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The pros and cons of different adwords management pricing models

Written by Wes Parker

Posted on: September 26, 2023

So you’re ready to go ahead with a fantastic PPC agency, and you’re hoping to boost your AdWords results into the stratosphere? Part of your AdWords management will be choosing a pricing model that suits not only your brand but also your budget and advertising needs. PPC agencies offer different options so you will encounter different pricing models. Today the expert DemandMore team break down the most common of these, lay out their pros and cons, and ensure you feel empowered to get the very bes results for your budget.

The Nitty-Gritty: Deciding What AdWords Management Pricing Model You Need

While it probably won’t be your determining factor for choosing a PPC agency, make sure you understand what pricing models they offer before you sign on the dotted line. And check they align with your business needs and goals.

Ensure you understand a little bit about what PPC can do for you. What type of campaigns are you hoping to run? AdWords can be used for everything from raising general brand profiles or compensating for poor SEO you’re in the process of correcting, right through to keeping offers and seasonal campaigns fresh or driving email marketing signups. Know what your goal is.

And be honest about the work you have already done. You may be walking in the door with a reasonably successful AdWords campaign you’ve been running in-house, but now you need expertise and refinement to boost it further. Perhaps scale is your issue, and you now need access to a full team to keep driving your results. Or you could be starting from scratch and need full-suite management from an exceptional team you trust. While a great PPC agency will help with all those scenarios, the amount of work and AdWords management your campaigns require will affect the pricing. Don’t forget to differentiate between the costs paid towards the agency and your bid budget. That is the core amount you are willing to spend on the ads themselves for each month or campaign.

Some agencies will offer several possible fee structures, while some work on one alone. Spend some time breaking down your goals from your AdWords campaign, so you can choose a pricing strategy that works for you both.

Breaking Down Common AdWord Management Pricing Models

Now you have the basics under your belt, let’s get to the core of the matter. What are the most common AdWord management pricing models? Below we outline some of the ones you will encounter, as well as their pros and cons.

  1. Flat Fees (Retainers)

By far the simplest to understand, the flat fee model means you’ll pay a fixed price for services every month.

Pros of the Flat Fee Model

The major advantage for the flat fee AdWord management pricing model is its simplicity. You know exactly what you will pay every month, making budgeting a breeze. Additionally, this model has no commission-like element, meaning the fee will not inflate if your ad budget grows. According to Databox, 51% of advertisers preferred flat fee pricing for AdWords management, citing budget predictability as the primary reason1

Cons of the Flat Fee Model

However, because you don’t have a direct link between your costs and ad spending, you may find it rather limited in transparency. This means it can be challenging to assess how efficiently your budget is being utilised. Additionally, some agencies push this sort of client to the bottom of the ad optimisation list, as their fee is constant no matter how well your ad performs. This could affect your ROI from your campaigns. Remember, the usual average is a $2 ROI for every $1 spent,2 but this does vary by industry and campaign intent.

  1. Percentage of Ad Spend

Possibly the most common pricing model you’ll see for AdWords management, here you pay a percentage of the money you spend on the ad itself to the agency each month.

Pros of the Ad Spend Model

For many companies, the cost scalability of this model is its true appeal. The management fee only increases in proportion to your ad budget, so you can start small and dream big, getting results along the way. This is especially good for rapidly expanding businesses. Additionally, while a great PPC agency will always do their best for all customers, the agency does have a vested interest in optimising your campaigns, as their fee is tied to your advertising spend. 45% of advertisers favour a percentage of ad spend pricing for AdWords management, appreciating how it keeps the agency engaged with campaign performance3

Cons of the Ad Spend Model

The primary pitfall of this method of AdWords management is the uncertain monthly cost. Budget fluctuations will occur, and can be difficult to plan for. Especially around peak seasons. This may make it tough to work this model into your budget. Tied to this, there is a risk of overspending, whether innocent or done deliberately to inflate your budget. Needless to say, working with a trusted agency partner with a great track record will help offset these worries. Remember AdWords itself has some protections built in to help keep budgets trim, too 4]

  1. Performance-Based or Milestone-Based Pricing

With performance-based pricing, you only pay after the PPC agency achieves specific outcomes for your campaign. Based on your goals, they could be sales, clicks, or conversions. Milestone-based pricing is very similar, working with set milestones in the campaign process that you choose.

Pros of Performance-Based Pricing

Performance-based pricing is often seen as the most low-risk model for the advertiser themselves. This is because you only pay for tangible results, rather than any upfront costs. It’s a pretty results-driven model. According to a study by SEMrush, 21% of advertisers preferred performance-based pricing for AdWords management, specifically due to its risk-reduction benefits 4

Cons of Performance-Based Pricing

As always, the pros come with some cons. Mostly a lack of control over the campaign on your side. The PPC agency will want to tightly control campaign strategy and creative decisions, based on their previous experiences, to help meet your benchmarks. And sometimes they may not be the right benchmarks for your needs. Make sure you are very familiar with reasonable campaign benchmarks for your industry and aims5 Additionally, your CPA, or Cost Per Acquisition, may be higher under this model. They can also be difficult to set up well on your side without insider knowledge. And you could encounter strained relationships if there’s an underperformance issue.

