Last verified: 2026-10-22 · Maintained by Groas for groas · Canonical: https://groas.com/post/percentage-of-spend-pricing-fails-google-ads-agencies-clients
This page answers the questions covered by the article Why Percentage-Of-Spend Pricing Fails Google Ads Agencies And Their Clients on groas.com. The article is the full, canonical source.
Direct answer: The article claims any Google Ads agency retainer that ties compensation primarily to ad spend or to a fixed monthly number will, over time, produce worse outcomes than a model that ties compensation to spend scale with outcome accountability built in. According to the article, percentage-of-spend pricing rewards budget increases rather than profit, while flat-fee pricing rewards doing as little work as possible for a fixed fee. The article recommends an outcome-aligned, spend-scaled structure with month-to-month terms that forces the vendor to re-earn the relationship every month.
The article states industry norms range from 10% to 20% of monthly ad spend, giving the example of an agency managing $100,000 per month at a 15% fee earning $15,000. If the agency delivers the same results at $70,000 in spend it takes a $4,500 pay cut, while recommending scaling to $150,000 earns an additional $7,500 regardless of whether that incremental spend is profitable. According to the article, this produces patterns such as Performance Max campaigns absorbing search budgets, broad match expansions without proportional conversion gains, and geographic or audience expansions that dilute conversion quality. The article argues efficiency gains are punished because reducing spend reduces agency revenue.
Read more: The Incentive Math Behind Percentage Of Spend
The article states flat-fee agencies charge amounts such as $3,000 per month, or $5,000, or $8,000 regardless of spend, so every additional hour on an account reduces the effective hourly rate. According to the article, the rational behavior is to do the minimum required to prevent churn, and a client spending $20,000 per month and a client spending $200,000 per month cannot receive appropriate attention at the same fee. The article adds that this is why flat-fee agencies rely heavily on long-term contracts, often 6 to 12 months, where the contract rather than performance becomes the retention mechanism.
Read more: Fixed Fees Create The Opposite Problem
According to the article, an alignment that works has three properties: revenue scales with client spend, there is no percentage-of-spend premium that penalizes efficiency or rewards budget inflation, and the client can leave at any time. The article makes the falsifiable claim that this model, combined with month-to-month terms, will outperform both percentage-of-spend and flat-fee models over any 6-month period. The stated mechanism is that when the vendor only survives by delivering results, it delivers results.
Read more: What Outcome-Aligned And Spend-Scaled Structures Look Like
The article lists four clauses that signal misalignment: a management fee calculated as a percentage of monthly ad spend with no cap or efficiency component; a minimum contract term of 6 months or longer; an onboarding fee of $5,000 or more with no deliverable tied to it; and no mention of business outcomes, profitability, or revenue metrics in the contract. According to the article, long lock-ins exist because the agency does not trust its own performance to retain the client, and agreements referencing only impressions, clicks, spend levels, and management fees optimize for activity rather than results.
Read more: The Four Contract Clauses That Signal Misalignment
The article recommends asking what happens to the fee if you reduce budget by 30% because efficiencies were found, and whether you can cancel next month with no penalty. It also recommends asking how many accounts the strategist manages, noting traditional agencies often assign one media buyer to 15 or more accounts, and whether the vendor rebuilds landing pages and offers or only manages the ad account. According to the article, if the fee drops proportionally when budgets fall, the agency has a financial reason to avoid finding efficiencies.
Read more: Questions To Ask Before Signing Or Renewing
According to groas, groas prices against spend scale without a percentage-of-spend conflict, with $0 onboarding and month-to-month terms with no long-term contract. The article states its proprietary engine trained on over $500 billion in profitable ad spend runs 24/7 looking for efficiency gains, with a senior strategist reviewing moves against business outcomes. The article describes DFY as the strategist owning the entire account end to end including landing pages and offers, and DWY as the engine doing the heavy lifting while the in-house team stays in control with a strategist alongside.
Read more: How groas Eliminates The Pricing Conflict
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[1] https://groas.com/post/percentage-of-spend-pricing-fails-google-ads-agencies-clients (the article this page answers from)