When you hire a marketing agency there’s a big conflict of interest. They get paid when they spend more–even if it’s bad for your business. Here’s how we solved it.

Most, though not all, marketing agencies have a spend-based fee structure. They get paid as a percentage of marketing spend so if you spend more they get paid more. Putting aside the question of whether this makes sense, why is this a problem for you? Because it’s not in your interest to spend as much as possible on marketing. You should spend up to the incremental point of profitability and no further. Marketing agencies have an incentive to get you to spend beyond that point–in theory, way beyond.

At Hubble / Agora, here’s what we did to align incentives: pretty simply, we created a set of rules that forced our agency partners to cut marketing spend when it flirted with unprofitability and only allowed increased spend when we were consistently in the black with our spend.

For example, Hubble had a certain Cost Per Acquisition (CPA) target. We’d instruct our agency partners to track and list, every day, our daily marketing spend and number of acquisitions in a Google Sheet. Each day we’d have the agency calculate our rolling 14 day average CPA. If the rolling average was above our target CPA even by one penny, the rule said that our spend must be slashed by 20% vs. the previous day. If the next day the average CPA was above target again, we’d cut by 20% again, ad infinitum.

The agencies were only allowed to increase spend, by up to 10% day-over-day, if the rolling average was below the target. Because the rules said they had to cut spend when unprofitable much faster than they could increase spend when profitable, they usually tried to stay comfortably below the target. But if they were below the target they almost always tried to increase spend because they got paid more for doing so–just not so much they breached the targets.

Hubble had a CPA target but many of the Agora brands have ROAS targets. If your marketing is optimizing for something else like clicks or add-to-carts, you can set a cost per target algorithm for those too.

That’s it! We created a set of rules that made it in the agency’s self-interest to spend as much as possible but only when it was profitable for us, not them.