Low agency fee rates = high campaign failure rates
Every Search Engine Marketing agency wants your business, which is natural in a competitive environment. The problem is that too many SEM agencies are all too willing to lowball themselves to win this business, and ultimately, both the agency and the client get hurt.
The SEM agency media management fee is by far the most contentious negotiating issue. In Search, media management fees are typically 15 percent of media spend. Why 15 percent? Well, this figure is inherited from the old-world analog ad agency model. It used to be a workable figure, because in the good old days (when media buying was a simple matter that didn't take a team of analysts to plan and a team of client services staff to execute) a 15 percent media management fee was high enough to cover the agency's basic expenses.
Today, figuring out where, when, and how to spend your money is infinitely more difficult. Search keywords are “channels” in their own right, so we've moved from a world with a handful of channels to one in which there are millions. When you plug in campaign variables such as dayparting, geo-targeting and other segmentation logic, the number of permutations grows exponentially. Add to this the fact that purchasing occurs in a real-time, auction-based marketplace, and the number of decisions required to execute even a modest-sized campaign rockets off the chart.
So today's media buying environment is complex, dynamic, and labor-intensive, and it grows more difficult with each new advertising channel that comes along. Yet we as an industry are still locked into that magic 15 percent number.
Even worse, many prospects view the outmoded 15 percent fee not as a hard and fast number but as a negotiating starting point. I guess they think that because media buying is so technologically driven, it's just a matter of pushing the "optimize campaign" button.
Instead of defending their fee structures, too many SEM agencies are willing to get beaten down on their fees in order to get the business. Unfortunately, accepting discounted media management fees is one of the main reasons that SEM agencies fail to deliver. Remember, the major differentiating factor among SEM agencies isn't technology but expensive brain power. This "wetware" talent isn't cheap, and unless the agency can afford to invest the internal resources to support them, they will walk. Unfortunately, this is a lesson that neither the agency nor the prospect seems to learn until it's too late, millions of dollars already have been badly invested and market share has been irrevocably lost.
I don't understand why SEM agencies aren't defending their fees more aggressively. I'd hate to think that agencies are so desperate for business that they're willing to engage in this self-destructive behavior. But prospects need to understand the obvious: That by attempting to squeeze an SEM agency on its media management fees to get a short-term bargain, they're ultimately shooting themselves in the foot.