Let’s say you’re spending $100K on media and your agency has the task of getting a return on ad spend 4:1. At an 8% fee, the agency makes $400K in revenue with your account and you pay them $8,000.
But If you took the $8K and added it into your cost, you’re real ROAS would be 3.7 ($108K / $400K). So if you took over the account and spent $108K and were able to do no better than a 3:7 ROAS, it’s a wash – you’d still make $400K in revenue.
But what if you could do just a little bit better than 3.7 ROAS with your $108K budget? A 3.75 ROAS would make you $5K more. Over the course of a year that’s $60K in incremental revenue. Not bad. The return grows the higher the ROAS. If you do just as good as the agency at a 4:1 ROAS, you’d make $384K more in a year.
You could take what you’re paying the agency, put it into media spend ( the same net expense as you already have), have the account perform 4% worse than what they’re doing (3.8:1 ROAS) and make $124K more in a year.
Caveat 1: there is a diminishing return on incremental ad spend which may make that extra $8K a month not return at an equal ROAS as the rest of the account.
Caveat 2: Could you really keep an ROAS higher than 3.7:1 on your own when the agency was doing a 4:1? Maybe (probably).
A good way to find out the level of skill and effort managing your own paid search account would take is to look at the percent of revenue that these three categories make up: brand terms, product listing ads, and non-band terms.
Chances are, the majority of your account’s revenue is coming from brand terms. Second to that is product listing ads. In fact, there’s a good chance 75% of your paid search revenue is made up of those two sources. And the thing about brand terms and product listing ads is that they take little effort to maintain. There is very little skill involved to keep 75% of your paid search revenue flowing in at the ROAS it is now. The typical paid search account looks something like this:
And the ROAS of the non-brand terms is probably 2:1. The reason your account has a 4:1 ROAS is because brand terms and PLAs return so high that it rounds out the account after taking in all the bad non-brand return.
So the real question is, can you nix the agency, take the fees you’d pay to them and wrap them into your spend, and then get your non-brand terms to perform at a measly 2:1? Worth considering.