Evaluating Digital Agency Billing Models

Published April 27, 2017
It takes a very special kind of person to enjoy managing money. It’s even rarer to find someone who enjoys asking people for money. But whether you love it or hate it, at the end of the day, an agency needs to bill clients in order to keep the lights on. Across the industry, opinions vary widely on the best approach to billing, especially when digital work can be difficult to “show” outside of a final report.
In this article, we’ll review four possible approaches to billing clients, along with their pros and cons:
  • Percentage of spend
  • Hourly
  • Flat Fee
  • Profit-Based


Agency Billing Humor


Percentage of Spend

First, PPC management agencies most commonly charge a percentage of ad spend as a management fee, often ranging anywhere from 10-25%. This model ensures that the reimbursement to the agency will increase as the workload increases.

An agency can cover the necessary management time and earn a profit with a 15% fee on a $20,000/month account ($3,000/month for management). However, a percentage of spend approach doesn’t always scale well for smaller accounts. Say a client only wants to spend $1,000/month: an agency either applies minimal management time or has to increase the percentage of spend in order to retain a profit.

In light of this concern, an agency that tends to manage smaller spends may do well to have defined tiers for percentages of spend. For instance, clients spending $1,000-$3,000 monthly may pay 25%, while those spending above $3,000 may pay only 15%, and those above $10,000 pay 10%.

The drawback of this model comes to light when an agency automatically receives more return from a higher ad budget. In those cases this model can be misused to make a client spend more than they need to. Also, higher spend does not always equate to greater performance; in fact, an agency doing its job well may optimize a campaign to spend less but drive more leads. In this case, the agency isn’t being rewarded fairly for its success, while an agency driving up spend for no reason gets disproportionately rewarded.

Hourly Rates

Another model involves billing based on hours, either for a predicted number of hours each month or actual hours accrued. Each client starts with a defined hourly rate. This model, when properly planned, can help to account for the total amount of time that goes into a project.

However, strategic work such as PPC management can’t always be accurately confined to a flat hourly model. Some months may involve extra hours of work that are not always expectedly. For instance, AdWords may release an update (like Expanded Text Ads) where you want to spend additional time adapting ads to a new format. Or a client may decide to run heavier promotion in one month vs. another. In either case, an hourly model should either adapt to actual hours put into a month or be built to average out over the course of a year, understanding that some months may involve more hours than others.

In addition, working within an “hourly” mindset can make staff feel limited about what they can accomplish in a given month. Especially on smaller accounts, staff can quickly use up hours, between making campaign edits, strategic meetings and creating reports. Once you’ve burnt through hours for a month, you may feel forced to either go over hours or wait until another month to further implement your strategy for a client. Waiting to implement a new tactic can then cost the client in terms of delayed results.

Flat Fee

A flat fee model helps to balance the pros and cons of both the percentage of spend and hourly rate models. A client pays a single pre-determined fee per month for management, while the actual level of work on the agency’s end may reasonably vary from month to month.

This type of model, common among agencies that sell low-budget services, can help to alleviate concerns over a percentage of spend or set number of hours properly covering the amount of work. You can set tiers with flat fees (for instance, starting with a minimum of $500/month for any accounts spending up to $2,000 monthly).

The downside though is that this fee can prove inflexible without proper safeguards. For instance, without some sort of tier in place to scale fees higher for higher spend, an agency can lose money for a rapidly increased budget. Conversely, if an account reduces spend for any reason, the client doesn’t benefit from reduced management fees.

Profit-Based Billing

Profit-based billing requires payment only when the client sees a concrete return on investment from a PPC campaign. This payment could be a percentage of ROI that came directly from ads or a tiered system of fees based on the level of return seen.

This system obviously benefits the client in that they don’t have to pay unless a campaign is actually working for them. In turn, the agency has an urgent motivation to make a campaign successful in order to profit more. In any of the other cases, an agency would receive the same fee whether a campaign has a 2x or 10x return on investment. Within a system of profit-based billing, the agency would make significantly more from a 10x return.

However, this system can also prove detrimental to both the client and agency. No self-respecting digital agency can (or should) guarantee positive results from every campaign. While you can promise skill and expertise, you can’t promise that ads will result in new paying customers.

Most importantly, the reality of the selling process lies in much more than just the agency’s ad management. The customer experience ranges from the search to the experience of landing on the website, the process of filling out a form or completing a shopping cart purchase or to a conversation with sales staff and ultimately, the company’s backend fulfillment process. Even brand reputation outside of the web can harm or help the ability to drive business. While an agency is hired to drive qualified leads, at the end of the day, the client must close deals and provide superior customer service.

Attribution also gets tricky: how do you truly denote exactly how much revenue came from online advertising? Do you attribute only leads where the first or last click before converting came from an ad? Do you include leads where a salesperson already had a relationship with a person, who later signed up for a service after clicking a display ad? While these are questions anyone running digital campaigns should ask when planning out reporting, they become ever more important when the agency’s reimbursement hinges directly on the answer.


Each of these billing systems has its pros and cons, and there is certainly no perfect go-to solution for every agency. Agency decision makers should take serious time to think through the risks and benefits of each model. You may end up developing a hybrid model of these approaches: a flat base fee added to a percentage of spend, a flat fee that ultimately translates into hours, or the use of different methods of billing for clients of different sizes or in different verticals. The realities of billing are similar to those of reporting: how it’s done may change based on the client’s needs, business goals and services engaged. While billing processes and models need to have some consistency for a business to function, they must also be flexible enough to adjust to changing circumstances and realities.

What agency billing model do you prefer, and why? Let us know in the comments!


When the client first came to you, you talked up the value of Google Analytics. You emphasized the importance of seeing where your traffic was coming from. You went on and on about how Google Analytics can show traffic sources to pinpoint whether people came from search, social media or a specific site referral, and how valuable this data was. You sold them on it, so much so that your client looked forward to receiving that first report, the magical day when they would finally understand where visitors were coming from.
But then the report came, and it looked like this:



It showed that 10% of your client’s traffic came from “(direct)/(none)”. What does this label mean? How do you explain Direct traffic to your client? Better yet, how do you explain “none”?
Let’s take a closer look at understanding Direct traffic in Google Analytics and how we can address it with clients.
Digital marketers spend a lot of time focused on PPC and SEO campaigns in order to drive desirable traffic to a website. The phrases we’re ranking for and bidding on get meticulous attention, so much so that we often forget about some of the other ways that visitors find us.

We put a tremendous amount of the effort we put into reviewing organic search data and PPC campaign performance in analytics. But how closely do we monitor referral reports?

If that’s not a channel you review regularly, you may be missing out on seeing traffic that is coming directly from links you’ve obtained around the web, local business listings, news mentions, and more. Many times, links are only considered as a means to an end, a metric that Google uses in determining how to rank sites in the SERPs (search engine results pages). But the fact is, many of a site’s links may be directly contributing to its traffic.

In this article, we’ll review how to look at referral reports in Google Analytics, and some of the many ways to use that data to better inform your web marketing decisions.


Remember how your mom told you not to stand too close to the television because it might hurt your eyes?

The same rules can apply to data. If you’re too close, you may miss the patterns and trends that are crucial to understanding your website’s performance. You can’t judge a site’s performance looking at data in the bubble of a single day, you must consider any day’s traffic compared to the days before and after.

Google Analytics makes it fairly easy to analyze trends over long periods of time. But it also allows you to stand right in front of that TV, to look at more granular levels of time, right down to the hour.
There’s a better way to get that close to the data, without burning your retinas. We’ll cover how to analyze traffic effectively in today’s post.