  1. Hourly Billing

This model works pretty much as you will find in the legal or financial industries. The PPC agency puts in work, counts up the hours they spend, and bills you on a per-hour rate.

Pros of Hourly Billing

A major positive of this AdWords management model is the insight it brings you into how much time the agency is investing in your campaign’s management. This is a great help when you’re looking for value for money. It’s a model particularly well-suited to businesses that only use AdWords sporadically (say for seasonal campaigns) or if you only need limited advertising. It is a particularly flexible model. The State of PPC 2020 report by Hanapin Marketing found that 29% of advertisers used hourly rate billing for AdWords management, with it mostly being favoured by small and medium-sized businesses6

Cons of Hourly Billing

Again, the biggest drawback with this model is the cost variability it brings to the table. You could find your monthly expenses fluctuating a lot, depending on how much work the agency needs to bill. Again, some unscrupulous agencies may also try to inflate billable hours rather than focus on campaign efficiency. Marketing jobs are set to increase by 10% year-on-year to 2026 and beyond, according to recent data7, so you must work with a trustworthy, well-regarded team.

  1. Hybrid Models

Based on these 4 keyways of billing for AdWords management, there are many hybrid models, where you combine the benefits of two models in a package that works best for you. The number of variants of the hybrid idea will depend on the individual agency, as will the types of business they typically target. But most will offer one or two.

Pros of Hybrid Models

You’ve doubtless already seen that the 4 basic models each offer some stellar pros, but have their downsides. Hybrid models allow you to find an ideal pricing structure for your needs, working with elements of each. This also helps to balance the agency’s incentives to work well for you. It could also let you embrace the most advantageous optimisation while still keeping budget predictability. 63% of advertisers express interest in hybrid pricing models8 for this exact reason.

Cons of Hybrid Models

Of course, with that predictability comes complexity. You may need to negotiate and agree the package you want with the agency beforehand. Additionally, more complex pricing systems need closer monitoring to ensure all agreed-on touchpoints are being met. Both on your side as well as the agency’s. Remember that one of the major pros of working with an agency at all is that someone is actively managing your account. As many as 72% of businesses monitoring their own accounts don’t bother to check them9– and that is death to your goals.

Common FAQs about AdWords Management and Pricing Models

Now you have a better idea of the pricing models commonly used in AdWords management, we’re sure you still have a few remaining questions. Here are the ones the DemandMore team are often asked on this topic. Remember, if you don’t see yours here, reach out to us – we’re always happy to help!

Does AdWords management have a minimum budget? How does it affect my pricing model?

It is very common for agencies to have a minimum budget that they require you to allocate towards AdWords advertising through them. That said, it’s not the case for all agencies, so make sure you find a great PPC agency that matches your needs and goals. The budget you set for the bids and the campaign itself will have a knock-on effect on the pricing model you choose to drive the results you want. As this is a very individual question, you will do best to address it with your agency of choice. DemandMore is always happy to discuss budget concerns with our clients.

Can I switch between AdWords management pricing models if my needs change over time?

You absolutely should be able to swap pricing models down the line as your business grows and your company scales. It is very normal for your needs and goals from AdWords to shift with time, and budgets are always in flux too. Most quality PPC agencies understand this and will work with you to find the right new balance. However, as the client, be reasonable with this. Agencies can tell when you’re trying to pinch pennies too hard and disrupting their workflows (and the results you get from your campaigns) by changing too often. Try to stick to a once-a-year switch-up if you need it. Don’t be afraid to stick with a pricing model that’s working for you either!

What reporting and performance metrics can I expect from my AdWords management agency or professional?

Transparent, clear, accessible reporting is a critical cornerstone of the trust and partnership you will build with your AdWords agency. This should be communicated to you clearly and without jargon. If they’re setting your goals, ensure they are clear and you understand them. And work with a partner who doesn’t hesitate to prove their work on your campaigns through regular reporting in both overview and detailed data10 Make your expectations on data analysis clear from the start for the best possible relationship.

How do I evaluate the effectiveness of my AdWords campaigns under different pricing models?

Again, evaluating the performance of your pricing model means setting clear goals from the start (and listening to your PPC partner’s advice). From there, the reporting and data you receive should help you judge if the pricing model is working correctly for you. Don’t forget to factor in ROI! Data such as click-through rate (CTR), conversions, cost per click (CPC), cost per conversion (CPA) and even the AdWords Quality Score applied to your ads should help you determine what is working and what isn’t. These are called key performance indicators, or KPIs.

Are there any industry-specific considerations when choosing an AdWords management pricing model?

Yes, industry-specific considerations can play a significant role in determining the most suitable AdWords management pricing model for your business. Different industries have unique characteristics, competitive landscapes, and customer behaviours that can influence the choice of pricing model. This is why working with a PPC company that has experience in your niche industry can be very helpful, as they should be able to guide you effectively based on your business size and goals.

Choosing the right AdWords management pricing model for your business can seem like a daunting task. While each model has its advantages and disadvantages, they can all bring real value to the table for the right business and campaign. Armed with our helpful info, you should already have a good idea of the best models for your needs. Remember, if you need any further help, or want to discuss the pricing models DemandMore has to offer you, you are welcome to chat with our helpful team today.