing model is that you get paid more as the workload increases.
The downside is less predictable revenue. This is especially true for clients with seasonal peaks and troughs of activity. If you’re able to flex resources quickly from one account to the next as needs fluctuate, this model can help you maximize revenue.
Flat fee + percent of ad spend
In a hybrid model of PPC management pricing, agencies charge both a stable recurring fee and a fluctuating portion of ad spend.
With this model, you can cover repetitive tasks like campaign setup or reporting and collecting more revenue as ad spend increases. That may be why a third of the agencies we asked favored this option.
But along with the pros of the flat fees and percent of ad spend models, this hybrid version carries its weaknesses, too. A large portion of your revenue is still unpredictable, which means planning resources is also harder. And the flat fee is based on an educated guess, which could leave you at a loss if you’re not confident in the time it takes to complete these tasks.
Hourly fee
Hourly fee-based PPC management pricing is a simple calculation of hours worked times your hourly rate.
For some clients, hourly rate is the easiest way for them to justify the work you do. They see the number of hours spent and pay for your time. For agencies, there is a benefit of knowing that no matter how hard you work for a client, you’ll be compensated for it.
But hourly fee PPC pricing can also penalize efficiency and direct finances towards less-important tasks. Say your agency buys a new tool that speeds up campaign creation. Under an hourly-fee agreement, you spend more to get the job done but get paid less. Plus your client will pay the same amount for things like reporting or monthly meetings as they do for actual campaign management—the thing that delivers them leads and customers.
Performance-based fee
Performance-based fee PPC management pricing is calculated off of some pre-agreed-upon success metrics. It’s usually something like conversions, conversion dollars, or leads. The more leads and sales you generate, the more you get paid.
In theory, performance-based pricing is great for clients because they only pay when they get results. But it’s not often sustainable for agencies. There are too many factors out of the agency’s control to make it work. It’s no surprise we didn’t find many agencies that use this PPC pricing model.
5 tips to set PPC management pricing for your agency
Now that you know which PPC and Google ads management pricing models are available, it’s time to choose your model and set your rates.
1. Bill separately for PPC management
If you’re a full-service agency, PPC management may be part of a service bundle you provide. We speak with agencies all the time that do this. We always recommend separating out PPC management as its own line item to highlight its value to your client’s success.
2. Charge setup and management fees
Even if you prefer to charge based on a percent of ad spend, consider charging an account management fee and/or a one-time campaign setup fee. This is especially true for new clients where your effort is often heaviest at the beginning of the engagement.
3. Know the competitive environment
Who else can your client hire and how do you differentiate your agency to them? As “getting new clients” is a constant concern for agencies, this is an important question to answer.
Are you a low-cost, high-volume agency? Or do you offer white-glove service for a select few businesses in a niche market? Do you provide strategy, creative support, and SEO? Or are you just going to push the buttons on Google Ads Manager?
Once you nail that down, compare the PPC pricing for other agencies that offer similar service levels and those that don’t. That’ll help you set competitive pricing and give you talking points when differentiating your agency from others your client could choose.
4. Evaluate your costs
Yes, your primary goal is to help your clients be successful with PPC advertising. But if the agency loses money, you won’t be doing that for long. So before you set rates or decide on a PPC pricing model, make sure you know what costs you’ll incur to offer that service.
Consider things like the technology you’ll need, the people you’ll hire, and the accreditations you’ve accrued to legitimize your service. Don’t forget the basics like internet service and office space (if applicable). Basically, compare your entire operating expense against the fees you’ll collect to make sure it’s a viable business.
While you’re at it, know your break-even costs for new clients. If transferring accounts, setting up new campaigns, and creating a strategy will cost a year’s worth of fees, you may need to consider charging more upfront or getting a longer contract.
5. Consider a PPC partner over hiring
There’s a lot to account for when managing PPC campaigns for your clients in-house. There are infrastructure and technology costs, HR expenses, and R&D investments to consider. Plus, what happens to the institutional knowledge if an employee leaves?
Working with a partner that has both the technology and experience to solve the most common operational challenges like campaign entry, onboarding, reporting, and billing can be a huge benefit for your agency. With these tasks sorted by your partner, you can focus on creating better strategies for your clients. And your agency associates will be more efficient, managing more media spend than would otherwise be possible. In short, you’ll grow without the growing pains.
PPC management pricing needn’t be difficult
How, and how much, you charge for PPC management is one of the most important decisions you’ll make for your agency. But it shouldn’t require an advanced degree in calculus to figure out.
Basically, you just need to:
- Understand your offerings
- Figure out the cost to provide them
- Know what other agencies will charge for the same service
- Consider the volume and consistency of your clients' ad spend
Then decide if hiring more staff is the way to solve for more client work or if working with a partner is the better path to scaled growth and revenue.
The post Know Your Worth: Mastering PPC Management Pricing for Agencies appeared first on WordStream.
