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.
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.”