The Comedy of Selling PPC Services

Posted: 26th March 2012 by blackhat in Black Hat PPC
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The BlackHatters were chatting the other day and we thought it was time to get a bit of perspective on the comedy that is selling PPC services. Why? We’ll the majority of people are looking for getting better performance from the PPC campaigns to get the best return for their advertising spend (unless you are doing a branding campaign.) But still PPC services are sold on a % of advertising spend, which is a total contrast in the actual objective you are trying to achieve.

What do we mean? You tell people you are PPC professional and we can do kind of whizz bang amazing stuff to improve the performance of your PPC campaigns, meaning that you will have to spend less money on PPC to earn the same/more than you were before….BUT….if you are saving more on your PPC spend, then you (the PPC professional) are going to earn less as a result based on a % of advertising spend fee.

This is a total contradiction in how PPC services should be sold!!!

Why would a PPC professional really work hard on improving an advertisers PPC campaign if they are going to earn less money as a result???!??!

Sure, they are different pricing models that PPC work on…A fixed fee, % of PPC revenue, or bonus system. But all of these models are flawed as well.

Now we have blogged about this before, and its not exactly ground breaking stuff to people in the industry, but we thought we’d blog about it again, just because when we get some perspective on it all, it is absolutely ridiculous!

Fixed fee – as a PPC professional all you are trying to do is do the least amount of work possible in order to keep your client happy so you don’t lose their business.

% of PPC revenue –  this doesn’t work because PPC doesn’t work in a silo. It is affected by all kinds of numerous other factors – investment in above the line media, investment in other digital marketing channels, seasonality, promotions, competitor activity…the list goes on and on! So as a result, as  a PPC professional, you have no control over these factors so have no incentive to do any work on a clients PPC campaign, because you have no real influence on how it performs overall.

Now – you can do benchmarking but we have tried this and whilst in theory it works, nothing stays the same and benchmarking year on year needs to be thrown out of the window, because PPC and digital marketing is advancing as such a rapid rate that year on year comparisons just cant be made.

Bonus System – this a a weird hybrid between either a fixed fee or % of advertiser spend and % of PPC revenue, and as such it is flawed by both of what we have just highlighted. In practice, advertisers will give you a tiered system on which the bonus system will work and if as a PPC professional you can think you can hit the next bonus tier, then you will put in the extra effort and try to maximize the potential of the PPC campaigns because you may hit the next bonus tier…however, if you know you have hit the bonus tier and no matter what happens you cant hit the next level, again there is no incentive for a PPC professional to optimise campaigns.

So what?

We see this as leading to a decline in the quality of PPC professionals. Because really…its a bit of a joke. You don’t have to be any good at what you do, because you have no incentive to do anything to become any better and learn how to really deliver the best performance of PPC campaigns. All you have to do is ‘shmooz’ your clients to ensure you have a continued revenue stream. We see this as leading to a real decline in the quality of PPC professionals in the future.

But fear not!

The Blackhatters have the answer (similar to smarties!)

If you are an advertiser, just give all your advertising spend to the PPC professional and tell them they will get a % of the profits. This way they will actually ensure they work hard to ensure they are actually driving the best return for you spend.

But…what about the % of PPC revenue model and all the factors beyond your control.

Answer: Do the same deal with all the other advertising channel agencies. Give then all the money and you’ll see the all the above the line and digital guys will work in unison, because their profits are tied to one another, they’ll work in unison to really maximize their return.

The Drawbacks…this ‘ideal’ happens very selodomly because the digital guys dont know the above the line guys and they dont work in harmony (honestly, the difference between the data guys and the branding guys is like men are from mars and women are from venus!)

But hold on…what about the full service agencies that provide both?

Yes, in theory this should work. However, in practice this doesn’t really happen because they are separate departments with their own individual targets and as such don’t work in unison together. Even if the guys at the top do decide that they work together, they’ll still have different fee structures for the different disciplines and will end up spend an advertiser money in the channel that maximises the profit for the full service agency.

Its a real catch 22 when it comes to selling PPC services, but our advice is to get lots of specialists and then tie them all together under one profit sharing agreement and whilst their may be some teething troubles, its probably the best way of maximising your advertising spend as the different professionals will urge each other on to maximize the profits for everybody.

Brought to you by Black Hat PPC.

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  1. Henry says:

    Interesting.. and quite true, I must say.

    There’s another way for a company to maximise their PPC – just bring it in-house and forget about agencies. This scenario allows you to control almost anything that happens with your campaigns. The incentive for the professional? Not getting fired.

    Of course this would work and be viable only for companies with larger budgets so as to make financial sense.. Smaller guys? Hope that your hired professional is truly professional and will work to the best of their ability regardless of payment schemes.

    My 2p

  2. Ryan Eagle says:

    Good information. Thanks for the article!

  3. Matt says:

    Only problem with profit-share is that only works for ecommerce (and only then if you have constant monitoring to ensure your pixel/postback is firing correctly). If you go profit-sharing with lead gen (either b2b or b2c), there is a whole world of holes your money can fall down which even a crm never seems to solve. Flat fee with frequent and reachable tiered bonuses per conversion seem to be the best way I can find right now to keep everyone happy.

