The standard agency pricing model is simple: pay a percentage of ad spend. 10%, 15%, 20%.
It is also fundamentally misaligned with your interests. Here is why this matters.
The Basic Maths
If an agency charges 15% of spend, their revenue increases when your spend increases.
- £20k spend = £3k agency fee
- £40k spend = £6k agency fee
- £80k spend = £12k agency fee
The agency doubles their income when you double your spend. Regardless of whether that increased spend generates proportional returns for you.
The Incentive Problem
Humans respond to incentives. Agencies are run by humans. The incentive is clear: more spend equals more revenue.
This does not mean agencies are consciously pushing you to overspend. Most are genuinely trying to do good work. But the structural incentive shapes decisions in subtle ways.
"You should scale this campaign" might be true. It might also be influenced by the fact that scaling benefits the agency financially.
"We should test higher budgets" might be sound strategy. It might also be nudged by the agency fee increasing.
"This performance can support more spend" might be accurate analysis. It might also be shaped by percentage-based economics.
You cannot know which it is. Neither can the agency, often. Incentives work beneath conscious awareness.
The Efficiency Problem
The hardest recommendation for a percentage-based agency to make: "You should spend less."
Even when spending less would genuinely improve your business outcomes.
We see this constantly in audits. Accounts where the optimal strategy is clearly reduced spend with tighter focus. But the agency has recommended increased spend with broader targeting.
The agency is not being dishonest. They may genuinely believe more spend is the answer. But the belief is shaped by the commercial model.
What About Performance Incentives?
Some agencies layer performance bonuses over percentage fees. Hit certain ROAS targets, earn additional percentage.
This can actually make the problem worse.
If the bonus is based on ROAS, the incentive becomes: achieve ROAS target while maximising spend. This leads to safe, conservative strategies that protect ROAS rather than ambitious strategies that maximise profit.
The Alternative Approaches
Fixed Fee
Agency fee disconnected from spend. The agency earns the same whether you spend £20k or £80k.
Advantage: No incentive to increase spend. Recommendations can be purely about what works.
Risk: No incentive to push for growth either. Can create passive management.
Profit Share
Agency fee based on profit generated, not spend deployed.
Advantage: Alignment with commercial outcomes. Agency wins when you win.
Risk: Attribution complexity. Defining "profit generated by the agency" is genuinely difficult.
Hybrid Models
Fixed base with performance components tied to commercial outcomes (not spend or ROAS).
Advantage: Combines stability with incentive alignment.
Risk: Complexity. Requires clear agreement on metrics and attribution.
Our Approach
We use fixed fees. Our revenue is the same whether you spend £20k or £200k.
This creates a different dynamic:
- We can recommend reduced spend without reducing our income
- Scale recommendations are based on opportunity, not agency economics
- Our incentive is keeping you as a client, which means delivering results, not inflating budgets
The fixed fee is not automatically better. It creates different trade-offs. But it eliminates the structural conflict inherent in percentage-based models.
What This Means for You
If you work with a percentage-based agency, this does not mean they are doing bad work. Many percentage-based agencies deliver excellent results.
But you should:
Ask harder questions about scale recommendations. When they suggest spending more, understand the commercial logic independent of the fee structure.
Track marginal efficiency. Is additional spend generating proportional additional returns? Or are you in diminishing territory?
Consider whether the incentive aligns. In a perfect world, your agency would recommend whatever genuinely maximises your business outcomes. In this world, fee structures influence recommendations.
The Bigger Point
Pricing models shape behaviour. This is not controversial in any other business context. Yet brands often select agencies without considering how the pricing model influences the advice they receive.
The question is not whether your agency is honest. It is whether the structure enables honest recommendations, even when those recommendations hurt agency revenue.
Curious about how different agency models might serve your needs? Our How We Work page explains our approach to pricing and alignment.