At Contitude, we know that we have many industry colleagues who all work in digital marketing. If you've ever bought marketing services, you'll have noticed that all providers have different ways of pricing their services and sometimes it's hard to tell the difference between apples and oranges when comparing quotes. In this blog post, we'll go over one of the most common questions we get when it comes to digital advertising pricing. Digital advertising throughout this blog post will refer to any form of digital advertising although of course it is possible to pay per exposures in many places nowadays.
Digital advertising
Advertising digitally is fantastic considering it is extremely transparent for analyzing data for your campaign. You can always track how many people your ad has been exposed to and how many have clicked and also how many have then converted from the various ads. If you compare digital ads to more traditional advertising methods like TV commercials, newspaper ads, etc., it's no longer a guess and estimate in terms of exposures and conversions. This means you will be able to analyse your campaigns much better and reliably measure what you got out of your advertising. It also provides a magical basis for optimising your ads on an ongoing basis or for the next time you need to advertise digitally.
Different ways to charge for digital advertising work
For digital marketing agencies, one of the most common services is digital advertising, e.g. Facebook Ads, LinkedIn Ads, Google Ads, Bing Ads etc. There are many different ways to charge for these types of services, all of which have the same goals and the same way of working. No matter which digital marketing agency it is, they all have the goal of helping the client in the best possible way.
For all types of digital advertising work, it's about achieving the client's goals in the most cost-effective way possible. For example, the goal may be maximum exposure to a particular target audience where the aim is brand building. The goal can also be to maximize ROI and get as many conversions at the lowest possible cost. Whatever the goal, a digital agency needs to carry out much the same process. First, the client needs to provide a basis for the purpose, goals, budget, hypothesis, target group, etc. Then assets (ads, e.g. image, text, video) need to be produced into campaigns. After that the ad account needs to be set up or if the account itself is already set up then ad groups etc. need to be set up. Once that is done, it is time to launch the campaign and then it needs to be maintained and optimized to perform as well as possible. All of this should then be reported back to the client on an ongoing basis.
The process is relatively similar for everyone, but the way of charging often differs. We will now go a little deeper into three classic payment options; Percentage of spend, fixed price and ongoing work.
Percent of spend
One of the most classic ways of charging for digital advertising is percentage of spend, and it works just as it sounds - the digital marketing agency charges you a percentage of what you spend in your advertising budget. If you spend £50,000 on Google Ads each month and you work with a provider that charges a percentage of spend of 30%, you will pay £15,000 to the agency on top of the £50,000 that is the ad cost itself.
The advantage of this is that you know what you are paying to the agency each month. If you have a low budget for your digital advertising, percent of spend is often the absolute cheapest option.
This setup creates an incentive for the digital marketing agency to try to get you to increase your spend, which may not always be the best thing for you. It is also difficult for an agency to be able to put much love on a client with an ad spend of 10,000 a month with a percentage of 30% which equates to £3,000 i.e. about 3 hours at agency rates.
Fixed price
Fixed price digital advertising is a really exciting concept with many advantages and disadvantages as well as risk taking.
The fixed-price concept is based on you, the customer, knowing what it's worth to you to get X number of visitors or conversions. An example could be that you want 10,000 visitors to your website and you are quoted a fixed price of 50,000 SEK to get those 10,000 visitors.
For the agency, this approach is risky as digital ads are often priced through real-time auctions, which means that the agency's cost is not fixed and it is impossible to know in advance how much optimisation and changes will be needed to reach the target of 10,000 visitors. This type of set-up means that the agency generally needs to set a slightly higher price as they need a certain margin and also means that during the campaign they will try to minimise their costs and ad spend to maximise their margin.
The advantage of this is that you actually get exactly what you pay for and you know in advance what it costs. It's also directly linked to a business objective, which can be anything you want.
Often the advertising is done through the agency's own advertising accounts and all data stays with the agency. You get reports but can't access your data yourself and in most cases this is because the agency doesn't want to show how much ad spend they have. For those who want to continue advertising in this way, it means that you can't manage all the data yourself and analyse and optimise the campaign for better results in the future.
Current hourly rate
By far the most common is still the ongoing hourly fee, which is exactly what it sounds like. The agency charges for the time they spend on your digital advertising. It's often possible to estimate to give a range on what it will cost but the cost is still variable.
The advantage of this is that if you have found a transparent and competent agency, they will spend the time needed to optimise your campaign and nothing more. Furthermore, they will be able to put in a few extra hours to make sure that you really do get the absolute best results. You can also take the work of digital advertising back in-house at any time and you own all the data that you just invite the agency to take a look at.
The downside of hourly rates is that there are rogue agencies that will spend more hours than they need to on your digital advertising than is really necessary and you run the risk of the agency being ignorant.
Summary
Using digital advertising agencies is common and often very good. They all have the goal of helping their clients in the best possible way and they all go through much the same process to achieve that goal.
However, there are many different ways to charge; percentage of spend, fixed price and hourly rate. There are advantages and disadvantages to all variants and some models are better or worse suited depending on the situation and objectives. The most important thing is to be aware of the risks involved when choosing a structure and to know that there are different types of structures.
Need help with digital advertising?Book a meeting and we'll tell you more about how we work.
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