Feb 152008

Paid Search Pricing Models: Vitamins Vs. Liver Transplant Vs. Hair Graft Vs. Lasik

We've written on SEM pricing models before here and over at SEL.

We believe that the agency pricing model -- not just the pricing amount -- matters a great deal.

Because the SEM fee model drives SEM agency behavior.

A few weeks ago, as part of an RFP, someone accidentally shared competitor's pricing information with us. Oops. An honest mistake, no big deal.

We respect Other Well-Known Agency's confidentiality. We certainly won't disclose their pricing details. (Hint: big numbers.)

Aside: we're still not sure why our industry is so secretive about pricing. We don't think this makes sense. We opt to share our pricing on our website in full view. But I digress.

But I sure do have to comment on Other Well-Known Agency's pricing models.

moon phase

Yep, models, in the plural.

Other Well-Known Agency's presented this client with a menu of pricing options.

Clients could pay a fixed percentage of adspend.

Or clients could pay a percentage of adspend on a decreasing sliding scale.

Or clients could pay on a pure CPC model.

Or clients could pay on a flat monthly fee with a sliding bonus based on order levels.

Or clients could pay based on a matrix crossing the LIBOR rate with the phase of the moon.

Just kidding on that last one. There might have been another option or two; I've forgotten the details. But you get the idea.

Each different model compensates the agency differently.

More importantly, each leads the agency to act differently, assuming the SEM agency is rational, and treats the comp model as their direction on how to proceed.

For example: paying your SEM a fixed CPC leads the agency to purchase clicks cheaply to sell them to you at maximum profit -- you'll see heavy emphasis on spending money on your brand name (which are likely non-incremental sales anyway).

Or paying an agency based on an order bonus could cause them to push your lowest-cost items, just to drive order counts up. ("Sure is easier selling a $10 part vs. a $300 component; bid up all them accessories!")

hey! would you like a liver transplant today?\"

I am not saying here that any of these models are wrong. (OK, we do say that, but over here.)

Each particular model could be right, both for the SEM and for the client, but under different circumstances.

What I am saying here is that I am astounded that agency offered that client that much choice.

Suppose I visited my doc for some ache or pain.

Suppose my doc said, "Well, we can treat you with vitamins. Or perhaps a hair graft. Or we could fix your eyes with Lasik. Hmmm... maybe you'd like a liver transplant?"

If I heard that, I back out of the doc's office really fast.

All of those treatments make great sense in the right situation.

But they couldn't all be appropriate for me today.


4 Responses to "Paid Search Pricing Models: Vitamins Vs. Liver Transplant Vs. Hair Graft Vs. Lasik"
Stephen says:
Wow! The pricing structure sounds almost unbelievable. The agency must subscribe to the "dazzle them brilliance and baffle them with BS" strategy. Please tell me that you got the deal... and that sanity prevailed!
I am the PPC manager for a mid sized web agency (not the one I am trying to get link juice from this post :))) we have around 60 clients, a couple fortune 500 and quite a few mom and pop shops. We have settled on a quarterly management fee. I have found in general that companies respond very well to "it doesn't matter how many keywords you want, the price stays the same". This has an assumption that the client is not going to be on the phone with me every day and using up all my time. If they become too high maintenance then we re-evaluate the fee, but this really helps us help smaller companies with limited budgets grow their business. I don't think we are making what we could make, but a good PPC person like myself :) can almost run on auto pilot and get things done quickly. I have had too many meetings where I am told about the "last company did nothing for us" which then of course is followed by their telling us they decided to do it on their own and it was a waste of money. Its really harder to get someone to get back in the water after a near drowning experience than it is to teach someone to swim.
I have to agree with Miwauke that in some cases it is just as easy to do several phrases at once, and for many smaller sites this is a godsend since they are on such a tight budget. There are a lot of "the last company did nothing for us" stories out there though. Many of my clients have one, and ended up being referred to me by a friend who was happy with my services.
An enlightening post and comments, and certainly I can't say I disagree. But the analogy whilst well intended, makes out like its wrong to offer multiple solutions to one problem, and I think there is a place for that. Granted alan, the ache I've got would be worryingly served by such a vast range of treatments, and yes I'd be hotfooting it out the door too when confornted with all those. But if I were accurately diagnosed, and offered different methods of treatment for the same pain, but those treatments varied on ranges like; speed of effect, long term dependancy risks, assurance of efficacy short and long term, invasiveness of treatment, possible side effects, then a practitioner has every right to investigate the patients deeper motivations, to propose multiple methods of treatement to suit. If I've got a bad toothache, then okay I get the idea about a long term change in my sugar intake, and perhaps I should use a fluroide toothpaste from now one, but can you just knock me out and get the damn thing out of my mouth. And I think there in lies the complexity of proposing pricing. Granted the doc gets nothing from varying the treatment, and I think there lies your point, so why should an agency. But I think there's a clear acknowledgement with savvy buyers, that agencies need the right incentives, and buyers need their objectives met. The 2 aren't always mutually aligned, but I think where there is scope to align them, and an agency is continually motivated to push the boundary, then everyone wins.

Leave A Comment