The Perils of Charging by % Spend

If you currently charge your clients by a % of their monthly spend, are you at risk of performing yourself out of business?  The graph below is from one of my own clients and I can offer no better example of how effective management (if I say so myself) combined with a % spend charging policy can mean you end up being paid less for good work.

When I took over the Account in February 2014 the company were spending roughly $6000 pm on AdWords and returning a horrific ROAS below 2.0.  The path hasn't been smooth, but a series of brutal changes removing costly and underperforming elements has lead, last month, to their record ROAS of 15.7 buttheir spend is now rarely above $1200.

Lowering costs not only reduces your agency fee as while an increasing ROAS means a more efficient Account, it doesn't necessarily mean greater profits.  Having established a good ROAS, our objective must now be to increase spend while retaining that ROAS.  In an ideal world the two lines in this graph should both head upwards as this will indicate increasing profit for the client and, of course, increased income for the agency.


So, if you're focusing on ROAS, don't forget the whole picture.