percentage of spend
A fee model in which an agency charges a percentage of the client's advertising budget it manages.
Definition
Under a percentage-of-spend model, the agency's fee grows with the media budget it handles. It is simple and long-established, but it can create an incentive to push spending higher. Clients can balance this with caps, tiers or a fixed component, and by judging results against goals rather than spend. Be clear on what the percentage covers, and whether it applies to production and other costs. Rates vary widely and are negotiated. Some clients switch to a fixed monthly fee once the budget stabilizes, which removes any link between the fee and how much is spent.
In a sentence
The agency charged a percentage of spend for managing paid search.
To avoid an incentive to overspend, they added a monthly fee cap.
