It’s always hard to compare fees paid to a Search Engine Marketing (SEM) agency with those paid to traditional advertising house. Power house and smaller advertising agencies might charge a creative fees to cover production costs. They will also add a few percentage points for media buy in TV, Prints or Display (online) digital. We could argue that typically creatives and media plan adjustments do note require the same level of day-to-day attention than a Pay-Per-Click campaign in AdWords or Bing. We could also think that a few percentage points off multi-million dollar might indeed represent a pretty serious amount of money.
Search Engines Marketing agencies costs are typically higher than traditional or display advertising. Those are the four more common ways for agencies to charge for their services:
1) Percentage of media spend. This is by far the most popular one.
Advertisers are used to that pricing model used in traditional and display advertising
It seems fair to increase agencies fees when media buy goes up
There’s clearly an incentive for SEM agencies to encourage advertisers to spend more. The best agencies address this by offering a flat fee, passed a certain media buy.
This pricing model is not tied-up with results
Advertisers might receive two bills: 1 for media buy (from the agency or Search Engine Provider) and one for the agency costs
Below is a recent extract from the Search Engine Marketing Professional Organization. There were more than 1,400 respondents across the world:
2. Flat fee model.
In this case, advertisers pay their agency a monthly flat fee to manager their campaigns.
Advertisers know what they will pay in advance
There is less incentive for SEM agencies to encourage their advertisers to spend more
This not tied-up with campaign performance
Advertisers still receive two bills (one for media buy and one for agency costs).
3. Cost Per Lead (CPL)/Cost Per Action (CPA) Model
This model is the fastest growing one. As SEM agencies gain experience in paid search and collecting behavioral data in key industries) they are able to guarantee a given customer interaction (i.e sale or online inquiry) for a given cost.
For example, they might offer to charge an advertiser $55 for generating a new online credit card application.
Fees are tied-up with performance
Advertisers typically get one bill only (from th agency)
The complex reporting process usually involved with pay-per-click campaigns can be replaced by one key performance indicator (how many leads/sales were generated for a given $ amount)
It requires that the SEM agency has a robust set of data to make accurate assumptions on CPC/CPA costs
Advertisers might also need to have better control over things like landing pages, ad copies and to some extent offers on that page
4. Cost Per Acquisition model (CPAc)
I have not seen this one in practice yet in services industry. The idea here is advertisers will only pay a given amount for a newly acquired customer. For example, a credit card issuer might pay up top $100 for a newly credit card holder. This model is a lot more complex than the CPL/CPA model above. It assumes agencies to some extent have access/ control over CRM data from the advertiser.
Disclaimer: SEM Valet uses an hybrid pricing model. We charge monthly flat fees which includes both agency costs and media buy. For a given amount, we offer a guaranteed number of clicks. This model is simple to explain to clients and easy to process from a billing standpoint. We have a large variety of customers in an even larger number of industries and therefore do not have the capabilities to offer CPC/ CPAc yet. But stay tunes, this is something we are considering longer term.