Today we are going to have the “money talk” as it pertains to paid search. This topic is near to my heart, because it took several years to compile all of this information and understand how compensation should work at many levels.
It took time to understand how much I should charge for my services as an agency provider. Through trial and error, I arrived at a formula that worked.
It took even longer to understand how this should affect my personal compensation, as well as how to compensate employees doing work in this field.
Today I provide several examples to help you understand how compensation may work for your situation.
How agencies are compensated for managing Google AdWords
First, let’s start with an understanding of how agencies are compensated for their work managing AdWords accounts. This knowledge and these formulas apply to both agencies and the companies that hire agencies.
During my first experience managing AdWords accounts, I would charge a flat monthly rate for managing AdWords. There were no real parameters around how much time I should spend each month, or what I should be doing. Some months I would work hard on the account to get it into a good place, and others I would hardly log into AdWords.
Needless to say, this compensation structure didn’t work out well for me or my clients. We needed something more aligned with the amount of effort spent managing the account.
Around this time I came across a post about this issue, published by the RKG group. They had a formula for monthly charges that worked like this:
Client agrees to pay us $1,000 per month or 12.5% of spend, whichever is greater
This model worked pretty well, because it takes into account the variable nature of PPC spending, while also giving certainty to the agency managing the account. If the advertiser decided to spend more with Google, it was assumed it would take more work to manage the account. The variable of spend allowed them to get compensated for this extra work, without having to re-draft contracts.
At the same time, the client was protected from unexpected fee increases. Their fees would only increase if they decided to increase the overall budget.
I adopted this method of billing and made changes as necessary to make it fit our business model.
Some things we learned
This method worked well, but there were some adjustments that needed to be made. First of all, billing out variable retainers is difficult. If you want to have a client pre-pay for your fees to begin the month, you won’t know what they are actually spending for at least 30 days. Asking for any extra money 30 days later is not always an easy conversation to have. This makes budgeting difficult.
It also potentially provides the wrong incentive to agencies. Why wouldn’t they recommend that clients spend more in order to get more fees? This was not an issue in our case, but I have seen agencies get in trouble for this reason.
But we still found this better than the alternatives like hourly rate consulting and flat rate consulting. These methods of charging for work put incentives in the wrong place for agencies.
My favorite formula
After much trial and error, my favorite formula ended up being a monthly retainer based on anticipated spend of clients (15-20% of spend most often). It also involved an account build fee of 2.5x the retainer to account for all of the up-front efforts of building a new account. The contract would ask for a 6-12 month term, but would give both parties a one month opt-out if it was not working to expectations.
This method made for easier budgeting, put compensation in the right place, and allowed us to spend an appropriate amount of time building out the account.
Individual Compensation
How much should individuals make for their AdWords related position? We have some numbers for the US market that we can share based on the Creative Group 2015 Salary Guide. This is available for download in the bonus materials section.
Note that these salaries are a baseline and may vary by market. For example, I often found that SEO/SEM specialists started at lower salaries in my market, but may have had higher potential salaries. These are just guidelines, not rules.
In addition to these salary bases, there are many factors that affect compensation for individuals. Supply and demand in the market is a big factor. If there is high demand/low supply in your city, you can ask for more money.
Relationships are important as well – both within your company and outside. If you can generate new business for your company through relationships, you may get paid more based on your revenue growing capabilities.
The number of years experience you have will definitely impact your expected salary, but so will productivity. If you can perform 10x faster than your peers, you may see a raise coming your way.
Client-side positions are often higher paying than agency positions. There is also a rumor that the hours aren’t as crazy in some companies. Although I have not observed that to be the case with my clients. They work just as hard as their agencies!
The last item that may affect your compensation is the ability for your company to reach their revenue and profit goals. Profitable companies are more likely to share some of that profit with their employees. This applies to both agencies and clients.
Where can you work?
With top notch PPC skills, you may wonder where you can get a job? The obvious options are working on the client side or for an agency. Client side positions allow you to go in depth with a small number of accounts and leave your mark. Agency positions will allow you to work on multiple accounts simultaneously.
You can also find work as a freelancer fairly easily. There are many companies looking for an individual to manage their accounts, but cannot afford a full time employee.
Then you can go into business for yourself. You can use PPC to advertise your own business online and grow your revenue. Or you can use PPC to promote affiliate offers for third parties.
With PPC growing by 20% every year, there are new opportunities to make money forming every day. Once you get the hang of managing accounts, you will start to see these opportunities develop right in front of you.
Tools and software fees
One temptation for large advertisers is to eliminate the need for agencies and replace them with software. These tools can cost 1-10% of the media spend, which sounds appealing when compared to agency fees. As we said in our tools section, the people running campaigns are the most important factor in paid search, but not every company will see it that way.
Tools also have a cost of running them in human capital, so that should be factored into the decision. In most cases, using software and hiring an employee to run the show will not provide as good of results as hiring an agency. But then again, not all agencies deliver great results.
Companies must think long and hard about their investments. There will be a time when paying an agency hundreds of thousands of dollars a year will not make sense. It would make more sense to hire those positions in house or to use software.
How to get Compensated for Your Work?
There is a lot of money being put into PPC advertising, which means there are many opportunities for you to make money. These experiences should give you several ideas for getting started, and will make a good continued reference as you grow your skills.
Here are the key points we covered in this lesson:
- Agencies get compensated based on amount of work and spend
- There are many models that we can employ with management
- Variable spend and minimum retainers make sense
- Each company goes about things a little differently
- Individuals can make nice salaries managing PPC
- Your compensation incorporates many personal and environmental factors
- There are many ways to making this a viable career choice
- Understand your options and income goals