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We are looking to outsource our PPC campaigns to an SEM agency and are on the fence about most agencies' pricing structure. Most agencies seem to be charging on a percentage of budget basis. And a few on a retainer or bank of hours basis.
Our budget is in excess of 100K monthly and we're not sure that paying on a percentage of budget makes sense.
Is it justifiable for agencies to charge clients this way especially for campaigns with larger budgets such as our own?
Do larger budgets justify the fees on a percentage basis? Or does a retainer make more sense?
What other pricing structures are there that we should look for or consider when talking to an SEM agency?
Any insights on the subject would be a great help!
I think % of spend is the best model, not because it's an ideal model but because it's better than other models.
Problem with performance-based models: there being no S&P 500 Index against which to measure your SEM firm's performance, the only real way to know how they're doing is to either manage a similar campaign yourself and compare them to that, or have another firm manage 50% and compare against those results. But either of those approaches defeats the purpose of outsourcing.
Likewise, the bucket-of-hours approach lets the SEM nickle & dime you to death. There are certainly tons of things to do on a daily/weekly/monthly/quarterly basis for a large campaign, and I oftentimes think our clients have gotten used to the 'open bar' that a % of spend model allows for.
My own opinion is
a) take the % of spend model and cherish it, for it allows you to get a lot more value from the SEM without incremental fees
b) take the time to verify that the SEM is actually capable of handling all the work you want them to do. Lots of firms claim to be full-service, but in most cases that's them telling you what they think you want to hear. Likewise, know what SEM scope you will want to continue to handle yourself; knowing what part of the SEM workstream *you're* ready to sign up for and deliver on will help you decide which firm is best for you.
I am also with a sem company with a percentage fee pricing structure. It seems like the best and most manageable model to run on.
We have a varied % depending on your spend, the larger your budget, the lower the %. We felt this lets the advertisers get the most out of the deal.
Depending on their spend, if they are close to the cross over point and increase their budget, we may earn less income from them, so there are down sides for us doing this. But a happy client is a good client.
I think the reason why most SEM Agencies charge a percentage is becuase it is easy to manage. I work for an SEm and we charge a fixed fee based on spend. The larger the spend, the lower the lower the management fee.
Also, larger budgets tend to mean more work so it works out to charge a percentage of the spend.
What kind of industry sector are you in?