PPC Philosophy, Credit Cards, Contracts, Procedures & Control

SEM Agency Small Business FundamentalsMost small SEMs give their clients’ credit card and billing information to search engines which can actually cause palpable accounting hurdles as an agency scales. This common practice also raises interesting questions as to who “owns” the account when a client leaves someday.

Though seldom discussed, failing to engage clients in preemptive dialog has the potential to cause accounting, intellectual property ownership, and even legal nightmares. If not proactively addressed and contractually codified, the account-ownership issue can come back to bite you. We have 5 year old PPC accounts and never lost a major paid marketing client. Still we know that “best practice” dictates accommodating the eventuality into our business model as we continue to add clients.

Whose Credit Card Do You Give?

A major motivation for direct client billing is to insulate the small PPC manager from financial liability, which could result should any client not pay their PPC bill. However, this presents problems on other levels as an agency scales from one to many PPC accounts nested in complex portfolios.

Issue #1: Accounting
First, advertising platforms charge credit cards on different models, usually either pre or post-pay. As a result someone is always fronting money or caching dollars for post-pay. Commissioned SEM managers report, if not invoice, clients based on monthly traffic and associated spending. Since credit card transaction dates and amounts have little or nothing to do with traffic reports, there need to be TWO levels of accounting: monthly traffic charge reports correlated with credit card transaction detail reconciliation.

Path of Least Resistance
This is reasonably easy to handle for one or two accounts and associated single-credit card charges. However a growing PPC agency might work with PPC portfolios marketing dozens of accounts across multiple platforms for the same client. Whether we use clients’ credit card or ours, the ensuing accounting procedures involve hundreds of monthly credit card transactions cross-referenced to traffic charges. Use API tools, run it by hand, or develop some hybrid import/export routine-the numbers have to be crunched and that takes work. With platforms changing all the time, steady standard operating procedure can be hard to come by.

In deciding whether to use our credit card or theirs, the first real question is “do we want to be in the business of billing the client for monthly PPC traffic charges and then reconciling THEIR credit card statements our OURS?” For us, the answer was slow in coming. We use our credit cards and here’s why:

The dual layers of accounting can be an adventure, with no two months ever the same. Also, sometimes search engines make mistakes that need to be handled. Credits for click fraud make things more messy. Even when everything is right things are complicated. We prefer to deal with associated hassles in the privacy of our office as apply to OUR CC bills and NOT in the client’s face. We don’t want our valued clients stressed because their credit card charges make no sense compared to monthly traffic reports-expecting US to figure it out under pressure.

We send clients invoices based on traffic reports and handle everything in between… and that’s that. If an issue arises in reconciliation, all our clients see is an adjustment on next month’s invoice with an explanation of the debit or credit. This method is much easier for us and more professional in our opinion. Ultimately there are no more or less issues to deal with; however our relationship with the client surrounding cash is simple and clean.

Risk & Reward
Of course WE’RE the party fronting the cash and managing the stashed dollars for post-pay. That sort of cash flow is a quite a double edge sword and takes lots of good credit. Though not our primary intent, we reap the cash flow and interest benefits from clients we have pre-pay us-since Google is willing to post-bill.

We’re Not Greedy
Other clients we have deeper relationships with are post-invoiced very 2 weeks from traffic reports. We bill them for the previous half month’s traffic + commission and it all comes out even in the wash. There is no particular financial advantage for us, though mining hundreds of thousands of American Express points and frequent flyer miles are pretty perks. Still, 80K+ of monthly Amex bills would alarm even the most rugged small entrepreneur. There’s no margin of error or room for mistakes. Trust me I gnash my teeth while taking free flights.

Issue #2: Account Ownership

Who owns PPC accounts anyway when we set them up for clients? Who owns the keyword research and account history? What happens if the client moves on and there are serious Q-score ramifications if they were to start over? Given how totally front loaded PPC creative is, from the time investment perspective, we need to make the commission from the account long enough to make it worthwhile. To what extent is it fair to use account ownership as leverage to keep clients longer by incenting them to stay?

We think it’s different when a new client brings us a mature account with years of history and great Q-score. I know this: if any of our long term clients need services past our growth-capabilities we would likely turn over the accounts and wish them the best. However, we can’t be stupid as we add clients.

Many good businesses foster healthy environments where clients grow to depend on services and there are barriers to leaving. That said, for some search agencies, this approach is too carnivorous. Regardless of your agency’s philosophy, as accounts and cash flow multiply, these matters must be spelled out as fundamental shop policies and standard contract language so there are no misunderstandings.

That Nasty Credit Card Thing Again
We’ve been been advised that it could be more difficult to assert ownership (regardless of what the contract says) of any aspect of client PPC account where we’ve used the client’s credit card and contact information. Reciprocally, we’re not willing to take on cash flow risks while making it easier for clients to leave. Back in the day when the traditional media buyer purchased network television for a client, he/she did not turn over a list of industry buying contacts or internal agency accounting records when clients left!

Here’s Our Current Model:
1: We nearly always use our credit cards. The simplicity of client relationships and extra control easily justify the practice. The perks are palpable. The gross revenue of the company is much higher. Please note that this practice does not really increase the value of the business much. The profit is the same at the end of the day. However billing through a large media buy can provide cash flow which can be leveraged in useful ways.

2: New clients pre-pay their approximate PPC spend every 2 weeks. We report and reconcile monthly, based on traffic charges. The bank account we use is set up the same way as an attorney’s escrow account. We’re willing to accept credit cards to pay US even though there is a 2%+ hit. As trust in the relationship grows, we become willing to post-bill clients and absorb more risk (next paragraph 3) but only on a cash basis, not using their credit cards to pay us.

3: Long term clients are post-billed every 2 weeks for their PPC spend, net 10 days. We trust them. Billing is based on traffic. We correlate our monthly credit card charges to client accounts and reconcile internally.

Setting Up Accounts

4: When we do the research and set things up, clients are provided keywords and ongoing history via OUR reporting tools, not Google, Yahoo, Facebook, StumbleUpon, IYPs, or MSN. They never see the accounts, don’t know the passwords, and we own the accounts. If they leave, they have the data but must start over with their Q-score.

Point blank, it’s a big upfront investment for us to research and set all of this up for new accounts. We don’t want it to be stupid-easy to leave. We are amenable to negotiating clients leaving with Q-score phat accounts and logins after a certain period of time or contingent on other conditions. We care about our reputation and would never hold a client we have not been performing for hostage.

5: Clients that bring us existing accounts retain access to those accounts and have ongoing access to them. They also receive reports through our API tools. If they leave, they own the accounts and the Q-score. The reason that’s a good deal for us is that typically these mature portfolios require less work to set up and deal with. If we expand the portfolio in major ways then we discuss the expanded scope and negotiate terms as we go.

6: Under special circumstances we will use a client’s credit card, provided they are willing to reconcile their credit card statements to our traffic reports. We don’t want clients faxing us their credit card statements to figure out. That’s what their accountants are for. We’re willing to handle all the accounting, but only internally when we lay out the cash.

In Conclusion
Though there is not much dialog out there regarding the matters raised herein, we hope this sparks some dialog. The cash flow, credit, control, accounting, philosophy, and ownership issues surrounding PPC management are very personal decisions which can affect the very solvency of an SEM agency. It’s not one-size-fits-all and we’re interested in how other solo practitioners and agencies deal. Thanks for visiting.

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