Comparing Ad Agency Fee Models: Flat, Percent, and More
- Nathan Leverette
- Jul 30
- 4 min read
Choosing an agency is about compatibility. Not only do you have to determine if they have expertise in the right areas to help you, you’re looking for alignment in how they operate. Do they understand your goals, brand voice, and day-to-day communication style?
Those intangibles can be difficult to find, but once you’ve got that part settled, the dollars and cents should be the easy part… right?
If you’ve never hired an agency before, you may only have one fee model in mind, however, just like a newlywed couple discussing their finances, you’ll soon discover there are different ways to approach it.
They each have their pros & cons, and some are more complex than others, although simpler doesn’t necessarily mean better. But don’t fret, we’ve got you covered with a breakdown of some of the most common ways agencies charge their fees in the digital advertising (aka PPC) space.
Pros & Cons of Different Fee Models
Here is the list of fee models we discuss below; click one to jump ahead:
Flat
A fixed fee amount (typically monthly), often arranged into tiers based on service requirements.
Pros: Simple to budget, transparently outlines what is included
Cons: Less flexible, subject to sudden bump-ups if scope changes
Best suited for: Clients with predictable budgets and consistent campaigns
Percentage of Spend
The fee charged is correlated to the amount of ad spend in a given period (eg. 25%, where $6,000 in ad spend would result in a fee of $1,500).
Pros: Flexible budget changes, agency investment scales with client’s growth
Cons: Incentivizes more ad spend, less clear labor requirements with budget increases
Best suited for: Clients with frequently-changing budgets who need agency involvement to scale up or down at different times
Hybrid
A flat base fee with an additional variable portion such as percentage of ad spend.
Pros: Balance of predictability & flexibility, ensures a base service level with a scaling element
Cons: Initially more complex to understand and calculate
Best suited for: Clients who want to maintain a level of agency involvement with fluctuating budgets or performance targets
Time-Based
Billable time is tracked, and fee is charged according to a rate (typically hourly), unrelated to ad spend.
Pros: Transparent labor costs, access to agency as needed
Cons: Time doesn’t always equate to results, agency is less invested
Best suited for: Clients with irregular campaigns who value consulting and want flexible access to external expertise
Project-Based
Also known as all-in-one, the ad spend and fee are lumped into the total cost, and the resulting split for the agency depends on completing the project under budget.
Pros: Budget is simply defined up front, less minutia with fewer invoices
Cons: RFP process can be lengthy, less transparency on how money is allocated
Best suited for: Clients who have a clear objective and a set budget (eg. government grants), who want to “just get it done” and not be bogged down by details
Performance-Based
Fee is matched to performance targets being met, be it outcomes (eg. total profit) or KPIs (eg. cost-per-lead), on a given ad spend budget.
Pros: Pay according to results, less risk
Cons: Difficult to negotiate, potential for “cherry picking” and contorting to flatter specific KPIs
Best suited for: Clients with strong tracking systems in place, who are confident in their KPIs and have a clear idea of what results are worth to them
Lead Buying
A vendor sells leads at a price that includes markup, meaning they handle ad spend and other costs internally, and deliver leads a-la-carte or at a certain volume.
Pros: Lowest commitment, pay only for leads instead of impressions/clicks
Cons: Leads can be old or low quality, inconsistent supply, price can increase at any time
Best suited for: Smaller-budget businesses less concerned with investing in their brand, and not needing day-to-day support
A side note on lead buying: that one isn’t always considered a conventional agency package, as it’s more like third-party retail, but worth including as it is common practice in some areas/industries.
So What?
Any one of these fee models could make sense depending on the situation, though different industries gravitate towards specific models as well. Some clients simply wish to continue what they have done in the past, or they may be overseen by administrative bodies with a stable of preferred vendors all using the same fee model.
Automotive dealerships, for example, commonly operate with the percentage of spend model, due to frequent changes to their monthly promotions, inventory carried, or budgets due to seasonal activity and sales targets. This gives them flexibility and scaling of agency involvement with their needs for new creative, fast turnaround, and intensive reporting.
At IBA, we do have our standard packages which tend to suit the type of clients we work with, but there are cases where a client’s needs are more specific, therefore a customized package is discussed.
That’s what we’re here for: to understand your situation and work alongside you to accomplish your goals.
If you want more information about what we do to help our clients, visit our pricing page, or contact us any time!
