Should I pay my marketing agency a percentage of my ad spend?

In physics and in machine learning, you learn early that a system optimizes exactly what you reward it for. Not what you hoped for, not what you meant, but what you actually measure and pay. Train a model to maximize clicks and you get clicks. Pay a person to maximize spending and you get spending.

That is why the most common way agencies charge for paid advertising troubles me. Many are paid a percentage of the ad budget they manage. It is so normal in this industry that most business owners never question it. I think it is wrong for clients, and we built Medai Digital to work differently.

How did I start thinking about this?

A business owner told me his company spends a very large amount on Google Ads every day, with little to show for it. When I asked how the agency was paid, he said: a percentage of the ad spend. Then he said the part that stayed with me. He already knew the problem. The agency earned more when his company spent more, whether or not more clients came through the door.

I had spent months rebuilding the Google Ads account of a Houston family manufacturer, and much of that work was cutting spend: excluding searches that brought glass repair and auto windshield requests, removing locations in states where they could never install, stopping display placements in apps and games. Every one of those fixes made the client's money work harder. Under a percentage of spend model, every one of them would also have cut the agency's own fee.

Why is a percentage of ad spend the wrong incentive?

Because it pays the agency for your cost, not your result.

• Cutting waste lowers the agency's income. Excluding bad searches, narrowing locations and pausing weak campaigns are the most valuable things an agency can do, and each one reduces the fee.
• Raising the budget raises the agency's income. The easiest recommendation for the agency is always "spend more", whether or not the extra spend brings clients.
• The report stops at the click. An agency paid on spend has little reason to connect ads to your CRM and show you cost per client, because that number might argue for a smaller budget.
• Good agencies are punished for being efficient. An honest manager who gets you the same clients for less money earns less for it.

Most people in the industry are not acting in bad faith. The model simply points them in the wrong direction. A system optimizes what it is rewarded for.

Is this a bigger problem in Houston?

Houston is a crowded and expensive advertising market for the businesses we work with most: law firms, home services and contractors. In the keyword data we work with, some suburbs, like Katy and Sugar Land, are among the most expensive places to buy a click, and the largest national brands bid on the same broad searches. In a market where clicks are expensive, a model that rewards more spending gets expensive fast, and the waste is harder to see because the volume looks impressive.

What does skin in the game look like for a marketing partner?

Skin in the game means the partner wins when you win, and does not win when you only spend. In practice:

• A fixed fee for the work. You pay for the setup, management and reporting, not for the size of the budget. Cutting waste never costs us anything.
• Your ad spend goes straight to Google. The account and the billing stay in your name, and we never mark up or take a share of the spend.
• Results measured at the client, not the click. Ads connected to your CRM, so we both see cost per lead, cost per client and return on ad spend.
• Rewards tied to outcomes you both can see. Where the law and the business allow it, a partner's upside should come from results you can verify together, such as more booked jobs or better cost per client, never from a bigger bill.

That last point has one important exception. Lawyers may not share legal fees with people who are not lawyers, so for law firms we keep to a fixed fee and measured service goals, and never tie our pay to cases or fees.

When is spending more the right advice?

Sometimes it is. If your cost per client is healthy, your team can handle more work and the searches you want still have room, a larger budget can be exactly right. The difference is why the advice is given. When we recommend spending more, it is because the numbers in your CRM say the extra clients are worth it, and our fee does not change either way.

And sometimes the right advice is to spend nothing for now. If your website does not clearly say what you do, if calls go unanswered or no one can see which leads become clients, more ad spend only buys more waste. We would rather tell you that than bill you for it.

What should a marketing agency agreement include?

At minimum: a clear fixed fee and what it covers, ad spend paid by you directly to the ad platform, every account in your name, the reports you will receive and how often, who does the work, and how you can end the agreement and keep everything. If any of these is vague, ask before you sign.

Is a flat fee always better?

Not automatically. A flat fee removes the reward for spending more, but it does not guarantee effort. Pair it with reporting that ends at real clients, regular reviews and the right to see your accounts at any time. The fee structure sets the incentive; the reporting proves the work.

How can you check your own agency today?

You do not need to change agencies to protect yourself. Ask these questions:

1. How exactly are you paid, and does your fee change if my budget changes?
2. Is the ad account in my name, and do I see the real invoices from Google?
3. Can you show me cost per client, not only cost per click or per conversion?
4. When did you last recommend lowering my budget or cutting a campaign?
5. What would you do differently if you were paid on my results instead of my spend?

The answers will tell you whose interest the arrangement serves.

Why are we trying to change this?

I started Medai Digital around a simple idea I call ethical capitalism: a business partner should do well only when the client does well. Paying an agency more for spending more is a normal practice, but normal is not the same as right. We charge for our work, keep your accounts in your name, measure what your ads actually bring in and tell you when to spend less. That is how a partner earns trust, and trust is the only thing that keeps a partnership going.

If you want to see how this works on your own account, read how we run Google Ads management, or request a free audit.