It’s no secret that ad agencies can be expensive. But what you may not know is that ad agencies often take a percentage of your ad spend, which can actually cripple your business as it scales. Here’s why ad agencies shouldn’t take a percentage of your ad spend.
Your business grows in complexity as it scales
Therefore, you need to keep every ounce of profit you can as you scale in order to keep up with the complexity. Ad agencies often take a percentage of ad spend, which can be upwards of 15%. This means that as your ad spend grows, so does the percentage that the agency takes. The agency’s fees should be based on the services they provide, not on a percentage of ad spend.
Your incentives are not aligned
Ad agencies are expensive, and you need to be able to trust that they’re doing their job well. If an ad agency is taking a percentage of your ad spend, it’s in their best interest to inflate your ad spend so they can make more money. This creates a conflict of interest and doesn’t align the ad agency’s incentives with yours.
Also, a percentage of ad spend is a hidden cost. When you’re trying to calculate the ROI of your ad campaigns, it can be difficult to decipher how much of the ad spend is actually going towards ads.
You will grow to resent your agency as the bill gets larger
As your ad spend grows, so does the percentage that the agency takes. This can leave a sour taste in your mouth, especially when you’re not seeing the results you want. Inflated ad spend and hidden costs are two of the main reasons why businesses grow to resent their ad agencies.
Every agency should eventually grow to provide 10X return
The ideal situation is to find an ad agency that will provide you with a 10X return on ad spend. This means that for every dollar you spend on ads, you should make 10 dollars in return. If an ad agency is taking a percentage of your ad spend, it’s less likely that they’ll be able to provide you with a 10X return.
When you’re looking for an ad agency, it’s important to these economic factors into account.