BACKGROUND

2 months ago, I left an interactive firm and ventured out on my own as a Search Engine Marketing consultant.  One of the most important decisions I had to make was how to price my services.  

When it came to PPC (almost exclusively Google AdWords), I decided to charge an upfront fee for research and design of the PPC campaign.

My clients ad budgets range from $1000 - $4500 / Month.

My monthly management fees are as follows:                                                                                            

Google AdWords: %20 of Ad Spend                                                                                                        Yahoo! Panama: %25 of Ad Spend                                                                                                         MSN Ad Center: %25 of Ad Spend

I charge more for Yahoo and MSN because I consider them to be more difficult platforms to manage.

Here are what I consider to be the pros and cons  of "% of ad spend" pricing:

PROS

1. "If you expect a client to increase ad spend over time, your revenue will increase."                                  

In certain cases, you may anticipate a client to increase its monthly budget:                                                 

• A well-structured and managed PPC campaign.
• A strong brand.
• A fantastic landing page and/or website.

2.  "Clients may prefer to use % of ad spend for a fee."

Many clients:

• Are unable to determine a fair hourly rate for PPC management.  There are thousands of consultants and companies out there - and they vary in experience, tools, pricing structure, and ethics.
• Are unfamiliar with PPC and feel this pricing protects them from paying for too many hours or hours that the client exaggerated about (nice way to put it).
• Like the fact that they can cut ad spend and maintenance fees in proportion.

3. "Improved efficiency over time leads to less hours needed as monthly fees remain constant."

As a PPC specialist learns more about the company, industry, and the campaign itself, he/she becomes more efficient with his management.

4. "Most times, larger budgets require more attention than smaller budgets." 

Usually, higher budgets mean higher advertiser competition.

CONS 

1. "It can be very difficult to estimate what ad spend will be." 

This leaves the potential for extremely-low monthly budgets, leading to extremely-cheap management fees.  This is for many reasons:

• Lack of familiarity with keywords and keyword volume. 
• A Geo-targeted campaign (In the U.S., this means anything at the state-level and smaller).
• Not sure which keywords will have a positive ROI.
• Inaccuracy of keyword inventory and pricing estimation tools.

2. "A high-maintenance client (in terms of hours spent relative to other clients) will lower your average hourly rate." 

While it may be very beneficial to spend extra time working with your client, billing clients by the hour will allow for additional revenue in those instances.

3. "Clients may feel that the percentage of ad spend should decrease over time."

The exact opposite of Pro #3.  Clients may feel that after a certain time period, the campaign should be on auto-pilot.  In some instances, a campaign can run efficiently on a small fraction of the hours it once required. However, most of the time, as Rand mentions in a recent blog entry:

"Start the process anew every few months to stay fresh and relevant - even the best ads won't draw clicks forever (and especially not in fast-changing industries like SEO)"

I hope to hear other views on this issue as well..