This is definitely going to be an unpopular post with many vendors, particularly in the automotive industry. It’s a debate that has been raging since before I even hit the vendor side of the business and I still recall a conversation about it that I had with a company when I was at my last dealership seven years ago.
“The more you spend, the more work we have to put into it,” the vendor sales representative told me. “That’s why we charge a percentage of your PPC spend.”
Two letters came to mind when I heard this.
B.
S.
When a dealership changes their budget, the “more work” that is normally put into it amounts to about five total minutes if the operator is slow and about 20 seconds if they know what they’re doing. They have to change the daily budget. It’s literally about going into the backend tool and editing a single number. There’s a chance that they have to edit a few numbers if they have different campaigns running, so that’s why we’ll allow for the five minute total.
If a dealership is paying 15% (and I know there are plenty who are paying higher) and they take their budget from $4000 to $5000 per month, there’s very little chance that the campaign needs to be adjusted much. For the 5 minutes worth of work, the vendor will charge them an additional $150 per month. That’s $1800 a year.
If you were to break it down to an hourly rate, that means that if a dealer raises their budget just $1000 at a 15% spend and they maintain that budget for a year, the company charged the change at a rate of $21,600 per hour (assuming they took the full 5 minutes to change the daily budget in the backend tool).
Flat or Scaled Rate
It should be noted that as of today, we do very little in-house automotive PPC for our clients. Our expertise is in SEO, social media, and content, so we partner with other companies to handle the PPC for the majority of our clients. If a client has a small budget and they only need a simple campaign with properly managed bidding, we charge $300 per month and we definitely put in more effort than the software-driven solutions. It’s more of a courtesy – small budgets with simple campaigns don’t require specialized software and the effort that we put in is worthwhile to support what we’re doing on the organic side.
For more complex types of PPC such as dynamic inventory ads, we partner. Our criteria to work with partners is that they are either flat or scaled. With a flat rate, the budget doesn’t matter. If the dealer wants a dynamic campaign, most of the vendors we work with charge around $500 flat per month. We will consider a scaled rate, one that goes up at different tiers of service and budget. That makes sense.
The reason that the percentage-based PPC service fees make no sense to us comes down to intention and accountability. A dealer should know that their best interests are being taken into account when recommendations are made. If a dealership has a $6,000 monthly budget and we believe that they are leaving valuable clicks on the table, we want them to know that our recommendation to increase their budget to $8,000 is done without bias. In other words, they know that we aren’t trying to increase our own service fee by increasing the budget.
Conversely, if a dealership is spending $12,000 per month and we believe that they could get more bang for their buck by dropping down to $10,000 and investing the other $2,000 into something else, then we aren’t hurting our own bottom line with the recommendation.
Flat or scaled service fees in PPC make sense. They’re the only thing that we recommend. Any dealership that is paying 20% or more against their budget should ask themselves if the money spent on servicing the account could be better spent going directly to the search engines to buy more clicks. On budgets that are more than $5,000 per month, the answer is almost always, “Yes.”
4 comments
Jason Stum
Posted on April 22, 2014 at 1:54 amSuch a timely post JD, have you been eavesdropping on my conversations? 🙂
Last week I was talking with a PPC company that was recommended by one of our manufacturer reps. When I directly asked what percentage of our spend went to the company all I got was the run around.
No transparency at all. I even went so far to say that I didn’t really care what their percentage was, I just wanted to know how much of my budget would actually be spent on SEM – I still couldn’t get a straight answer out of them.
At one point the gentleman on the phone even said, does it really matter what the percentage is as long as were delivering the results you’re looking for?
Are you kidding me?!
Talk about frustrating!
Now here’s the kicker. Not only does this particular company take an undisclosed percentage of your budget, they also charge a monthly “subscription fee” ranging from $499 to $999.
Am I crazy or does that seem way out of whack?
Richard Sarver
Posted on April 22, 2014 at 6:03 amYep, this makes complete sense, assuming you are talking about service companies who set it, and forget it!
