The Misaligned Incentive Nobody Questions
Most PPC agencies charge 10-20% of ad spend as their management fee. The model is simple, transparent, and fundamentally misaligned with your commercial interests.
The Math of Misalignment
Your current agency charges 15% of spend. You are spending £30,000/month. Their fee: £4,500.
You ask them to review whether the spend level is right. They audit the account and discover that £8,000/month is going to low-margin products with negative contribution. The "right" spend level is £22,000.
If they recommend the reduction, their fee drops to £3,300. They lose £1,200/month — £14,400/year — for doing the right thing.
In what other professional relationship does the adviser earn more by recommending you spend more?
Three Ways This Plays Out
Scenario 1: Explicit Budget Inflation The agency actively recommends increasing spend, framing it as "scaling opportunity" or "we are leaving money on the table." Their analysis is not wrong — there IS more volume available. But volume is not profit.
Scenario 2: Passive Budget Tolerance The agency does not recommend increasing spend, but they also do not recommend decreasing it. They never suggest that some campaigns should be paused or budgets reduced. Waste is tolerated because efficiency creates a fee reduction.
Scenario 3: Scope Inflation The agency recommends expanding into new channels — YouTube, Display, Demand Gen — not because they are commercially justified, but because they increase total managed spend.
The Alternative Models
- Flat fee: Fixed monthly fee regardless of spend. Aligns incentives — the agency earns the same whether you spend £20k or £100k.
- Performance-based: Fee tied to commercial outcomes (profit improvement, margin targets). Aligns incentives but requires transparent financial data.
- Hybrid: Base fee plus performance bonus. Balances predictability with alignment.
Questions to Ask Your Current Agency
- "If our optimal spend level was 30% lower, would you recommend reducing it?"
- "Have you ever recommended a budget decrease to a client?"
- "How does your fee model change if we reduce spend by £10k?"
- "What percentage of your clients have had spend reductions recommended?"
The answers will tell you whether your agency's commercial interests align with yours — or with Google's.
The Uncomfortable Truth
Percentage-of-spend pricing was designed for a world where more spend always meant more growth. That world does not exist for most ecommerce brands. Diminishing returns, margin compression, and working capital constraints mean that the "right" spend level is often lower than the current one.
If your agency's business model cannot accommodate that reality, their advice will always be directionally biased toward more spend.