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Navigating the world of Google Ads agency pricing can be tricky. With so many models and benchmarks out there, it’s hard to know if you’re getting a good deal. Drawing on my 18 years in the agency business and 12 years running my own agency, here’s my frank opinion about it all.
In this blog post, we’ll cover different pricing models, benchmarks for judging deals, factors affecting agency costs, performance deals, and tips on negotiating lower rates. Let’s get to it.
What Pricing Models Exist?
Before discussing benchmarks, it’s crucial to understand the various PPC agency pricing models.
Flat Fee Based on Monthly Spend
About 20% of agencies use this model. Different tiers exist based on your ad spend, and as your spend increases, you move to higher tiers with higher fees. This model is straightforward and predictable, making it easier to budget for your advertising expenses. However, it may not always align with the complexity or the level of service your campaigns require.
Billable Hours
19% of agencies charge based on billable hours. Personally, I find this model inefficient for both agencies and clients, as it doesn’t incentivise productivity. Agencies working on this model might charge for every hour spent on your campaign, which can lead to escalating costs without necessarily delivering better results. This model can also lead to mistrust if clients feel that hours are being padded.
Fully Custom for Each Client
16% of agencies customise their pricing based on the client’s needs. This model allows for flexibility and ensures that clients are only paying for the specific services and levels of support they need. However, it can also make it harder to compare pricing between different agencies.
Flat Fee Plus Percentage of Ad Spend
15% of agencies use this model. It involves charging a flat monthly retainer plus a percentage of your ad spend. At Big Flare, most of our clients are on a flat fee plus a percentage of ad spend, which I believe is the best model in most situations. The percentage is typically lower than in pure percentage models since it’s an addition to the flat fee. This model balances predictability with performance incentives, ensuring the agency has a vested interest in your campaign’s success.
Flat Fee Based on Other Variables
11% of agencies charge based on other variables like service level, channels managed, or number of monthly meetings. This model allows for a more tailored approach but can be complex to understand and compare with other pricing structures. It’s essential to clarify what each variable entails and how it impacts the overall cost.
Pure Percentage of Ad Spend
8% of agencies use this model, often tiered with decreasing percentages as ad spend increases. This model directly aligns the agency’s fees with your spending, which can be motivating for the agency to grow your account. However, it can also lead to higher costs as your ad budget grows, and may not always reflect the actual effort required to manage your campaigns.
Performance-Based Model
2% of agencies do performance-based deals, which, despite sounding appealing, are often impractical for both agencies and their clients. These deals tie the agency’s compensation directly to the results they deliver. While this can be a strong motivator for the agency, it can also lead to disputes over how performance is measured and what constitutes success.
Other / No Answer
9% fall into this category, with varied or undisclosed models. Always ask for specifics to ensure you understand exactly how you’ll be billed and what you’re paying for.
Typical Rates and Benchmarks
With various models, how do you know if you’re getting a good deal? Here are some benchmarks:
10% of Ad Spend
This common benchmark dates back decades. However, it’s only useful if your ad spend falls within a specific range.
For ad spends between $50K - $100K per month, 10% is a reasonable fee. Below $50K, minimum fees of $1K - $5K per month are more relevant. For spends above $100K, expect lower percentages, sometimes as low as 5%.
Applying Benchmarks to Different Models
Use the 10% benchmark to negotiate other models. For instance, if an agency offers a flat fee plus a percentage, compare the total to the 10% benchmark. Let’s say you have a $60K per month ad spend. If an agency charges a $3K flat fee plus 8% of ad spend, your total cost would be $3K + $4.8K = $7.8K, which is 13% of your ad spend. Compare this to the 10% benchmark to judge if the price is fair.
Why Some Agencies Are Cheaper / More Expensive
Cheaper Agencies
Agencies charging less than $1K per month are likely cutting services, such as meetings or personalised attention. Watch out for “stack ‘em high” agencies, where account managers juggle 50+ clients, often relying on automated software rather than individual attention. These agencies may offer lower prices but can’t provide the detailed attention and customised strategies that higher-priced agencies offer.
Potential Risks with Cheaper Agencies
Lack of Personalisation: With too many clients, these agencies often rely on automated tools and standard strategies, which may not be optimal for your specific needs.
Infrequent Communication: Lower fees may mean fewer meetings and less frequent updates, leaving you in the dark about your campaign’s progress.
Overworked Staff: High client loads can lead to burnout and decreased performance from your account manager, negatively impacting your results.
More Expensive Agencies
High-priced agencies often invest heavily in marketing, fancy offices, and local talent, which drives up their costs. Some provide great results, but you might get less experienced managers handling your account.
Reasons for Higher Costs
Premium Branding: Some agencies charge more because they’ve established a strong brand reputation and can demand higher prices.
Local Staff: Some agencies have to hire local staff in locations with very high costs of living. You may be paying more for a less experienced account manager when compared to an agency that hires remotely across the country or world.
Comprehensive Services: Full-service agencies offering a wide range of services may charge more due to the breadth and depth of their offerings.
Performance-Based Deals
Performance deals sound good on paper but rarely work out. They’re often requested for the wrong reasons, for example when the advertiser simply can’t afford to pay unless it goes well. A performance deal should only be considered if the product is proven and both parties agree on clear performance metrics.
When Performance Deals Work
Proven Products: If your product already performs well with paid ads, a performance deal can incentivise the agency to maximise results.
Clear Metrics: Both parties must agree on specific performance metrics and attribution models to avoid disputes.
Common Pitfalls
Disputes Over Metrics: Disagreements about how to measure success can lead to conflicts.
High Risk for Agencies: If the product doesn’t perform well, agencies take on significant financial risk. That’s OK as long as you are prepared to reward them more if things go well.
Potential for High Costs: If the campaign performs exceptionally well, performance deals can become very expensive for the client.
How to Negotiate a Lower Rate
Offer Multiple Websites or Services
Providing more than one account or opting for multiple services from the same agency can give you leverage for a discount. For instance, if you manage two different eCommerce stores, offering both to the same agency can reduce communication and management costs, allowing the agency to offer a better rate.
Longer Commitments or Pre-Payments
Offering a longer commitment (e.g., a 6 or 12-month contract) or pre-paying for several months can also help negotiate a lower rate. Agencies value the stability and predictability of long-term commitments and prepayments, which can help them manage their cash flow and resource planning more effectively.
Additional Negotiation Tips
Ask for Discounts on Combined Services: If the agency offers multiple services, such as Google Ads and Facebook Ads management, bundling these services can often result in a discount.
Flexible Service Levels: Some agencies offer different service levels. Opting for a lower service level can reduce costs without significantly impacting performance if your campaign doesn’t require intensive management.
Highlight Long-Term Potential: Emphasise your business’s growth potential and the likelihood of increasing your ad spend in the future. Agencies may offer a lower rate now in anticipation of higher future fees.
Understanding agency pricing is key to ensuring you get the best value for your investment. Consider the pricing models, use benchmarks to evaluate deals, understand why some agencies charge more or less, and negotiate effectively to secure a favourable rate.
That’s it for this deep dive into Google Ads agency pricing! If you’d like to work with a Google Ads agency where the pricing makes sense, click here to book a call with us.