Solved: Marketing Agency Pricing and Hidden Costs

Hi there,

Thanks for reaching out!

That's a big question, and honestly, the answer isn't a simple number. It's a bit like asking "how much does a car cost?" – are you after a cheap runaround that might break down, or a high-performance machine built for results? A lot of people get fixated on the monthly fee, but that's often the least important part of the equation. The real cost is in wasted ad spend, missed opportunities, and the months you'll lose with an agency that doesn't know what it's doing.

So, instead of just giving you a price list, I'm going to walk you through how to think about this properly. I'll give you some of my thoughts on how to evaluate an agency, what you should have in place *before* you even think about hiring one, and what you should really be paying for. It's probably more detail than you were expecting, but it'll save you a lot of money and headaches in the long run.

We'll need to look at what you're actually paying for...

First up, let's get the boring bit out of the way: how agencies structure their fees. There's no industry standard, but most fall into a few common buckets. Understanding these helps you compare apples with apples, but remember, the model is less important than the expertise behind it.

1. The Flat Monthly Retainer:

This is probably the most common model. You pay a fixed fee every month, regardless of ad spend or results. It's predictable, which is good for budgeting. For the agency, it means they have stable income and can dedicate a set amount of resource to your account. A good agency will use this model to provide a comprehensive service covering strategy, management, creative, copy, and reporting. The risk for you is that if they're lazy, they get paid anyway. That's why vetting them is so important.

2. Percentage of Ad Spend:

Here, the agency takes a cut of what you spend on ads, usually somewhere between 10-20%. The logic is that as you scale your spend, their workload increases, so their fee should too. This can work well because it incentivises the agency to find ways to spend your budget effectively and scale your campaigns. The potential downside is the obvious conflict of interest: they make more money if you spend more money, whether it's profitable for you or not. A good agency manages this by focusing on your return, but a bad one will just encourage you to pour money down the drain.

3. Performance-Based:

This sounds like the dream ticket, doesn't it? "You only pay us if we get you results!" It could be a fee per lead, a percentage of sales, or some other agreed-upon metric. It completely aligns your interests with the agency's. So why doesn't everyone do it? Because it's incredibly risky for the agency. Your success doesn't just depend on their ads. It depends on your product, your pricing, your website conversion rate, your sales team's ability to close leads... everything. Most reputable agencies won't touch a pure performance model unless they have immense control or you have a proven, high-converting offer. Be very wary of agencies that offer this from the get-go; they're often desperate or will try to game the system with low-quality leads.

The biggest myth I see is that a cheaper agency is a better deal. It almost never is. A cheap agency that costs you £500 a month but wastes £2,000 of your ad spend and gets you zero results has actually cost you £2,500. An expert agency that costs £2,500 a month but turns that same £2,000 ad spend into £10,000 of revenue has made you a profit of £5,500. The fee is irrelevant without the context of results.

I'd say you need to fix your foundations first...

This is probably the most important part of this whole letter. I can't tell you how many conversations I've had with business owners who want to hire us to run ads, but their business isn't ready for ads. Pouring traffic onto a broken business model is like trying to fill a leaky bucket. It's expensive and frustrating for everyone involved.

The number one reason ad campaigns fail has nothing to do with the ads themselves. It's the offer. If your offer isn't compelling to a specific group of people with an urgent problem, no amount of clever targeting or creative copy will save you. A good agency will challenge you on this. A bad agency will take your money, run ads to your weak offer, and then blame the algorithm when it doesn't work.

Are you selling a generic service, or are you selling a solution to a painful, expensive problem? I remember one client we worked with wasn't just selling "video production"; they were selling a "1-Day Filming Process" specifically for tech firms who felt their talented teams were being overlooked because they couldn't communicate their value. See the difference? One is a commodity. The other is a specific solution to a deep frustration. You have to nail this before you spend a single pound on ads.

The second failure point is the website or landing page. Your website is your 24/7 salesperson. If it's slow, confusing, untrustworthy, or doesn't make a compelling case for why someone should act *now*, you'll just be paying for expensive clicks that go nowhere. We've seen clients come to us after spending thousands with another agency, and we spot the problem in minutes: their website is a conversion graveyard. There's no clear call to action, the copy is all about them ("we are the leading provider of..."), and there's no social proof. Fixing the landing page is often the highest-leverage thing you can do to improve ad performance, and it's something you should sort before you even start looking for an agency. One time, for an e-commerce client whose ads weren't working, a quick look showed cluttered product pages, no proper descriptions, and poor quality photos. It looked untrustworthy. Fixing that had a bigger impact than any ad optimisation we could have done.

You'll need to know your numbers, especially your LTV...

If you don't know what a customer is worth to you, how can you possibly know what you can afford to spend to acquire one? This is where most businesses go blind. They get obsessed with a low Cost Per Lead (CPL) without understanding the bigger picture. This is why you need to calculate your Customer Lifetime Value (LTV).

The calculation is pretty straightforward. You need three numbers:

• -> Average Revenue Per Account (ARPA): How much you make from a typical customer each month.
• -> Gross Margin %: Your profit margin on that revenue.
• -> Monthly Churn Rate %: The percentage of customers you lose each month.

The formula is: LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

Let's say you run a SaaS business. Your ARPA is £100, your gross margin is 80%, and you lose 5% of your customers each month. Your LTV would be (£100 * 0.80) / 0.05 = £1,600. So, each customer is worth £1,600 in gross margin over their lifetime.

Suddenly, paying £100, or even £200, for a lead doesn't seem so crazy, does it? A healthy business often aims for a 3:1 LTV to Customer Acquisition Cost (CAC) ratio. In this example, you could afford to spend over £500 to acquire a single customer and still have a very profitable model. This single calculation changes the entire conversation from "how cheap can I get leads?" to "how much can I afford to invest to acquire a high-value customer?".

