YourAgencyIsIncentivisedtoWasteYourMoney

Every agency charging a percentage of ad spend is financially incentivised to increase your budget, not your profit. This is not a conspiracy. It is arithmetic.

The people at your agency are probably well-intentioned. They may genuinely believe they are doing good work. But the structure they operate within creates incentives that work against your interests, regardless of their personal ethics.

This is not about bad people. It is about a bad model.

The Arithmetic of Misalignment

Most agencies charge between 10% and 20% of ad spend as their management fee. Some go higher, some lower, but the model is ubiquitous.

Let us follow the maths:

Now, the counterargument: agencies want long-term relationships, so they would not sacrifice your interests for short-term revenue.

This is naive. The pressure is constant and structural. Account managers have targets. Agencies have overheads. When recommending a spend reduction puts your job at risk, even principled people hesitate.

The Efficiency Ceiling They Will Not Acknowledge

Every Google Ads account has an efficiency ceiling: the point at which additional spend produces diminishing returns that fall below acceptable thresholds.

When was the last time your agency said: "You should spend less"?

If the answer is "never," that is not because your account is perfectly optimised at its current spend level. It is because they have no incentive to look for the ceiling.

How Agencies Justify Spend Increases That Do Not Improve Outcomes

The language of justification is predictable:

The "Flat Fee Lacks Motivation" Myth

"So we should switch to a flat fee agency?"

Critics of fixed-fee models argue they create different problems:

These objections assume motivation only comes from financial incentives. They ignore that fixed-fee agencies can structure scope appropriately, that reputation and retention matter, and that removing the spend incentive reveals other motivations: genuine interest in results, professional pride, and the desire to keep clients long-term.

A fixed-fee model does not automatically mean minimum effort. It means effort is no longer distorted by the financial reward of increasing your spend.

What Alignment Actually Looks Like

True alignment is rare because it requires agencies to accept risk and clients to share upside. Here are structures that actually work:

1. Profit-Based Performance Bonuses

A base fee for management, plus bonuses tied to actual profit improvement. This requires transparency: the agency needs access to margin data, not just revenue figures.

2. Capped Percentage Models

Percentage of spend up to a ceiling, then flat above it. This maintains some scale alignment at lower spend levels while removing the incentive to push past optimal.

3. Efficiency Incentives

Bonuses for achieving results with less spend. If the agency can deliver the same revenue at £70k instead of £100k, they share the savings. Now efficiency is rewarded, not punished.

4. Declining Percentage Tiers

15% on the first £50k, 10% on £50k to £100k, 5% above £100k. This reduces the incentive to push spend into diminishing returns territory.

Questions to Ask Your Agency

Before your next strategy meeting:

• "At what spend level do we hit diminishing returns?"
  If they cannot answer, they have not looked. If they will not answer, they do not want you to know.
• "When did you last recommend reducing spend?"
  For any client, not just you. If the answer is "never," their model does not allow for it.
• "How does your fee structure change if we spend less but profit more?"
  Watch for discomfort. A well-aligned agency would welcome this question.
• "Would you recommend scaling if efficiency dropped 30%?"
  The honest answer is: "It depends on your margin thresholds." A spend-focused answer is: "We need to capture market share."

Our Position

We charge fixed fees. Not a percentage of spend. This is a deliberate choice.

When we recommend reducing your budget because you have hit diminishing returns, our revenue does not change. When we recommend pausing a campaign that is losing money, we are not penalising ourselves.

This does not make us saints. It simply removes a structural incentive that distorts advice. We can focus on profit because our fee is not tied to your spend.

• • Regular efficiency ceiling analysis
• • Documented recommendations for spend reduction when appropriate
• • Profit-focused reporting that makes wasteful spend visible
• • Quarterly reviews specifically examining spend efficiency

Your agency is probably not trying to waste your money. But if they charge a percentage of spend, they are operating within a structure that rewards them for spending it, regardless of outcome. Understanding this changes the questions you ask and the scepticism you apply.

It is not conspiracy. It is arithmetic. And once you see it, you cannot unsee it.