Percentage of the budget, fixed or hourly - how to work with an agency?
Most of the agencies are involved in setting up and maintaining contextual advertising in Google Ads and Yandex.Direct work according to the “percentage of the budget” payment scheme. This is one of the simplest forms of calculation used by more than a third of agencies. Only the fixed payment model is more popular, but it is relevant only for freelancers and beginners.
As for the “percentage of the budget”, in this case, the client immediately puts the amount of payment into his general expenses, and the performer can easily calculate already at the first stages of work how much his earnings will be. Problems begin later when the effort is out of proportion to the budget. This means that either the agency is in the red, or the client overpays.
What’s wrong with the percentage of budget scheme?
Calculating the percentage of the budget is much easier and faster than analyzing the project, making an estimate of the work, and agreeing on everything with the client. But this is where the ease ends since the scheme does not take into account two important facts.
Fact 1. Effort and budget do not depend on each other in any way.
With the same amount of time spent on setting up advertising, the budget can be completely different. The cost of clicks and getting into the TOP results depends on the client’s field of activity, the region of promotion, the type of advertising campaign.
Let’s say your ad budget is $ 10,000 per month. This is quite enough to stay at the top for such queries:
- Apartment renovation Moscow;
- Apartment renovation services;
- Apartment renovation in Moscow;
- Order apartment renovation Moscow.
Setting up contextual advertising, in this case, will not take much time and effort, and an agency that takes 10% of the budget will earn 1000 $.
What if the queries were more specific? Let’s give an example from our practice. Working on an advertisement for the Action-Press publishing house, we received a fairly small traffic flow at a low price. At the same time, we launched search campaigns for each publication, made a large number of adjustments, and adapted advertising campaigns for promotions and changing prices of the publisher.
Examples of requests we worked with:
- Journal for an accountant;
- Journal for commercial organizations;
- Journal for chief accountant;
- Journal for a financial director.
Fact 2. The scope of work may change during the work on the project.
In the course of advertising, the client may have new directions of work, new products, the situation on the market may change. And, as 2020 has shown, global factors beyond our control can make their own adjustments. Such changes can drastically cut budgets or vice versa, force people to invest more in advertising. Sometimes the budget remains unchanged, but it needs to be redistributed to other areas or new types of advertising campaigns to be tested.
If the agency receives a percentage of the budget, you need to be prepared for a conflict of interest. On the one hand, it is profitable for the agency to insist on increasing budgets. And it can really give its results. On the other hand, the client will strive to use as many performers as possible with a stable budget, or cut it down, depriving himself of conversions.
The result is mistrust on both sides and low advertising efficiency.
Pay for hours – why is this strategy fair?
Imagine that there are two clients with approximately the same amount of work, but significantly different budgets. If we took a percentage of the budget, it was unfair to one of the customers.
Through trial and error, we have come to the conclusion that it is more correct and more profitable for both parties to invoice for hours worked. By analogy with programmers, we introduced hourly wages. At the same time, the cost per hour is stable, and the scope of work is agreed upon with the customer before starting work. All-time costs and their costs are specified in the contract.
A pay-for-service strategy is beneficial for both us and clients who understand what they are paying for. We understand that our clients’ business depends on many factors, and advertising budgets can change, both up and down.
- If the advertising budget itself is significant, the client will not cut it, just to save on agency services.
- At the same time, if the advertising budget is small, we meet the client halfway by offering , for example, shortening reports and reallocating their time in favor of more important settings.
This scheme allows us to effectively manage our time and build honest relationships with customers.