In my last post I talked briefly about Search and Economics. Today, I read a really interesting post from Alan Mitchell which, whilst saving me a write up, explains how this fits into PPC pricing models.

The article explains how a ‘tipping point’ can be reached between click volume and client profit. There is no perfect pricing model for PPC, every model is different. CPA and Revenue share models both have specific pros and cons. The point to bear in mind is balancing risk and profit. This means clients and agencies need to work very closely to ensure a pricing model suits ALL objectives (strategic, marketing, profit, and volume) from a client and agency viewpoint.

“In short, the percentage of spend model is a highly inefficient pricing model for paid search management, and should be avoided. As pointed out by George Michie in his recent post on SEM Pricing Models, since the agency receives a commission on every dollar spent, there is an incentive for the agency to spend as much as possible, which can be far in excess of the point of diminishing marginal returns.”

I think that going forward ‘creativity’ on pricing is needed. As the market develops, clients become more savvy and commercially driven, some clients have some search disciplines in-house then ppc pricing elements will need to be based on a mixture of; time spent on specific search disciplines, fixed retainers, and (in some cases) hybrid revenue share models. Many agencies tend to try and place a set pricing model on clients without really understanding the client’s objectives and marginal profit margins. That’s a No No, Win Lose. If you can spend a little more time on pricing, working with the client, it is possible to find a win win.

Next post – I will aim to tackle Economics and Social Media.

Based on the fact the economists believe consumers ‘act rationally’, this may be interesting.