Should search agencies charge a percentage of spend?

Okay, I’m coming out of blog hibernation (blibernation?) to wax poetic about my strong feelings AGAINST pricing out search services as a percentage of the media spend. First, as I’ve written in the past, search management is different from media management.

The gist of my last post on media vs. search management is this: online media planning isn’t the same as offline media planning, and search media planning isn’t the same as, say, buying banners. What’s different? Well, in a nutshell:

- Search planners manage keywords not vendors (sure, vendors are involved, but let’s be honest. There are only two that really matter - Google and Yahoo - unless you’re doing an extensive local campaign or dealing with online shopping engines, and that’s a different post altogether.

- Search planners continually test, rewrite and refresh ad copy

- Search planners have to deal with Google’s quality score and Yahoo’s quality restrictions.

I could go on, but really, the bottom line is that an effective search marketing campaign takes ongoing management. And by ongoing, I mean daily and weekly changes should be applied to the campaign to make it a positive and, dare I say, fulfilling, experience for the advertiser.

It doesn’t matter if you’re spending $10,000 a month or $100,000 a month on search ads, you still need to manage the campaign to make it work. This is really why charging clients a percentage of the media spend doesn’t work.

I know a lot of people wil disagree with me here. Obviously it works in the agency’s favor when the budget is 100K/month. So in an agency setting, the larger campaigns pay for the smaller campaigns. But in the real world what happens with the smaller clients is they suffer from poor management of their campaign compared with the bigger spenders.

There. I’ve said it. Moving on.

I think the best way to start with any search project is by charging a monthly fee based on estimated hours. There are many variables to starting a new project that have nothing to do with the actual budget amount. Keyword and competitive research, historical campaign data review, the number of search engines included in the initial plan and the level of reporting all factor into the fee.

I’m also in love with the idea of performance-based pricing once a campaign has been launched and running for about three months. This involves getting paid per lead or sale instead of being tied to a specific number of hours.

This often entails a bit of a loss from the management side of things for the first month but it’s an excellent incentive for me to put in more hours to really get a campaign performing. The emphasis here is that agencies are motivated to make the campaign a success (success is defined by the client’s goals) and not by the amount of money they spend. If you spend money on search just to meet the forecasted budget, and this can be done in any number of ways that do not benefit the client, then your campaign will fail.

Clients and agencies both need to to ask themselves if the “percentage of media” model works for them. In the vast majority of cases, the answer is probably not.

Add comment March 20th, 2008