There are a number of different fee structures used by digital marketing agencies in order to charge clients for work being carried out on their Adwords campaigns.

One of the more common methods amongst agencies for calculating management fees is to charge a certain percentage of the client’s ad spend.

For example, if the client is spending £20,000 on Adword for ad clicks, the agency will then charge an additional £4000 (20% of £20,000) for managing their account.

Charging 20% of ad spend is typically regarded as being on the high side, with 10% usually being the lowest that agencies will quote.

This fee is charged irrespective of the time, or work involved.

Because of this fact, the question is commonly begged: “Is Percentage of Ad Spend an Unfair Way to Charge for Adwords Management?”
 
 

Does an Account With a Higher Spend Require More Work?

At this stage you might be thinking that an Adwords account spending £20,000 per month, might take twice as much time and resources to manage than an account spending only £10,000. However, this is not necessarily the case…

There are many factors that dictate how much time it will take to manage an account, such as the complexity, the volume of traffic, and the number of campaigns within the account.

Therefore, it can often be the case that a high spend account can take less work that an account spending much less.

Does The Percentage of Ad Spend Pricing Model Incentivise Agencies to Increase Your Ad Spend?

The more your Adwords account spends, the more the agency managing your account will make. The less your account spends, the less the agency will make.

Although there shouldn’t be anything inherently wrong with this relationship, it does beg the question:

“Will the agency managing your Adwords account be incentivised to reduce your monthly ad spend to improve the profitability of your account if it means that they will be effectively reducing their fee”?

In practice many agencies will, advertently or not, avoid making optimisations that will result in a reduction in ad spend, even if to do so would be beneficial for your overall bottom line.
 
 

Why Do Agencies Charge a Percentage of Ad Spend?

There are two simple reasons why agencies charge based on a percentage of ad spend:

1. It makes it very simple and easy for an agency’s sales staff to quote you a fee. No specialist knowledge or understanding of your account is required, they only need to know your current or projected monthly Adwords spend.

2. Many other agencies are already setting their fees this way. And for those agencies that are adding Adwords management to their service offering, it’s much easier to look at what other agencies are doing and use the same approach.
 
 

What Does This Mean for You the Client?

Although Percentage of Ad Spend is not the most transparent method for setting management fees, this doesn’t mean you should avoid agencies that use this pricing model. There are many exceptional agencies that still use this model.

However, you should ensure that the agency is clear about what there are offering as part of the management, and what you’ll be receiving for the fee each month.

It can also be beneficial to learn more about the other various pricing models that agencies use and the pros and cons of each.
Get clarification on what type of work will be carried out on your account, and what you can expect for the fee that you will be paying.

We hope you’ve found this overview useful and that it helps you to compare any quotes that you are receiving. For any clarification please don’t hesitate to get in contact, and we’ll be happy to be of assistance.