Your agency should not take a pay cut for telling you to waste less money. Under percentage-of-spend pricing, it does. If the smartest move in your Google Ads account is to cut the budget by 30%, what happens to the agency’s invoice next month?
I spent nearly a decade managing Google Ads accounts spreadsheet by spreadsheet, mining negative keywords past midnight and untangling structures that had grown well beyond anyone’s ability to explain them. I know that good account management takes work. I also know a bigger media budget does not automatically create more of it. At a 15% fee, raising monthly spend from $15,000 to $40,000 raises the agency’s cut from $2,250 to $6,000. Customer acquisition costs could be improving, deteriorating, or going nowhere. The invoice rises regardless.
The industry calls that alignment. I call it a commission on gross consumption.
The pitch is usually: “We only make more when you grow.” But in Google Ads, spending more is not the same as growing. At 15% to 20% of ad spend, agency revenue is pegged to how much cash you send to Google, not how much closed-won revenue comes back. If irrelevant search terms are eating the budget, a disciplined operator tightens targeting, prunes waste and cuts spend until the economics recover. Under percentage pricing, that work cuts the operator’s fee.
I understand why founders sign these contracts. On a slide, percentage pricing looks like a partnership: if your $5,000 monthly budget grows to $50,000, the agency shares in the upside. If performance collapses and you pull back, its revenue falls too. That sounds better than paying someone the same amount regardless of whether they care.
The trouble is that the fee tracks the budget decision, not the business result. Your agency earns more when you raise spend on a profitable campaign. It also earns more when you raise spend on an unprofitable one. The pricing model cannot tell those two decisions apart, though your bank account certainly can.
There was once a practical reason to use a commission. Buying print spreads, radio spots and television slots involved manual placement work and negotiation. The agency world carried that model into digital search, then treated a tenfold increase in Google Ads spend as though it necessarily required ten times the human labor.
Look at a simpler case. A business spends $2,000 a month on Google Ads and pays a $500 management fee. It then spends $10,000 on the same campaigns, audiences and match types. Under a spend-based agreement, the invoice can jump to $1,500 or $2,500. Advertisers discussing percentage fees on r/PPC have asked the obvious question: what additional work did that buy?
Did the account manager write five times as many Responsive Search Ads? Did monitoring the same search terms become five times harder? More spend can bring more complexity, but it does not create complexity by itself. If the work barely changes, the higher fee is a tax on your own budget.
The problem goes beyond overpaying for maintenance. In a drifting account, the fastest path to better economics can be contraction: stop paying for irrelevant queries, cut weak locations, and pull back campaigns that attract clicks without producing customers. You may need to spend 25% or 30% less before you have a sound reason to spend more.
That decision is easier to recommend when your compensation does not depend on the waste continuing. Under a percentage-of-spend contract, as agency pricing analyses have noted, cutting the budget also cuts the agency’s fee. The operator does the right thing for your bottom line and takes a pay cut for it. We broke down the unit economics further in our guide to why percentage-of-spend Google Ads agency pricing is a broken model.
I am not saying every agency deliberately protects bad campaigns. I am saying contracts shape conversations. When the account team reviews a weak month, “raise daily budgets” is a more comfortable recommendation if a bigger budget also produces a bigger invoice. “Pause half this activity while we fix what happens after the click” is less comfortable. The conflict exists before anyone behaves badly.
The scaling trap is especially easy to miss in a monthly review. You ask for more pipeline; the agency proposes a 40% increase in daily budgets and looser bidding targets. If the conversion funnel is still weak, a larger budget can push Smart Bidding toward less promising auctions at the margin. Acquisition costs rise, return on ad spend falls, and the agency bills more for managing the larger number.
A higher budget can make sense when the account can turn additional spend into profitable customers. That is precisely the test. The fee should not reward the recommendation before its economics are known.