Now if you are delivering results for your client, that are bringing the correct R.O.I., you are monitoring, improving, and working the campaign. “Heh, it works, I am happy with the CTR and the Conversions, just throw an extra $2000 a month at it, and lets get the business”
Then what happens . . . “Heh, Jo Blow, came by with xyz online marketing, he says, he can do better than the 2% CTR and the 5% conversions you are delivering and do it for less than the spend we are giving Google each month”
Yep, this is what you get when you assume that just throwing more money at a campaign is 5 minutes of “extra” work. It isn’t, if the vendor is doing their job right.
Can you assume that the extra $ added to the campaign is gonna work? No. Can you assume that your competitors won’t throw twice as much money at it this month than you did? No. Can you assume the same trends in search volume are gonna happen? Cost? Consumer behaviours? No, No, and you guessed it No.
Doesn’t matter $300, $3000, or $30,000. You can’t set it and forget it, and expect success with out any additional effort. Various amounts of spend need various strategies, and tactics to be successful and keep the client happy.
James Klaus
Posted on June 3, 2014 at 4:24 amGreat post JD. I think that most dealers would be shocked to learn what really goes into PPC. This will not be a popular post for some but if it opens a few dealers minds then well done. It really goes back to serving your client whether a dealer or a vendor if you have your clients best I interests at heart whether selling the a car or a PPC service you know you are doing the right thing.
Carl Maeda
Posted on October 21, 2014 at 10:10 pmHello JD,
I spoke to a customer today that pointed me to this post so I wanted to respond and tell you why are one of those PPC vendors that do charge 20%.
We don’t just have software controlling our campaigns. I’d say 80 to 90% of our work is manually done.
And it is true for us that the more you spend, the more work it is. Let’s take two extreme examples.
In the first case, if I were in a competitive market like Los Angeles but I only had $500 to spend (plus $100 management fee), we would spend as much of the money as possible buying the dealer name (assuming other dealers are buying their name) and if there was any money left over, I would target the immediate area. Its’ cheap and will convert well. Plus the amount of landing pages we need to create will be minimal.
In the second case, if I were in a competitive market and had a budget of $20,000 (plus $4,000 management fee), our workload is much larger.
The overall number of keywords we target would increase with a larger campaign. Granted this isn’t that time consuming. Its’ mostly turning off keywords that don’t convert. Trying new keywords. Finding negative keywords.
There’s also more work to do on campaign management, especially in Adwords. An example is with Ad Groups. An Ad Group that has a high quality score should be in the same campaign as other Ad Groups that convert well to keep the campaign quality score high. So we shuffle Ads around to keep it this way. Lower quality score ads are moved into a separate campaign and possibly turned off.
The work to integrate the incentives and dealer specials in the campaign will be much, much larger. We put these in the ads and landing pages.
A larger budget could also mean they are using the Display Network and we would need to create those ads (text or banners).
We would probably buy in multiple networks too. (Adwords isn’t the only game in town and there are cheaper places than Adwords) That is more work.
The landing pages need work monthly. (We don’t blindly send the user to the homepage or to the SRP/VDP pages) The landing pages, also need the incentives and dealer specials. We have multiple landing pages so we can AB test as well. Since the budget is large, we look at the user’s intent and build out the landing pages accordingly. For example, for the base keyword “Corolla”, we would have “research-intent” landing pages (that might target keywords like “Corolla equipment” or “Corolla vs Civic”), “selection-intent” landing pages (keywords like “Corolla trims” ) and “buy-intent” landing pages (keywords like “Corolla dealer” or “Corolla quote”). Just on landing page maintenance (and creation), the work just tripled. For someone with a large budget, we would also mirror any advertising efforts they are doing as well.
By the way, some other vendor have to charge a percentage because the tool they use charges a percentage. I looked into using some of these tools but found that you get much better results without them.
I could write a lot more here but I’ll stop for now. If you have any questions, feel free to contact me. Thank you.