There are a lot of decisions that go into choosing a PPC business to help you with your advertising. For instance, do they have experience in your niche and what is the average performance on their campaigns? But there’s another decision that can confuse businesses that engage with these companies for first time. That’s the different pricing models they have.
There are many different pricing models for the PPC industry. In this article, I’m going to go over some of the most common ones. Just being aware of these might help you to negotiate a better and more profitable deal for your business when seeking outside help for your PPC campaigns.
The best model is the kind that gives a good deal both for the PPC company and for your business. PPC is an investment that works best on a long-term basis. You don’t want to run out of money, and the PPC company wants to make a steady profit. That’s why knowledge of these pricing models comes in handy.
Whichever pricing model you choose, remember that you need to have clear-cut goals set up so you can see if it’s working or not. If the advertising is not bringing in leads or sales then you’re losing money even if you have the perfect pricing model. You must track your metrics and ROI accurately so you know exactly what you can spend on your advertising.
Before I talk about the pricing models, I’m going to talk a little bit about setup fees. This is something that a lot of PPC companies charge. Setting up a PPC campaign takes a lot of work and there’s no guarantee of success. Also, they know that most customers are only looking at the monthly rate for managing a campaign, so they increase the setup fee to compensate. There are also the companies that set up elaborate PPC campaigns and drop after 2-3 months because they run out of money. These are just some of the factors that go into charging setup fees.
No matter how much revenue your business is generating, you’re not likely to get the setup fee waived. You may be able to negotiate.
- Look at price matching. Find another company charging a cheaper setup fee and then talk with your sales rep about that. The sales rep might lower to match.
- Demonstrate that your company will make steady money over time.
- Reassure and guarantee your PPC company that you’ll be with them for a certain amount of time.
Look for the value that you get out of the setup fee. There are several things which need to be done up front before the first ad is bought, and any quality PPC company that’s worth the time will tell you exactly what is covered in the setup fee and how long they expect the setup period to last. If it seems fair to you, this is a good sign.
A setup fee might include:
- Evaluating your current advertising model
- Determining the USP for your business
- Establishing current goals for your business
- Competitive keyword analysis
- Niche research
Because there are so many factors involved with doing the setup for your PPC campaign, look at any company who offers to do the setup for free as something that is too good to be true. You’d have to wonder what the catch is, because no reputable company that wants to stay in business would do free work..
There is no one-size-fits-all pricing model for PPC companies because every business is different. Some are well-established with proven high revenue. Others are just getting started. Remember that the best pricing model is one that is fair to both companies. With that in mind, here are the major models.
% of spend
This by far is the most common type of pricing model. Usually a company will be charged a certain minimum fee, but if ad spend increases high enough you’ll be charged around 10% of the ad spend. This makes it really easy to calculate your costs. For instance, you could be charged a flat minimum of $1000 to start, but once you spend over $10,000 in a month it will flip to a 10% fee.
However, there is an important caveat. You have to make sure that the ROI you’re getting from your ads exceeds the fees you’re paying to your PPC company. This responsibility falls on you. You must monitor your goals on a weekly, if not daily, basis to make sure that your PPC campaign is working. The PPC company and the PPC provider will both be making money off of you with every click. You have to make sure that what is left over is enough to grow your business and keep your advertising campaigns rolling.
PPC companies expect you to monitor your campaign’s effectiveness. If you tell them to double or triple your ad spend, they’ll do it no questions asked because they expect you’ll have the money. The PPC company will watch the money you set aside for ad spend carefully, of course, but you have to make sure you can still pay for everything.
As pricing structures go, this is pretty cut and dried.
Fixed pricing means that you pay the PPC company a fixed amount each month based on your ad spend. If your ad spend goes up, the price you pay each month goes up and vice versa. Usually this is done in a stepwise fashion. So, you’ll pay one fee if you spend between $0-500, another from $501-$1000, and so on.
This can work well for companies that are on a budget, but it can turn around to bite you if you start suddenly becoming successful. The amount of cash that PPC companies want at different levels can vary greatly. Make sure that you’re well aware of the tiers that you’re working with, as a successful campaign might let the PPC company eat all of your profits. Keep a hawks’ eye on your budget.
