This week’s blog post is all about agency compensation, specifically, how to stop your payment structure from turning into a monthly argument about attribution and profit.
I was replying to a thread recently from someone who’s paying their Meta ads agency based on a % of profit. The percentage changes depending on ROAS. Then there’s a ton of back and forth at the end of each month trying to work out what revenue counts, how much was driven by email, how you handle organic traffic, and so on.
I get it. Everyone wants a fair deal. But my take? These % profit deals are often more hassle than they’re worth.
So, here's what I think makes for a simple, clear, and fair deal, for both sides.
Why % of Ad Spend Is Usually the Best Option
I run an agency myself. And from my experience, the simplest and cleanest structure is a % of ad spend.
Let me explain why:
1. You Control the Spend
You, the client, are still in the driver’s seat. You only allow ad spend to increase if ROAS is profitable. So the agency can’t just spend more to make more fees, they have to prove the spend works first.
2. It Incentivises Growth
If your goal is to grow profit by increasing revenue, this model lines things up nicely. You say: "Keep ROAS at or above this number, and you’re free to scale." That’s it.
The agency’s incentives are aligned with yours:
Scale profitably.
3. It’s Simple and Transparent
No messy attribution arguments. No complicated formulas. Everyone knows what the fee is and when it kicks in.
When % of Ad Spend Doesn’t Work
Now, if your goal is to improve efficiency, to say, make more profit by reducing spend and keeping sales flat, then a % of ad spend deal starts to fall apart.
Why? Because the agency’s incentive is still to spend more, not less.
That’s where a % profit model can make more sense. But only if it’s done very carefully.
How to Structure a % Profit Deal Without Losing Your Sanity
If you must go with a % of profit model, here’s my advice:
Simplicity over accuracy, every time.
Too many % profit deals turn into Frankenstein contracts with dozens of variables, exceptions and caveats. And every one of those opens the door for a disagreement.
Here’s what a simple, effective % profit deal can look like:
Use GPAS: Gross Profit After Ad Spend
The formula is:
GPAS = (Revenue x GPM%) – Ad Spend
Where:
GPM% is your Gross Profit Margin, and
It stays the same every month.
Just Pick a GPM% and Stick With It
Don’t try to be too clever. Don’t change it based on the actual product sold or margin that month.
Instead, look at your average GPM% over the past 3–12 months and settle on a number. If your average is around 50%, then use 50%. Done.
So now your GPAS becomes:
(Attributed Revenue x 50%) – Ad Spend
Simple. Consistent. Clear.
If you're happy with what the agency gets paid based on this model, that’s your sign the deal works. If you’re not, don’t tweak the formula, negotiate the percentage of profit paid instead.
But What About Attribution?
Yeah, attribution’s a minefield.
Meta regularly over-reports revenue. Sometimes by 25%. And every time this happens, someone’s getting short-changed or overpaid.
Here’s how I recommend handling it:
Choose a single source of truth: Decide whether you’re using Meta platform conversions, third-party attribution like Northbeam, or something else. Don’t flip between them month to month.
Agree your attribution model: 7-day click, 1-day view, whatever. Just pick one and write it down.
Accept the trade-off: If you use Meta data, it might over-report sometimes. If you use something like Northbeam, it might under-report. Adjust the agency’s percentage profit accordingly so the final payout still feels fair.
Don’t worry about ROAS: Seriously. In a % profit deal, ROAS becomes irrelevant. If the agency does well and profit increases, they get paid more. If not, they don’t. That’s all the accountability you need.
DO NOT Base It On Net Profit
Net profit (at the whole business, P&L level) includes your fixed costs, and your agency has zero control over those. They can’t help it if your rent went up, or your accountant decided to take a bonus this month.
Only use gross profit after ad spend in your formula.
Final Thought: Keep It Human
At the end of the day, this stuff isn’t just about numbers, it’s about relationships.
If both sides are happy with the final amount on the invoice each month, that’s what matters. You don’t need a PhD in accounting to make that happen.
So whatever deal you go with — % of ad spend, % of gross profit, fixed retainer plus bonus — just make sure:
It’s simple.
It’s clear.
And both sides feel like they’re getting a fair shake.
If not? Talk. Tweak the % of profit if needed. But don’t overcomplicate.
Simplicity always wins.
Conclusion
Paying your ad agency shouldn’t feel like solving a Rubik’s cube in the dark.
Start with your goal — are you trying to scale revenue, or improve efficiency?
If it’s revenue growth, % of ad spend with a ROAS threshold is the way to go. It’s simple, transparent, and aligns incentives beautifully.
If it’s efficiency, then a % profit model might be needed—but keep it simple. Use a fixed GPM%, agree on one attribution source and model, and use the GPAS formula: (Revenue x GPM%) – Ad Spend. Forget ROAS, forget net profit. And above all—don’t tweak the deal every month just to chase perfection.
Clarity and simplicity build trust, and trust leads to better long-term results.