Social media marketing agencies (SMMAs) help businesses advertise and market their products or services on social media platforms like Facebook, Instagram, Twitter, etc. When an SMMA manages social media marketing campaigns for a business, there are different models for who pays for the ads run on social media.
Client Pays for Ad Spend Directly
In this model, the client business pays directly for their ad spend on social media platforms. The SMMA simply provides strategic guidance, content creation, audience targeting, campaign management, and reporting/optimization services for the campaigns.
But the client holds the literal ad accounts and pays directly from their budgets to the ad platforms. The SMMA may make recommendations for daily/monthly budgets, but does not actually spend money directly. This allows the client to maintain full transparency and control over their ad investment.
The SMMA is compensated for their services through monthly or project-based fees. This gives them incentive to maximize campaign performance and ROI within the budget set by the client.
Some of the pros of clients paying directly for ads include:
- Full client control and visibility over ad spending
- No hidden fees or markups on ad costs
- Flexibility to adjust budgets as needed
- SMMA incentives aligned with performance vs. spending more
Some potential cons are:
- More administrative work for clients to manage payments
- Less flexibility for SMMA to optimize spends dynamically
- Clients may lack full expertise in setting optimal budgets
SMMA Pays for Ads Upfront and Bills the Client
In this model, the SMMA actually pays directly for the ad spending on platforms like Facebook or Google Ads using their own accounts. They front the ad costs on behalf of the client.
The SMMA then bills the client on a monthly or recurring basis for the ad spends. The agency may also charge additional service fees and commissions on top of the hard ad costs.
This model allows the SMMA to fully control and optimize dynamic ad budgets as campaigns are running. But the client loses some transparency, as they must trust the SMMA to honestly bill for legitimate ad expenses.
Some pros of the SMMA paying for ads upfront include:
- SMMA has full control to optimize ad budgets
- Simple billing process for client with one consolidated invoice
- No delay waiting for client ad account funding
Some potential cons are:
- Clients lack visibility into actual ad spending
- Potential for marked-up fees or questionable expenses
- Higher financial risk for SMMA
Hybrid Model
A hybrid model combines attributes of both approaches. The client may provide a fixed ad budget or deposit that the SMMA can draw from. The SMMA manages the actual ad accounts and spending.
When the initial budget is used up, the SMMA bills the client to “refill” the ad account with another deposit. This balances control and oversight for both parties.
Pros of a hybrid approach include:
- SMMA has flexibility to optimize spending
- Client approves and funds a defined budget
- Ongoing visibility for client into spending
Cons can include:
- More complex billing and reconciliation process
- Limits to SMMA flexibility if client is slow approving new budgets
Transactional Markups
Some SMMAs also use an approach where they pay upfront for ad costs, then bill the client at the end of the month with a markup percentage on the media spend.
For example, they may charge a 10% or 20% markup fee on top of the actual ad costs as their compensation. This can incentivize the SMMA to increase spending to make more markup revenue.
Pros of transactional markups include:
- Simple compensation model for SMMA
- SMMA has incentive to scale ad spend
Cons include:
- Less transparency for client into true costs
- Potential for excessive spending to drive SMMA fees
Preferred Pricing Models
For most clients, paying directly for ad costs and working with an SMMA on a retainer or hourly basis provides the best transparency and control. The SMMA earns fees based on the value they drive through results, not increased ad spending.
For smaller clients with limited experience managing ads, a hybrid model where the SMMA handles upfront costs can work. The client should still have clear visibility into budgets and spending.
Full-on markups on ad spends create potential conflicts of interest and should generally be avoided in favor of fee/performance based compensation for SMMA services.
Typical Ad Account Structures
SMMAs use different structures for managing ad accounts on behalf of clients:
- Separate ad account per client – Each client has their own distinct business ad account on Facebook/Instagram, Google, etc. This provides separation and the highest transparency.
- Comingled ad account for multiple clients – The SMMA runs all clients campaigns through one aggregated ad account. This allows easier optimization but clients lack visibility into exact spends.
- Master ad account with sub-accounts per client – A compromise approach where the SMMA has one primary ad account, with individual sub-accounts for each client underneath it.
In general, fully separate ad accounts per client is preferred to provide the clearest tracking, reporting, and controls.
Client Ad Account Access
For full transparency, clients should insist on having access and visibility into their actual social media ad accounts, regardless of whether they directly control the budgets and spending.
At a minimum, the client should be added as an admin user on their accounts. Full account transfer privileges should also be established in case the client decides to terminate the relationship.
Granting advertiser-level access instead of full admin rights lets the SMMA retain control of spending while still giving clients visibility into metrics, creative assets, targeting parameters, etc.
Billing and Invoicing
For any ad costs that are being passed through to a client, the SMMA should provide detailed monthly invoices that clearly breakdown:
- The dates, amounts, and platforms for all ad spends
- Campaign, ad set, and creative names and details
- Applicable fees or markups for the SMMA
Supporting screenshots documenting the ad spends should also be provided. Many platforms like Facebook have billing/invoice APIs that SMMAs can use to automate passing through legitimate costs.
Overall, the goal should be maximum transparency into where client budgets are going and what value is being driven in return.
Performance Benchmarks
Rather than focusing on ad spending totals, SMMAs should be evaluated and compensated based on performance against KPIs important to the client, such as:
- Cost Per Acquisition (CPA)
- Return on Ad Spend (ROAS)
- Click-Through Rate (CTR)
- Engagement or Lead Volume
- etc.
Basing the relationship on performance incentivizes the SMMA to optimize budgets for efficiency rather than just maximizing spends.
Ongoing Optimization
If granted access to directly control ad accounts, the SMMA should provide optimization services including:
- Testing new creatives, messages, audiences
- Pruning underperforming assets
- Evaluating new placement opportunities
- Staying on top of platform updates and changes
Optimization should be an ongoing, collaborative process with the client to refine strategies and improve measured KPIs over time.
Contract Terms
The financial and access control terms between a client and SMMA should be codified in a detailed services contract. This provides legal protections for both parties.
Contracts should specify:
- Scenarios where the SMMA will pay upfront vs. client paying directly
- Any markup percentages or fee structures
- Payment/invoicing schedules and terms
- Ad account structures and access permissions
- Metrics used for evaluating performance
- Conditions for terminating agreement
Having clear, mutually-agreed upon terms in writing prevents potential misunderstandings.
Conclusion
Paying directly for ad costs while compensating an SMMA through fees linked to performance and results is generally the most transparent model for clients.
But for some small businesses, hybrid models where the agency pays upfront then bills back can simplify processes. The emphasis should be providing client visibility and setting incentives focused on ROAS rather than spending totals.
Detailed contracts, access to ad accounts, clear billing invoices, and optimization towards KPIs provide a framework for successful, ethical SMMA relationships built on trust.
| Model | Pros | Cons |
|---|---|---|
| Client pays directly | Full transparency and control for client | More administrative work for client |
| SMMA pays upfront | Simplified process for client | Less visibility for client into spending |
| Hybrid model | Balance of control for client and flexibility for SMMA | More complex billing |
| Transactional markups | Simple compensation for SMMA | Potential for excessive spending |
| Ad Account Structure | Pros | Cons |
|---|---|---|
| Separate account per client | Full transparency and separation | More accounts to manage for SMMA |
| Comingled account | Easier optimization for SMMA | No client visibility into spends |
| Master account with sub-accounts | Compromise approach | Slightly more complex setup |