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The cost of PPC overspending

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Almost every agency we talk to has a story that goes something like: “we were setting up a new campaign and we entered the incorrect daily budget and we ended up spending thousands of dollars more than we were supposed to of the client’s budget.” In fact, when we did our Agency Confessions report, 99% of agency decision makers out of the over 300 surveyed said that they have seen their agency make a mistake related to ad spend. So, the good news is you are not alone. But what is the cost of this mistake? 

Comparing cost to Digital Marketing Insight Tools 

When we talk to these agencies that have experienced such mistakes, they generally fall into two camps. One group recognizes that they need a digital marketing insights tool to monitor budget pacing for them, and that make-shift spreadsheets will not do the trick. The other group says, “I know we need a better process for PPC budget control, but the cost of software is the same or more as the cost of the mistake we make, so why put it in place? I can’t afford to implement this software across all my accounts.” There is a fatal flaw in this logic though, and that is what the person considers the cost of these PPC overspends. 

In most of these cases, the prospect or user says “we overspent on the account by $4,000, and your software for the year will be $5,000 so we’ll take our chances on our PPC budget control process as it is.” Here are quantitative and qualitative reasons why this is flawed. 

Qualitative Costs of PPC Overspending

  1. Trust. It is that simple. When an agency makes a mistake it erodes trust in a relationship that is purely built on the agency having a fiduciary duty to optimize the client’s digital marketing budgets. All the hours of hard work put in and the intangible strategy and planning are gone when the execution fails. When a mistake like this happens, there is a natural increase in the potential of that client leaving the agency. 
  1. An undermining of confidence in the team. The team feels defeated, like they failed. I have heard of junior team members shaking in fear of worrying about job security when they come forward with these types of mistakes. It is the agency leader’s responsibility to ensure they protect their team and give them the right processes and budget controls in place to protect the team. 

Quantitative Costs of PPC Overspending

So outside of the direct amount of an overspend what else is the quantitative cost associated with a mistake? 

  1. The time it takes from your team away from billable tasks. You can’t bill the time associated with a mistake to a client, and yet you spend likely hours, including senior resources, to investigate, communicate and rectify the issue. Even a simple mistake in total could take 5 hours of internal team members, at $150/hr is $750. 
  1. This only factors in making one mistake a year. In this example, you have 10 clients and 10 campaigns running for each client, that’s 100 campaigns. Let’s say you make a change to a campaign (or turn on/off campaigns) monthly. That means you make 100 changes a month, or 1,200 a year. Even if your team is 99.8% accurate, you will have more than one mistake in a year. 
  1. The cost of the mistake is a direct expense against your net income and cash. Therefore, it is not as simple as saying “I made a $4,000 mistake so I need to find $4,000 of new business to make that up.” If you have a 33% hourly cost of staff to revenue, that would mean you need to sell $6,000 in additional services, not just $4,000. 

But what about the cost of a digital marketing insight tool? 

Conversely, spending that same $4,000 on a digital marketing insights tool that can also save the team time, creates more bandwidth to do billable work. For example, if you have 10 clients and on average 2 team members work on the account (say a specialist and an account manager), Morphio can save 40 hours a month based on a survey completed by our users that says each team member saves on average 2 hours per account per month with Morphio. If you have an hourly rate of $150/hr, that is now $6,000 of additional revenue capacity you have in a month, or $72,000 a year.  

The final math

In scenario 1 where the agency ‘can’t afford’ the digital marketing insights tool, the actual cost is having to sell another $6,000 of services, plus likely 1 more mistake a year at least of $4,000 and $750 of team time that was wasted. 

In scenario 2 where the agency ‘spends extra’ for the digital marketing insights tool, they instead save $72,000 a year in time. 

So with that, investing in a digital marketing insights tool that protects PPC overspend ultimately is just that, an investment and not a net expense. 

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