A review of PPC pricing strategies for agencies offering pay per click management services.

So recently I read an article here (http://econsultancy.com/us/blog/63679-ppc-agency-payment-models-percentage-of-spend?dm_i=LQI%2C1XUNF%2C9O6NB4%2C6YX1B%2C1&utm_campaign=3258987_953-daily-pulse-us-2013-10-29&utm_medium=email&utm_source=Econsultancy) that highlighted 3 methods for pricing PPC services:

•Percentage of spend.
•Performance related.
•Flat fee.

Now Ben Potter from Leapfrogg does a good job analyzing the benefits and detriments of each of the strategies. If I had to break it down for you, each method suffers from one acute problem which is that the payment is not connected to the actual work product.

Instead of rewriting and repacking his article, I suggest you read through it because it is a good survey of current pricing policies in the SEM business.

What I am going to do though is to advocate a different pricing strategy that is also connected to the TIME IT TAKES to manage the client's account. And here's the variables to consider in making this calculation:

1. How many ads are being created in the campaign (and who is doing the copywriting)
2. How many different landing pages are being created (and who is doing the copywriting and analysis in the preparation of the pages)
3. How many ad groups are being set up to administer all the ads?
4. How many ads are being clicked on a daily basis - and this is used as an indicator to see how many ads have to be reviewed for optimization of the PPC spend.
5. How much analytic time is expected on a daily basis for the campaign as a whole
6. How much written client recommendations and ad changes are expected daily/weekly

What happens in an analysis of this nature is that the Agency is held accountable in part to actually review, study, and report on changes to the ad campaign. In the percentgage of spend mode only, the actual work product is never part of the equation because the agency just hopes that they can set up the account and let it run with little oversight (and then they can bank the commissions).

In our scenario, the Client has a metric in terms of spend to know that some percentage of spend should be allocated to what used to be termed an agency commission (just like from the days of ad agencies). And at the same time, the Agency gets to charge more appropriately for the resources it has to allocate to deliver a competitive result.

We don't have the mathematical formula yet but what I am sharing is a way of bridging the gap between Client and Agency to a pricing structure that more closely approximates a true exchange of value for services performed.