What is a Good Management Fee for Digital Advertising?
Knowing your business is getting a fair shake on digital advertising management fees is extremely important to ensure your campaign has enough campaign budget to accomplish your goals. Management fees come in a variety of formats for digital media companies and digital marketing agencies. In fact, you may not even know you’re paying a management fee for many forms of digital advertising. Here is how it all works.
100% markup on your CPM
Yes, you heard it right +100% mark up on your CPM. Unfortunately, this is typical for media companies and agencies pushing programmatic advertising solutions. Hopefully, they are not stacking another percentage on top of it all and calling that the management fee. Unless you know for a fact you’re paying the cost, then there is plenty of room for negotiations. Agencies running targeted display campaigns out of Google Ads ensures you’re paying the cost. Typically, Google AdWords bills the client’s credit card directly and the agency sends a separate invoice with the management fee. Unless, the agency bills the client in whole at the end of the month, there is no way to hide additional markups.
The markup on the Cost Per Click (CPC)
This one is another trick in the book. When the management fee conversation comes up, the representative might say something like this, “we don’t charge a management fee, we simply add a fee onto the cost of the click.” Next question, what is that fee? Here is where they get you, if your CPC is $1.00 and they charge another $1.00, then you have a 50% management fee. Another trick is to run your Google search campaign simultaneously on the Google Display Network (GDN). If your average search marketing CPC is $3.00 and the average GDN click is $.50 (probably closer to $.05), then your media company could add $2.50 to the GDN click to maintain the average search CPC of $3.00. Unethical? Yes! However, I’ve seen this done many times. How to avoid this? Ask the representative if they will be running your campaign only on the search network. If they are not sure or say we include a small amount of GDN, then request they only run your campaign on the search network. There is a fundamental difference between a search and display campaign (push vs. pull marketing). The search customer is actively looking for your services and the other was at one-time looking for your services. The conversion percentage is much higher for search customers.
Percent based management fee
Most companies and agencies regardless of markups or other tricks charge a management fee. For search marketing, typical management fees run between 15% and 50%, usually depending on campaign budget. Most media companies are in the middle around 25% to 35%. Agencies typically range from 15% to 30%. Many media companies push automated platforms to justify their higher management fees. Having played on both sides of the field, typically automated platforms under-perform compared to campaigns ran directly out of AdWords, though I’m sure exceptions exist depending on who is running your campaign. Agencies and media companies running Google search campaigns are supposed to label their management fees on your invoice, but most of them do not. Therefore, it’s important to reverse calculate off your monthly campaign spend to ensure your vendor isn’t stealing from you.
Keeping the monthly leftovers
I know many businesses are not aware of this unethical tactic, but I’ve caught a few media companies taking advantage of this situation on a monthly basis. It’s important when vetting a digital advertising agency or media company that you ask, “what do you do if you cannot spend my budget in a given month?” The right answer is, we do not charge you or Google does not charge you. An acceptable answer is we roll over your budget (better keep an eye on it). However, we advise you to reconsider the agency or media company if they say, “we keep the leftovers.” Honestly, hardly any business will ever ask and the media company will never bring it up.
This would primarily apply to agencies, who typically convert a percentage into a flat fee. Our recommendation is to convert the flat fee back into a percentage just to make sure it’s competitive.
Last of all, is the good old retainer fee. In this situation, you are usually pretty close to the person running or managing your digital advertising strategy and/or campaigns. One downside is, most agencies working on retainer are still outsourcing the digital (they are usually your strategy person), so you get hit with a double management fee or worse 100% markup plus double management fees.
What is a good management fee for digital advertising?
The answer will vary from company to company and agency to agency. From our experience, a competitive pay per click (PPC) management fee is between 15%-20%. We’ve personally never seen an automated platform convert higher than a skilled AdWords campaign manager. Thus, we recommend some skepticism if asked to pay a 35% or higher management fee for a fancy automated platform. Display advertising is a little bit different. First, you need to verify you’re paying the cost. We’ve calculated the average CPM for all our display campaigns and cost was $0.79 CPM and most of these campaigns are based on view-able cost per thousand (vCPM) or cost per click (CPC). Thus, be wary if your media company is pitching $5+ CPM display campaigns.
In this post, we covered the primary digital advertising management fees. If you’ve experienced something different or have a question about your current situation please reply below.