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Paid Search Pricing Models: Vitamins Vs. Liver Transplant Vs. Hair Graft Vs. Lasik

We've written on SEM pricing models before here and over at SEL. We believe that the agency pricing model -- not just the pricing amount -- matters a great deal. Because the SEM fee model drives SEM agency behavior. A few weeks ago, as part of an RFP, someone accidentally shared competitor's pricing information with us. Oops. An honest mistake, no big deal. We respect Other Well-Known Agency's confidentiality. We certainly won't disclose their pricing details. (Hint: big numbers.) Aside: we're still not sure why our industry is so secretive about pricing. We don't think this makes sense. We opt to share our pricing on our website in full view. But I digress. But I sure do have to comment on Other Well-Known Agency's pricing models. moon phase Yep, models, in the plural. Other Well-Known Agency's presented this client with a menu of pricing options. Clients could pay a fixed percentage of adspend. Or clients could pay a percentage of adspend on a decreasing sliding scale. Or clients could pay on a pure CPC model. Or clients could pay on a flat monthly fee with a sliding bonus based on order levels. Or clients could pay based on a matrix crossing the LIBOR rate with the phase of the moon. Just kidding on that last one. There might have been another option or two; I've forgotten the details. But you get the idea. Each different model compensates the agency differently. More importantly, each leads the agency to act differently, assuming the SEM agency is rational, and treats the comp model as their direction on how to proceed. For example: paying your SEM a fixed CPC leads the agency to purchase clicks cheaply to sell them to you at maximum profit -- you'll see heavy emphasis on spending money on your brand name (which are likely non-incremental sales anyway). Or paying an agency based on an order bonus could cause them to push your lowest-cost items, just to drive order counts up. ("Sure is easier selling a $10 part vs. a $300 component; bid up all them accessories!") hey! would you like a liver transplant today?\" I am not saying here that any of these models are wrong. (OK, we do say that, but over here.) Each particular model could be right, both for the SEM and for the client, but under different circumstances. What I am saying here is that I am astounded that agency offered that client that much choice. Suppose I visited my doc for some ache or pain. Suppose my doc said, "Well, we can treat you with vitamins. Or perhaps a hair graft. Or we could fix your eyes with Lasik. Hmmm... maybe you'd like a liver transplant?" If I heard that, I back out of the doc's office really fast. All of those treatments make great sense in the right situation. But they couldn't all be appropriate for me today.
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