Pay per sale / lead
The best pricing model, obviously, is going to be one where you pay solely on the result. That’s what this model is about. The pay per sale or pay per leave model is very popular with larger spending accounts where there’s a lot of room to grow and a high level of revenue generation. If you’re spending less than $20,000-$30,000 a month it’s probably going to be hard to find someone who’s going to want use this pricing model for your PPC campaigns. Most companies don’t have that level of guaranteed sales.
This model can work out very well because it ensures that you’re only going to pay for performance so you don’t have to worry about losing money. Also, you pay out more as you make more money so it’s great for the business. However, you have to be able to have the numbers and convince the PPC company that this model is also in their favor. Keep in mind a good pay-per-click management company is going to run you anywhere from $1000 to $2,000 a month in management fees as a baseline. If a PPC company is going to take a risk and go to a straight pay per lead or pay per sale model there should be a reward for them for taking that risk. Basically, you have to convince them that they’ll make more money this way than following their usual pricing model.
The best way to find out is to ask them if they’ll accept this payment model and offer proof to back it up. There will definitely be some negotiation because there’s often no set formula. Accounts large enough to make this model work for both sides are all unique. But if you trust the company to support you over the long haul and you can deliver, it is possible to come to a win-win deal.
Revenue share is a little bit different from pay per lead or pay per sale. In this model, you pay a percentage of the revenue generated off the sale as opposed to a fixed amount. This makes the fee to the PPC company dependent on the overall success of your business. This is an even riskier proposition for the PPC company, but there are business models where this does make financial sense.
If your website has lots of different products with different profit margins, paying a percentage of the revenue makes it a lot easier to calculate the amount of money you’ll be paying to the PPC company. It also incentivises PPC companies to focus time and effort on the products that have the highest profit margins for your company. Higher margins means more money for them, so it’s in their best interest.
Of course, this model also assumes that you’ll be advertising pretty much solely through the PPC company unless you have some way of calculating which percentage of revenue comes from the PPC ads and which comes through other channels.
If you ask a PPC company to do a revenue share, you’re basically asking them to invest their time and energy in the company and hope it will pay off. You’ll have to set up a very close relationship with your PPC company to make this work. Not every PPC company, nor every business, will be willing to do this. Revenue sharing is common in startup cultures, so you may want to find a PPC company that specializes in startup businesses to try this model out.
Which model is best for you?
How do you determine which model is going to be best is to find the one that is best for both you and for the PPC company you’re working with. When you hire an advertising company it is in both of your best interests to stay in business while still making money. Unlike a lot of other services, it’s not always about getting the best price but about getting the best value for both sides.
If the deal isn’t mutually beneficial and the company still takes your business, you’re most likely not going to get the best quality of work. You’ll end up getting less than perfect results and most likely lose money. Every business negotiation is a compromise. This is why Adficient offers three different pricing plans to meet the needs of different customers. We want our clients to succeed and that’s not possible if the price of our services interferes with that.
From a pure ad spend perspective, the best option for a business is going to be one where you only pay for results, but as we discussed you have to prove that you have the revenue levels necessary to make this an attractive offer for the PPC company. This is the case for both revenue sharing and for pay per sale. But, it never hurts to ask them up-front if they’ll consider that model. The worst they can do is say no. The way to keep them from saying no outright is to prove on paper that using these models is in their best interests compared to a fixed or ad spend percentage model.
If you don’t have the revenue and you have to go to a fixed model or a percentage model, go with the percentage model. Many fixed models offer attractive entry rates but balloon up enormously when you actually start spending real money on your advertising. Percentage models might have you pay more initially, but will scale with your business as it grows.
Again, you must always keep track of your advertising ROI goals no matter what form of model you choose. Monitor it weekly or even daily. That’s the sure way to keep your business from spending too much.
If you have any questions about Adficient’s pricing models or about how to negotiate on price with a PPC company, let us know and we’ll be glad to help.