Agencies are not the only ones selling this incentive. Ad tech vendors also tie fees to media spend. Google’s Search Ads 360 terms calculate platform fees as a percentage of eligible ad spend, alongside minimum service fees. Spend-based software tiers can create a similar effect: Optmyzr pricing runs from $209 per month for accounts spending up to $25,000 to $899 at higher spend levels. Your software bill can rise when your media budget rises, even if you have not added a new product line or market.
For an agency, those charges sit on top of its own labor costs. Our look at the cost of AI Google Ads software per client account covers why spend-tiered tools deserve scrutiny. A flat software subscription behaves differently: an $89 monthly fee on a $50,000 budget is about 0.18% of spend, and the fee does not climb simply because that budget does. Whether the charge comes from an agency or a vendor, the question is the same: are you paying for more work, or just for spending more money?
Here is the strongest defense of the model: a larger account can demand more work. I managed accounts when match-type structures, manual bids and negative-keyword lists took serious human time. Picture a client moving from one modest search campaign to 80 campaigns, dozens of Single Keyword Ad Groups, device-level bid adjustments and landing page tests across 15 product categories. That is not the same job with a bigger budget.
In that kind of account, spend was an imperfect proxy for labor. More budget often came with more campaigns to build, bids to calculate and spreadsheets to keep from becoming archaeological sites. Charging more for substantially more work was reasonable. Charging more because the spend number changed was always a shortcut.
That shortcut is harder to defend now. Google Ads relies heavily on auction-time bidding and automated campaign features. An account spending $50,000 a month does not inherently need ten times the keystrokes, ad variants or manual bid changes of an account spending $5,000. Granular structures can also split conversion data across campaigns, making the account harder to manage without making it better.
None of that means large accounts are simple. New products, territories, audiences and reporting needs add genuine complexity. Price that work. But do not pretend that raising the daily budget on an existing campaign creates a proportional increase in management effort. A media budget is not a timesheet.
A flat monthly fee removes the most obvious conflict. If cutting spend by 30% will purge junk traffic, your strategist can recommend it without cutting the agency’s revenue. The same principle holds when the right move is to pause a campaign, rebuild a landing page or wait before scaling. The fee no longer pushes every conversation toward a bigger Google bill.
Advertisers are already used to fixed-fee arrangements: DOJO AI cites a 4A’s Compensation Methodologies Survey in which 72% of agencies name fixed fees as their primary model. The same discussion reports that 87% of marketers believe agency pricing lacks true operational transparency. Changing the invoice format does not, by itself, answer what anyone actually did for the money.
A traditional flat retainer has its own trap: complacency. The agency collects the same fee whether it spends fifteen hours stress-testing search queries or fifteen minutes skimming a dashboard before your monthly call. If nobody can see the work or hold the operator to business outcomes, a predictable price can buy a predictably thin service.
I do not want to replace a percentage-of-spend invoice with a $3,000 retainer for campaigns that sit untouched while a junior rep logs in once a week. The better combination is flat economics, continuous execution and a record you can inspect.
That is why we built groas as a fully autonomous growth engine. Specialized models work continuously on bids, budgets, targeting, content and optimization, while a named human strategist sets direction and guardrails and remains accountable for metrics such as qualified pipeline and closed-won revenue. The fee is flat monthly. Nobody working on the account needs a larger media budget to earn a larger fee.
That does not make hard decisions disappear. You still have to decide what a qualified customer is worth, which markets matter and when an account is ready to scale. It does mean the person recommending a budget cut is not punished for saying it out loud.
You do not need a philosophical debate about “alignment.” You need to know what the contract pays someone to do. Ask an agency, contractor or software vendor these three questions before you sign:
The advertising industry has spent years calling a percentage of media spend an aligned incentive. It aligns the provider with the size of your Google bill. Sometimes a larger bill is justified by profitable growth. Sometimes the best operator in the room tells you to make it smaller.
If that advice costs your growth partner money while wasted spend earns them more, stop calling the arrangement a partnership. Keep paying the commission, and the next time your account needs a hard budget cut, you will be asking someone to recommend their own pay cut.