    On the advertisers side, their protection comes from knowing quality PPC management isn’t as hard to find as it once was so they can swap out if they don’t see changes. They could also have the tier thresholds slightly over time – not tough to throw in a spreadsheet though it makes things more complicated. I don’t think they’d have to go that route though because in my experience a company not optimizing is going backwards over time, hence less bonuses.

  4. STu says:

    Check out Trada. They capture the difference between the CPA goal and the actual CPA. If they miss the goal, they get nothing. If they beat the goal they keep the difference. Seems like goals are aligned in this model.

  5. You’re right that the % of advertising spend model creates the wrong incentives for both the agency and client, and is something I’ve shown doesn’t work with some economic analysis: http://www.calculatemarketing.com/blog/techniques/economics-of-ppc-pricing-why-the-markup-model-is-flawed/. Under a % of spend model, the optimum profit-maximising spend level for the client will always be less than the optimum profit-maximising spend level for the agency, creating a conflict of incentives. Exactly how close the actual spend level will be to the client or agency optimum will depend on the relative bargaining strengths of client and agency.

    Performance-deals based on a fixed CPA structure (e.g. the agency gets $10 commission for every sale they generate) also tend to fail due to brand versus non-brand separation issues, lack of accurate click cost and sales data, and diminishing marginal returns, creating a disincentive for the PPC agency to deliver at the optimum level for the client http://www.calculatemarketing.com/blog/techniques/economics-of-ppc-pricing-why-performance-deals-fail/.

    I also came to a similar conclusion as yourself that the most ideal solution is a profit sharing model http://www.calculatemarketing.com/blog/techniques/economics-of-ppc-pricing-why-profit-sharing-is-the-future/. It is the only model where the incentives for client and agency are perfectly aligned. It does require the agreement of a fair profit-sharing percentage, an accurate method of conversion attribution, and transparency of sales data between client and agency, but if these challenges can be overcome, in my opinion profit-sharing is by far the fairest model for both client and agency.

    It is also worth keeping in mind that clients might want to hire a PPC agency or PPC specialist not just for maximising profit of their PPC campaigns, but for other ad hoc reasons, such as website recommendations, brand development, improvement of tracking capabilities, suggestions on email and other marketing activities, and general business advice. For smaller clients who would benefit from having a specialist on board to advise on any marketing, tracking, or business-related issues, a fixed fee model can work quite well.

    But regardless of the PPC model of choice, I am a firm believer that clients should not be unnecessarily locked into lengthy contracts. Should a client not be happy with the performance of their campaigns, or the level of service, they should always be free to take their business elsewhere.

  6. Michael says:

    In my experience, a percentage of spend model can work really well, when combined with a set CPA or ROI target, but only if spend is uncapped. The agency has an incentive to improve performance, because it will mean they can increase spend without going over your goal, making them more money and giving you more sales / conversions. I saw one of my clients go from spending 500 pounds a day to over 4,000 in the space of a year working under this arrangement because I had full license to invest my time into improving performance and looking for opportunities for expansion. The worst type of client are the ones that have a fixed budget because those budgets are usually arbitrary and offer no incentive to improve performance.

  7. Simon says:

    We find cost per lead works really well for companies not interested in all the marketing or how things are done, generally they just want sales or leads. We manage to do this by using ppc affiliates / landing pages / ppc. Problem with profit share is their has to be quite a lot of trust between you and the company to be upfront on how many sales they do and pay you the right commission.

    • Brandon D. says:

      Agreed. It’s simply unfeasible to have enough trust in all of your clients if you’re working at scale.

      Personally, I prefer the CPA model when it comes to PPC. It keeps both sides honest (numbers can’t lie) and incentivizes the agency to perform. Mind you, I work solely with service based companies so this works; my view might different for a product based project.

      The only “drawback” is that there is no illusions; if you’re not doing your job, if you’re not delivering ROI, it becomes obvious rather quickly. But if you’re good at what you do, this works to your advantage rather than against it.

  8. John says:

    Although a good idea in thought, it’s not actually a scalable model for any agency or anyone that wants to manage several accounts. Most importantly, unless you have complete control over the sales cycle, there is no way anyone would accept this offer.

    Appealing to business owner, this is great and they basically only pay a commission, but if your not going to allow me full access to make changes to your site, implement an email marketing strategy and you hire the best sales people, this has flawed written all over it.

    I’ve been in this industry for over 11 years and I get this type of question all the time, which demonstrates an inexperienced advertiser looking for an easy out. Call the media company you buy TV ads for or billboards, they will laugh in your face.

    Any truly experienced and confident PPC specialists will make an offer to their customer around performance and goals THEY CAN CONTROL, such as lead gen or campaign metrics. I have a system I’ve put in place and tweaked over the years and works great. I bet anyone can go to clients on a plan as described above and easily steal away their business with a performance offer.

    Think outside the box, that will get you business and keep the customer onboard with you.