Are Pay-Per-Click (PPC) Marketing Agency Fees Justified?

Gyi Tsakalakis
May 5, 2018

I recently received an email from a lawyer friend relating to how some lawyers view PPC marketing agencies. Apparently, there was a "heated discussion" about (a) whether a lawyer should pay someone to run PPC and (b) how a marketing agency should be compensated.

Before I dive into this, you should know that I'm both a licensed attorney and the founder of two digital marketing agencies that deliver paid search media management services (pay-per-click, PPC, etc). In other words, my skin is in the game. You can give my opinions whatever weight you wish. I would also suggest that you don't rely solely on this post to make a decision about marketing agency fees. After all, this is just one post, written by a PPC marketing agency person.

With that said, here are my TL;DR answers:

a) Probably.

b) How a marketing agency is compensated is less important than how performance is measured.

Should Lawyers Pay Someone to Manage Paid Search Media (PPC)?

I have no idea whether you should pay someone to manage your PPC campaigns.

Ultimately, this question comes down to:

  • The value of your time.
  • Your knowledge, skill, and experience in paid media management.

Per my friend's email:

As for (a), there are some that have responded “why not just do it yourself” or “doesn’t Google provide Adwords account reps to help you for ‘free’?” I know that is just plain silly, but plenty of lawyers think this way.

Yes, my friend, this is plain silly.

Over the last ten years, I've probably looked at least one-hundred lawyer-managed paid search campaigns. I've also talked to hundreds of lawyers who have said that they, "tried AdWords and it didn't work."

In my experience, some of the most common lawyer-managed campaigns include things like:

  • Broad match keywords like, attorney.
  • Geographically target audiences outside of where they practice.
  • Lack any type of conversion tracking.
  • Make no changes at all.
  • Fail to use mobile-friendly landing pages.

Even the more sophisticated lawyer-managed campaigns tend to fail at what most paid search media managers would consider basic.

Nonetheless, if your time is better spent managing paid search campaigns, and you're willing to put in the necessary time, maybe you should manage your own campaigns.

However, if you do, don't forget to count the cost of your management time in your return on ad spend (ROAS) calculations.

Percent of Ad Spend PPC Agency Fee

Also from the email:

As for (b), there is one lawyer in particular who is vehemently opposed to what seems to be “industry standard” of charging approximately 20% of spend as a fee: “The standard management fee is 20% of the total that you spend on PPC.”

Then the response that bothered the heck out of me: “Which is a garbage model.” He continued later, “To the pay a percent folks...

So if you double your spend, they get paid twice as much for the 90 seconds it took to type the new max-per-Day amount into Google? That’s crazy, right?

Most of these outfits are doing literally nothing month to month except pushing “send” on a “custom report” that is just repacked Google data.

This worked in the 1950s for print media. Didn’t make sense then either, but most people wised up. We’re getting bamboozled here.”

First, let's discuss a few PPC agency fee models.

Billable Hours

At one end of the spectrum, you have billable hours. Most lawyers are familiar with this because that's the way most lawyers bill.

Pros of billable hours: You get an itemized list of the various things that the paid media manager did on your behalf.

Cons of billable hours: There won't be any consistency in the amount of money you spend on management. You will have a hard time quantifying the value of various tasks. You'll likely feel "nickel and dimed." You'll end up spending money on time that doesn't drive performance.

Flat Fee

Next, we move to flat-fees. Basically, you pay a fixed amount over some period of time for management.

Pros of flat-fees: Consistency in pricing. You know how much you'll pay for management over a given period of time. The amount you pay for management doesn't fluctuate with your media spend.

Cons of flat-fees: As you spend more, it's unlikely you'll get a corresponding level of management service. Put simply, the agency has no incentive to apportion more resources to the management of your spend. As you spend more, learn more, etc, you want your agency to implement more sophisticated management. The incentives aren't properly aligned.

Percent of Ad Spend

Under this fee arrangement, the advertiser pays the PPC agency a percentage of the media spend. This is still probably the most common fee arrangement. The theory is that if the agency is demonstrating results, the advertiser will spend more money, thus aligning their interests.

This structure can work, so long as, the advertiser is closely measuring performance and relative return on ad spend.

Unfortunately, many advertisers don't monitor performance closely enough. Therefore, the agency's incentive to increase spend runs unchecked against performance.

Pros of percent of ad spend: Assuming advertiser is measuring performance, incentives are sufficiently aligned.

Cons of percent of ad spend: Without performance measurement, agency's primary incentive is to spend more money.

With regard to the question of what percent is reasonable, I would suggest that it's some function of the media spend. For smaller spends, the agency is likely to expect a higher percent of spend. This is because of the minimal resource allocations required to effectively manage a campaign. As the spend goes up, the agency should be able to offer a discount on the percent of spend fee.

In my experience, depending on spend, I've seen fees range from 8% to over 20%. To me, anything over 20% is high.

Performance Fee

As we move further down the spectrum, the next agency fee model is performance. There are a variety of ways to structure a performance fee. Ultimately, the goal here is to more closely align the incentives between the agency and the advertiser. Some common performance fee models I've seen include:

  • Pay-Per-Lead: Advertiser pays a fee based on a number of qualified leads.
  • Performance Targets: Advertiser pays a fee based on agency's ability to hit some performance targets

There's little question that some version of performance-based fees make the most sense for both agency and advertiser. The challenge becomes defining performance.

It's also important to remember that lawyers are prohibited from fee-sharing with non-lawyers. You might be surprised to hear this, but many lawyers and agencies that I've encountered over the years have suggested that PPC agency fees be tied to legal fees. In my view, under the current rules in most states, this would constitute impermissible fee-sharing with non-lawyers. I personally don't agree with the rules, but that's a post for another day.

In my view, some hybrid of flat minimum fee + percent of spend + performance modifier is the best way to go. This method provides flexibility, as well as, closely aligns incentives of agency and advertiser.

Unfortunately, this method also creates complexity and requires sophistication that many advertisers (particularly lawyer advertisers) are unwilling to entertain.

It's Not About the Fee

From the email:

The irony is that he is a contingency fee lawyer. He doesn’t get the irony.

To me, the root issues presented in the email relate more to holding the agency accountable for performance, than the fee structure. I've seen billable hours work. I've seen performance models fail. In the end, the question should be how are we defining the value the agency brings to the table. Ultimately, that value has to be tied to some business objective of the advertiser (i.e. return on ad spend, qualified leads, some other marketing objective).

However, I am sympathetic to the lawyers on the thread that are frustrated with PPC agencies, and internet marketing companies more generally. It's no secret that there are a lot of charlatans in the digital marketing business. But that's true in almost every business.

The only way to pushback is to gain a foundational understanding of how this stuff works, so that you, the advertiser, can make an informed decision. My point is that fee structure is only one of the factors at play here. For example, I know a lot of online legal marketing companies that don't even follow the basic guidelines recommended by Google.

You simply have to put in the work to understand the basics before you spend any money on this stuff. Alternatively, you can put in the work to learn how to do it yourself.

Gyi Tsakalakis
Co-Founder of AttorneySync
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