If you’re investigating hiring a company to manage your advertising on Google AdWords (and other platforms) then this article was written specifically to help you understand the typical pricing models and the pros and cons.
When an agency or individual charges a flat rate for Google Advertising management you need to know if this is package based pricing, combined pricing or their only price. (You can learn what these mean at the corresponding headings below)
If you don’t know: ask them!
It’s very common for sales people to give you a price, and the impression that’s the only price you’ll ever pay, without actually saying that directly or putting it in writing. Sales people do this because if they reveal their long term pricing model or strategy statistics show you’re substantially more likely to walk away and hire another company who does not share all of that information. Sometimes this is because they’re being blatantly deceitful, other times it’s because they hope if you start on a small service and you’re happy then when they tell you how expensive it really is you’re much less likely to walk away. Apart from our company, I honestly don’t know an agency that doesn’t operate like that. We hate it and think it’s a shameful practice – and that’s one reason why we write articles like this.
Either way, if they give you a flat rate and no other explanation, you should know that there is almost certainly only one of three things going on:
If they give you a flat rate it’s based on a package they have defined. They may not call it a package, but that’s essentially what it is. What’s important to clarify is what is the next step after you’ve paid for that package and things are going well? Some agencies, like ours, offer Add Ons to packages or allow you to purchase multiple quantities of a service.
For example: Google AdWords doesn’t take much effort to create the actual Ads themselves, but the research and reporting that goes into it (if you’re working with a good agency) should be a substantial amount of time compared to all other activities. When you introduce a new feature like Call Extensions – which ensure your phone number appears with your listing in search results – you want to see how that Call Extension performed in contrast to the base text ad. So our agency charges a flat rate monthly fee to set that up and then report on it in addition to the base package and price.
If they only give you one flat rate (for example $500) and they specifically say they will never charge more, and they have no other options: run!
These types of companies are either amateurs that won’t tell you they’re new to the industry and have no idea how to scale or what the next step would be. Or they’re aiming to be a mega company that sells the cheapest, lowest quality, easiest-for-them-to-manage service that you’ll accept for as long as you’ll accept it. These people and organizations aren’t aggressively looking for the best opportunities you have, they’re not optimizing what they’re currently doing with all their effort, and they ultimately don’t care about growing your business as much as you do.
For example: Google AdWords, among other forms of advertising, is in a default natural state of changing, introducing new options, and – for most industries – can be scaled practically infinitely because they advertise to the majority of the worlds population. Meaning, if your business model can accomodate and you have the ambition: you could dedicate an entire department in your company with full time employees managing just your advertising some day.
Lastly, sometimes companies combine a base flat rate with a percentage or other method. You can learn more about the percentage method below, but this can be a good option for both big and small businesses.
Most agency’s we know of eventually switch clients to charging a percentage (commonly 10-20%) of what their client (you ) are/is spending for the advertising budget overall. This model is good for agencies because they don’t have to ask your permission to charge you more and they can know at the start of the month how much time they will allocate to your project. It’s also a seemingly reasonable way to allow you to have your own marketing agency dedicated to your efforts that is cheaper and more effective than having your own internal agency.
So what’s the problem?
The problems are that this model is:
For example: If you had an Ad Spend (what you pay to Google, etc…) of $3,000 a month, and they’re charging you $600 a month, and their hourly rate is on the lowest end of standard agency rates at $150, then they’re only budgeting 4 hours a month to your campaign. Maybe instead of charging you for every hour of their staff time, they decide to pay their staff for 10 hours a month it breaks down a little like this:
Where’s the time to optimize so you’re spending less and making more? Where’s the time to review your competitors and see if we can learn from them? Etc…
The answer is: it’s not there. So every month they’re having to choose between doing what’s best for your campaign, and not doing everything they can because they’re not charging you enough.
To make things worse, I’ve seen agencies knowingly not tell clients about things they could add to their AdWords (or website, or other services, etc…) simply because they know it would mean more work for the agency even though it was the best thing for the client. I’ve also seen agencies fire a client because they didn’t know how to charge them more without going back on their word.
To give you context, most agency’s don’t monitor your campaign daily, some don’t even look at it weekly. And our least expensive service still requires about 3-6 hours to generate a monthly report. So $600 on a $3,000 a month ad spend could be enough, but ultimately what you’re spending doesn’t have any impact at all on how much time we spend on your campaign.
Retainers can be great. But they can also be very treacherous.
Packages are ideal in the sense that you usually have a page that outlines exactly what is done for an individual service. Protecting both parties.
Retainers are ideal in the sense that you can mix-match multiple services fluidly.
Where retainers can be dangerous is that they often outline what services-are-included, but don’t fully scope what’s included-in-each-service. Leaving you hearing “Sorry, we can’t do that without more money.” or leaving the agency over extending themselves to meet your needs which – in the long term – results in sub standard service or cutting their losses and firing you as a client. Leaving you to find another agency and start over.
So if you’re going to do a retainer, you just want a crystal clear contract that explains the details of each service in permitted in that retainer.
Lastly, most agencies have some combination of these things. 9/10 times it’s flat rate package + 15% of your ad spend.
At The Portland Company, we use a combination of Package Based and By the Hour.
We believe that ultimately what any person makes comes down to how they value their time (not that there aren’t overhead and production expenses included). And it’s the only truly consistent way to decide whether or not we’re generating enough profit from a service when we’re coming up with a price.
Many agencies we’ve white labelled our services for seem to arbitrarily set their prices – usually driven by getting the maximum amount they think they can get out of a client – especially if it’s an individual proposal. Whereas we set our prices based on what amount will keep us happy and motivated to do our best for you, even if we know you could afford more.
We also do this because creating a Package for every service we offer allows us to document our process and be as flexible as possible to accomodate the different business models that people employ.
Packages are very inexpensive and a great deal for small businesses because things are simple, straight forward and usually packed with growth-centric features.
But they become very expensive as most businesses grow in which case it makes sense to switch to a retainer. Retainers make it so we don’t have to get your approval and charge your card when we have something new we want to do, or experiment with. We are free to use our discretion within the boundaries of your budget to iterate rapidly.
Call us today (503-567-9561) or schedule a consultation and we’ll talk specifics whether you choose to hire us or not!