My Thoughts About Agency Pricing Models
eVisibility wrote about their new ppc management price model this morning…and I walked away shaking my head a little bit because I felt like they were attacking a majority of agencies out there (not us, thank you eVisibility).
It seems that there are three typical pricing models for ppc agencies out there: percentage of ad spend, performance based (% of net or gross profits, flat fee for sales/units sold, lead volume, etc) and hourly (eVisibility’s new pricing model). There can be hybrids too…so technically, there are quite a few ways to twist all the models into what you think is best for your agency or your company.
This is my personal opinion and view on each of the pricing models. But, I’m going to give away my bottom line first:
EVERY pricing model can work for the company that is outsourcing the function if the ppc management company is ethical, hard working and willing to manage based on their client’s key performance indicators regardless of the agency’s pricing model. I believe, without a doubt, that most agencies really care about their client’s bottom line, regardless of the pricing model. You build trust and authority with your client base, and deliver fantastic results then the natural course of action is for them to spend more and spending more leads to more sales at an acceptable fee – and if there is ROI, then the client will continue growing…and the agency will too.
Percentage of Ad Spend
This is definitely a tried and true model – and it fits for the traditional ad agency. If a traditional agency is expanding, then they can offer this function as part of their regular services and it would simply make sense to the client that paying this is like paying their traditional media company to do their media buys. It’s normal, it’s trusted and I’m confident this model will stick around for a long time.
Most agencies will not abuse their client’s budgets so for me, the idea that a percentage based model forces an agency to drive a client’s budget up so the agency can make more money is bogus for the majority of agencies out there. Sure, there are snake agencies in any pricing model and in any industry…ppc management isn’t an exception to the rule!
A lot of software and tools follow this model too. It’s an easy way to monetize ppc management services and it makes sense.
You can’t really deny that ad spend gives a company and an agency a hard figure to build a price from whereas the other models are a bit more abstract in nature while still highly competitive and viable.
I developed a thirst for thriving based on my performance which is why semvironment is performance based. I like to think of this model as a commission based sales agency – we’re in it to win it and the better we do, the better the client does…our pay check is directly tied to the client’s pay check.
This is another tried, tested and true model. How long have commission based sales people been around? It’s ancient history…longer than the % of ad spend model.
The key to success in this model is to identify the point at which the client is in complete control of the process and the agency loses control – or, the agency controls the process to what point before the client takes over? If the agency has a strong creative say in the entire shopping cart process, then perhaps the performance based pay should be transaction based or revenue based. Or, in the lead gen business, that point of control for the client is at the lead level – the agency does not control the sale of the service while they control the point at which a lead is generated…therefore, the lead could be considered the key fee point for the agency.
In any case, the performance based model is for those that can honor the system, are insanely hard working, and the client is willing to develop a “partnership”, in a sense, with their agency.
Hourly is another model that is tried, tested and true. (Yes, every model is tried, tested and true…lol)
eVisibility has the explanation of this model right, I think. For me, the hourly model is like hiring an accountant or a lawyer. You might have the newest one on the block working on your account, but there is solid evidence that the firm is good at what they do so you essentially get what you pay for in terms of hours. It doesn’t appear to be tied to ROI or anything really…kind of like a regular employee. I’m really quite unfamiliar with this model, but it appears to work for several agencies out there and some clients are going to be happy with it.
Some might say it’s like hiring a consultant. I have only had positive experiences with consultants while others would joke about the ’snake’ consultants that are out there. Again, every pricing model is going to be riddled with snakes.If you enjoyed this post, make sure you subscribe to my RSS feed!