Agency Pricing Tied to Profit

I joined a Facebook-ads agency in early 2020, when its growth had flatlined. Its standard fee was a percentage of the ad spend it managed, typically 18%. I'd priced on performance at my own agency before that.

A percentage of ad spend grows when spend grows, whether or not the extra spend made the client money. The agency needed a fee its clients could measure against their own profit.

I brought the performance pricing from my own agency into this one. The fee became a share of the client's gross profit: revenue minus the ad spend we managed. Each deal started from a baseline month. Below the baseline, the agency earned almost nothing, and above it the agency took its share. One proposal came to about $6,000 for a month below the baseline and $70,000 or more for a month that hit. I priced proposals like an underwriter, from conservative numbers, and broke out discounts, returns, shipping and processing fees so the client could see profit per order before and after our fee.

• Gross-profit fee model
• Baseline month and floor
• Profit-per-order reporting

The new pricing gave the agency offers it hadn't run before and a lot more deal flow. One ecommerce client measured us on net profit per order. It was $9 before the agency and $10 to $12 with it, after a fee that came to 16% of gross profit, and the account was still scaling.

The agency's pay and the client's profit moved together, so a bad month cost the agency first. The fee was measured on a number the client already tracked: profit per order.

Price on the number the client keeps. A fee on gross profit, with a floor the agency can live with in a bad month, puts the agency on the same side of the table as the client.