Dissecting PPC Agency Pricing Models, Part 3 of 3
August 26, 2015
This is the final post in my series about PPC pricing. You can read the first and second posts here and here. I planned to also write about what to look for in an agreement (from the client’s perspective) but this blog post is already 1,300+ words. If you’d like to see it, let me know in the comments.
How To Bill For Miscellaneous Work
There are some situations where the client needs work performed that is outside of management. If it’s directly related to PPC management, then the agency should just do the work. If it’s indirectly related to PPC management, it likely needs to be billed separately.
There are many situations where Hanapin performs work outside of scope but if it’s directly related to PPC management, we don’t bill separately for it. An example is working with the client’s technology team to download customer data that our contact couldn’t download herself or himself so we can perform a keyword-to-sale analysis. We do this because it directly helps us improve the account.
For work that is outside of scope and indirectly related to PPC management, we bill for it. An example is one client who migrated their 10-year-old internal database to Salesforce. All of their brands and websites were now going to hook into it, which meant we had to update all their URLs too. To complicate matters, some brands were run by folks overseas so we had conference calls at odd hours and on weekends to mitigate business interruption. We updated something like one million URLs.
Because this work was indirectly related to PPC – we had to update the URLs for PPC for other business reasons but not because it helped us improve the account – and because there were extenuating circumstances around this, namely people working entire weekends and off-hours, we billed them an hourly rate, in addition to our management fee.
As a practice, we don’t include hourly rates for miscellaneous items in our agreements, though if these situations happen to you frequently, you should consider adding them to help set expectations. An unintended consequence of this is that if too frequent, clients may feel you’re nickel and diming them.
Another unintended consequence is at the opposite end of the spectrum – if you’re not billing clients for indirect work, the lines blur for scope of work and even the best client may become “trained” to regularly ask for and expect those types of items.
Your mileage will definitely vary though I would start with not including an hourly rate simply because we’ve rarely run into instances where we needed to bill extra and when we have, the client was amenable.
Conditions And Terms
Generally, customers with smaller budgets will want shorter terms like month-to-month with no commitment so they can remain flexible as they grow their account. Customers with larger budgets will want longer agreements so they know you’re committing resources to them and they get the benefit of deeper discounts.
For the most part, Hanapin works on quarterly and annual agreements, sometimes moving to 2-3 year agreements as well. Though when we started, we only had month-to-month agreements, mainly with 30-days notice but sometimes not. They were all handshake agreements too, meaning we didn’t have a paper agreement in place. And in fact, our second client is still with us today and is still on a verbal agreement. I wouldn’t recommend this, but all of our clients were referrals so the risk was low. Also, I really hated paperwork and just wanted to get started ASAP.
This is a great way to win business because it’s low risk to the client. As they say, when you’re starting out, say yes until you can start saying no. Because, on the flip side, you’ll find yourself in situations where the client gives one-day or one-hour notice. You’ll need a cash cushion to ride out those situations.
The tech fee is for technology/software to help automate the manual parts of managing an account. Whether you’re in-house on the client side and managing everything yourself or your outsourcing everything to an agency, most if not all PPC accounts need software to help automate manual and time-consuming tasks. This includes:
- AdWords scripts
- Excel macros
- Software like Acquisio or Marin for bid management
- Rules for highlighting underperforming areas of the account
- Streamlining reporting
The time saved on these tasks allows you to focus more on strategy, analysis, and other initiatives that can’t be automated, thereby improving the performance of the account. The fees are generally pass-through fees, meaning that whatever the agency pays for access to the software, they’re passing along that fee to you. In other words, there’s no markup and if there is, your account benefits from the software for much less than you’d pay directly.
The CRO fee is for making recommendations for conversion rate optimization (a.k.a. landing page optimization) to further improve your PPC results. For simplicity’s sake, the price we charge is equal to the tech fee. This covers software we use to run the tests and time our CRO managers spend on the accounts. We do quite a bit of user testing, are constantly recommending and running A/B split tests and multi-variant tests, and work with the client’s marketing and technology teams to implement our results.
Because PPC is constantly changing – there are always new advertisers entering the space, Google and Bing and Facebook are always making changes, and the landscape is just generally becoming more competitive, CRO helps level the playing field.
Hanapin used to provide CRO services as part of our PPC management (i.e, they were free), and 2-3 years ago we began charging. The reason is because before they signed, all prospects were excited about improving their conversion rates and were seemingly bought into the concept. But after they signed and in practice, they lacked the resources to implement our suggestions.
Charging for CRO forced healthy but sometimes awkward conversations (remember, this was 2-3 years ago when CRO wasn’t mentioned in the same breath as PPC) about what CRO was, how it could help PPC, and internal resources and responsibilities.
Previously when CRO services were free, if they lacked the internal resources to implement our changes, there was no upfront conversation about whether they had the resources. Or if they had the resources, often times the tests – which were requests from the marketing team – were deprioritized because the technology team controlled the website. And many times the marketing team didn’t push back because the service was free so they felt like they weren’t “losing” anything. We now consistently charge for CRO and have an average lift of 15% for our clients, with some who are double or triple that.
Boutique Versus Traditional Pricing
Pricing may differ for boutique agencies versus traditional agencies because specialists are able to charge a higher price than a generalist could or does. I’ve seen these prices range from 10% to 100% more, and it’s less about the boutique agency charging a higher price and more about the traditional agency discounting, if that makes sense.
In many cases, PPC is just one line item of many services a client uses with a traditional agency, so it gets lumped in with a total marketing/advertising budget and sometimes as an afterthought. In other words, there’s not much scrutiny around the pricing and thus, not much scrutiny around the results. These are blanket statements, and while I can’t speak for PPC results that traditional agencies generate, I can say that for nearly 100% of clients that have come to us from a traditional agency, we achieved all-time highs within the first three months, which makes me think that paying a higher price for a boutique agency or specialist makes most financial sense in the long-term. If you’re having a heart attack, do you want a heart doctor or a family practitioner?
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