Play around with the calculator below to get a feel for your own numbers. It's probably the most important bit of maths you'll do this year.

I'd say you should know how to pick the right one...

Okay, so you've got a killer offer, a high-converting website, and you know your LTV. Now you're ready to actually talk to agencies. How do you sort the experts from the cowboys?

1. Case Studies Are Everything.

Don't just look for pretty logos on their website. Dig into their case studies. Do they have experience in your niche, or a similar one? Are they talking about vanity metrics like 'impressions' and 'clicks', or are they talking about what actually matters: leads, sales, revenue, and Return On Ad Spend (ROAS)? We have experience taking a medical job matching software client from a £100 cost per user acquisition down to just £7, and we generated £107k in revenue for a prize draw client at a 618% ROAS. That's the level of detail you're looking for. It proves they've done it before. If their case studies are vague or don't seem to match the results you want, they're probably not the right fit.

2. The Consultation Call is an Audition.

Any decent agency will offer a free initial call or consultation. This is your chance to interview them. Don't let them just give you a sales pitch. Ask them tough questions. What's their initial take on your business? What opportunities do they see? What would be their first move? You're looking for genuine expertise. They should be asking *you* lots of questions about your business, your customers, and your goals. If they start promising you the world ("We guarantee a 10x return!") without knowing anything about you, hang up. In paid advertising, there are no guarantees. It's all about testing, optimising, and finding what works. An expert knows this; a salesperson doesn't.

3. Reviews and Reputation.

This is basic due diligence. Look them up. What are past clients saying? Strong reviews are obviously a good sign, but look for the *content* of the reviews. Do they talk about communication, strategy, and a real partnership, or just "they got us some clicks"?

4. A Quick Word on References.

Tbh, if you've seen detailed case studies, had a great strategy call where they've demonstrated their expertise, and seen their reviews, asking to speak to one of their current clients is a bit of a red flag for us. It signals a deep lack of trust from the start. A good agency's work and reputation should speak for itself. If you're still not convinced after all that, it's probably not a good fit for either of you.

The process of finding the right partner should be thorough. The flowchart below maps out the key decision points you should be thinking about. It's not just about finding *an* agency, but finding *the right* agency for you.

You probably should expect to pay for more than just 'ad management'...

One of the biggest misconceptions is what an agency actually *does*. If all they're doing is setting up a campaign and letting it run, you're being ripped off. You could learn to do that yourself in a weekend. What you're paying for is the ongoing, intensive process of optimisation and strategic thinking that turns an average campaign into a profitable one.

This includes:

• -> Strategic Planning: Defining the customer's 'nightmare', crafting the core message, and mapping out the entire funnel from ad click to conversion.
• -> Audience Management: Constantly researching and testing new audiences. This isn't a one-time setup. It's about systematically testing detailed targeting, lookalikes, and retargeting segments to find pockets of profitable customers. For one B2B client in the environmental controls sector, we found that targeting users on LinkedIn based on their company size and industry significantly outperformed broader targeting, cutting their cost per lead by 84%. That's not a lucky guess; it's a result of rigorous testing.
• -> Creative Development: This is huge. People think it's just about a nice image, but it's about testing dozens of variations. Different headlines, different images, different videos, different calls to action. We've seen a simple change in ad copy double the click-through rate. An agency should be constantly producing and testing new creative to fight ad fatigue and unlock better performance.
• -> Data Analysis & Reporting: Not just sending you a dashboard with numbers on it. A good partner analyses the data to find insights. Why did this ad work better than that one? Which audience is converting at the lowest cost? Where are people dropping off in the funnel? This analysis informs the next round of strategic decisions.

When you add all this up, you can see that the monthly fee covers a significant amount of expert time and resource. It's not just "managing ads"; it's managing a complex system for customer acquisition.

This is the main advice I have for you:

I know this is a lot to take in, so I've put my main recommendations into a table for you. Think of this as your checklist before you sign any contracts. If you can't tick all these boxes for your own business and for the agency you're considering, you're probably not ready.

So, how much should you actually budget?

Alright, after all that, you still want a number. It's impossible to be exact without knowing your business, but I can give you some realistic ballpark figures. For a specialist agency with a proven track record, you should probably expect monthly retainers to start in the £1,500 - £2,500 range and go up significantly from there depending on the scope and complexity. If an agency is quoting you a few hundred pounds a month, you have to seriously question what you're actually getting for that. It's likely very little expert time or strategic input.

This fee is separate from your ad spend, which is the money that goes directly to Google, Meta, or LinkedIn. As a rough starting point, I usually recommend a minimum ad spend of £1,000-£2,000 per month to get enough data to start optimising effectively. So, you should probably be thinking about a total monthly marketing investment of at least £2,500 - £4,500 to work with a credible agency.

I know that can sound like a lot, but you have to frame it as an investment, not a cost. The right agency isn't an expense; they're a growth engine for your business. If you pay an agency £4,000 a month (fee + spend) and they generate £20,000 in profitable revenue, you've made a fantastic return. The initial cost is quickly forgotten.

Ultimately, the question isn't "how much does an agency cost?" but "how much value can the *right* agency create?". I hope this has given you a much clearer framework for answering that question for your own business.

Working with an expert partner can help you avoid the costly trial-and-error that sinks most businesses when they try to run ads themselves. We've spent years learning what works and what doesn't, so our clients can get to profitability much faster.

If you'd like to have a chat about your specific situation, we offer a free initial consultation where we can take a look at your business and give you some honest, actionable advice on what your next steps should be. There's no obligation and no hard sell, just a straightforward conversation to see if we can help.

Regards,

Team @ Lukas Holschuh