Is Your Digital Agency Paid as Percentage of Media Spend? Watch for These 5 Red Flags
By Mark Harnett
Do you pay your digital agency based on a percentage of the media budget they spend? If so, their incentives may be misaligned with yours.
Red Flag #1: Blending Branded and Non-Branded Search Results
Agencies failing to separate these metrics lack transparency. Branded terms generate cost-effective conversions because consumers already know the company name. Non-branded terms face higher competition and lower conversion rates. When blended together, the average cost is low and misleading, masking poor non-branded performance.
Red Flag #2: Overpaying for Branded Search Terms
Branded search ads often appear unnecessary. Without the paid ad, 95 times out of 100, the consumer would scroll down to find the organic result. Only about 5% of clicks represent incremental value. You would need to adjust your bids down to 5% of the typical CPA.
Red Flag #3: Overpaying for Retargeting Customers
Retargeting ads attract users who would have converted anyway. You should only pay about 10% of the CPA compared to acquiring genuinely new customers.
Red Flag #4: Poor Budget Allocation Across Campaigns
Agencies should continuously monitor performance and shift budgets from underperformers to high-performers. Many campaigns receive similar budgets despite vastly different results.
Red Flag #5: Optimizing Toward Wrong Metrics
B2B companies often optimize for lead volume rather than sales-qualified leads. If that is the excuse you're hearing, you've got the wrong people.
Bonus: Unmeasured Brand Awareness Spending
Brand awareness campaigns can cost tens, possibly hundreds, of thousands of dollars without measurement infrastructure. We advocate project- or retainer-based fees rather than charging a percentage of media spend.