The most common way agencies charge for paid media is a percentage of what you spend, typically ten to twenty percent. It is simple, it is standard, and it pays your agency more when they spend more of your money. Those incentives point in opposite directions and it is worth understanding how before you sign.
What the model actually rewards
Under a percentage model, an agency managing 10,000 dollars a month at fifteen percent earns 1,500. The same agency managing 20,000 earns 3,000. Their revenue doubles.
Your outcome does not necessarily improve at all. Doubling spend in a category where you have already captured the high intent searches means buying progressively worse traffic, at a rising cost per lead. There is a point in every account past which additional spend stops being profitable, and the percentage model gives your agency a direct financial reason not to tell you where that point is.
To be clear, most agencies are not consciously exploiting this. The problem is structural. When the honest recommendation and the profitable recommendation diverge, one of them is quieter, and it is reliably the honest one.
The second problem, which is quieter still
The work that most improves a paid account is frequently not paid account work at all. It is fixing the landing page, the conversion tracking, or the offer. A percentage of spend model pays nothing for any of that.
An agency paid on spend has no financial reason to tell you your website is the problem. They have every reason to keep adjusting bids, because that is what the fee covers. This is how businesses end up eighteen months into a paid program with a beautifully organized account pointing at a page that was never going to convert.
The alternatives, and their trade-offs
Flat monthly fee
Set by the complexity of the work rather than the size of the budget. Predictable for you, and the agency has no incentive attached to your spend in either direction. The trade-off is that a genuinely larger account is more work, so the fee has to be set honestly at the start and revisited when scope actually changes.
This is how Palm Projects charges, and the reasoning is on the engagement page rather than buried in a contract.
Performance based
A fee tied to leads or revenue. Aligned in principle. In practice it is difficult to implement honestly, because attribution is contested, lead quality is arguable, and it gives the agency an incentive to claim credit for conversions that would have happened anyway. It also tends to make agencies avoid the patient work that pays off outside the measurement window.
Hourly
Transparent and easy to verify. It rewards slowness, and it punishes the experienced person who solves in an hour what takes someone else a day.
No model is perfect. The point is not that percentage of spend is uniquely evil, it is that you should know which way your provider’s incentives point, and be able to say it out loud.
The questions worth asking a prospective agency
- At what monthly spend would you tell me to stop increasing the budget?
- If my landing page is the problem rather than my campaigns, does your fee cover fixing it?
- What happens to your fee if I cut spend in half?
- Have you ever told a client to spend less?
The last one is the useful question. An agency that has never advised a client to reduce spend has either had an extraordinary run of luck or has not been looking. The equivalent questions for a search proposal are worth asking too.
Questions
Is percentage of spend always wrong?
No. On very large accounts where management effort genuinely scales with budget, it can be reasonable. On a small business account it usually is not, because the work involved is close to identical at 3,000 dollars a month and at 12,000.
What is a fair flat fee?
It depends on the number of campaigns, the number of services, and whether landing page work is included. What matters more than the number is that you can see what it covers.
Should the agency own my ad account?
No. Never. The account should be created in your name with the agency granted access, so that ending the relationship does not cost you your history. This is part of a larger set of things worth checking: what you actually own when you hire someone.
If you are comparing proposals and want a second opinion on how one is structured, send it over.
