Should I pay ad management fees as a percentage or a flat fee — which works in my favor?

Last year we agreed on a 15 percent of ad spend model. When our budget jumped from 60,000 TL to 180,000 TL, what we paid the agency shot up to 27,000 TL, but our orders didn't grow at the same rate. When we dug into the reports, we realized the agency was turning on broad, non-converting keywords just to burn through the budget. A flat fee or tiered model is way safer.

Whichever model you choose, make sure to get these 3 safety valves into the contract: 1) Daily and monthly budget increases can only be made with your written approval. 2) If the target cost per acquisition is exceeded, budget increases must be paused. 3) The agency must provide a weekly search terms and negative keyword optimization report.

The percentage model is a relic from the old traditional media buying days. If you are managing digital performance, the agency's incentives must align with yours. The agency should make money from efficiency, not just from spending your budget. When scaling budgets, a flat fee plus a net profitability bonus is always in the business's best interest.

The argument that agencies lose interest with a flat fee isn't always true. A good agency calculates its monthly flat fee based on labor and hours anyway. The way to keep them engaged isn't letting them spend more to earn commissions, it's putting weekly meetings and monthly strategic reviews into the contract.

Edit: asked below, I wrote the answer in the second message.

if u go with a percentage model the agency will constantly knock on your door saying the budget isn't enough let's bump it up then as u go from 70k to 250k it gets harder to track every penny spent. best to just agree on a flat fee from the start and have peace of mind.

Come to the table with this offer: "We'll pay a flat 12,000 TL per month for our current budget and if the budget exceeds 150,000 TL while hitting our target return we'll lock the monthly fee at 18,000 TL." That way even if spend goes up you keep the agency from recklessly blowing the budget out of greed.

What are your product gross margins? If your margins in furniture are high a percentage model might be manageable while aggressively scaling the budget; but if your margins are thin, handing over something like a 12 percent commission to the agency could completely wipe out your net profit.

From a financial planning and cash flow management perspective, the flat fee model provides your company with budget predictability. Fluctuating commission rates create unforeseen cost items. Furthermore, documenting the management fee as a separate, transparent service invoice independent of the ad spend simplifies accounting audits.

edit: fixed a few typos.

Let me write how it's done in practice. When we decide without measuring, we always end up in the same place.

If code ownership isn't in the contract, you have no bargaining power when leaving. If you post the result here, it will help others too.

My question might sound amateurish, sorry about that. If you don't write this down from the start, it leads to arguments later.

If you have questions, write them; I'll answer as best I can.

Let me summarize what's been said so far. The system lives on after delivery; maintenance is a separate line item.

That's all, sorry if I went on too long.

let me share my experience and code witthout setup documentation isnt yours even if you have it.

if you have questions write them; I'll answer as best I can.

If you're going this route, sort this out first. Hasty decisions become decisions you have to fix six months later.

Don't miss this: Everything goes well for the first three months; problems arise in the fourth.

Of course, it varies if your situation is different.

I'm curious too.

There's one point I'm curious about. Any unwritten clause becomes a point of disagreement later, as both sides remember it differently.

Proven by experience.

Let me summarize the topic, since several different answers were given. When making a decision, first look at what data you have on hand.

Correct me if I'm wrong.

We've heard this a lot, but it never happened like that for us. The real issue isn't the number but what it's based on.

Of course it varies if your situation is different.