“We hired the best agency in New York. They charge $20,000 a month. And our sales are flat.” We hear this complaint in 90% of our strategy audits. The Founder is angry. The Agency is defensive (“It’s the iOS updates!”). The relationship is toxic. Why does this happen so often? Is it because all agencies are bad? No. It is because the Agency Business Model is fundamentally flawed. It is fraught with the classic economic Principal-Agent Problem.

The Agent (Agency) is incentivized to maximize their fee and minimize their labor. The Principal (Brand) is incentivized to maximize their profit. When you pay an agency a Percentage of Ad Spend (the industry standard), you align their incentive with “Spending Money”, not “Making Money”. This article is a guide to fixing the contract, the culture, and the expectations.

Why Maison Code Discusses This

We are the technical glue between the Brand and the Agency. We implement the pixels, the CAPI servers, and the attribution models. We see the data before it gets “massaged” into a pretty PDF report. We see agencies claiming “ROAS of 10.0” on Branded Search terms (which is cheating), while the top-of-funnel campaigns are burning cash. We discuss this because bad agency management drains the budget that should be used for Technology and Product.

1. The Incentive Trap (% of Spend)

The Standard Model:

Agency Fee: 10% - 15% of Ad Spend.
Minimum Fee: $5,000 / month.

The Scenario: You are spending $50,000/month. Agency makes $7,500. The Agency suggests: “We should scale to $100,000/month!”

Agency View: If you say yes, their revenue doubles to $15,000. Their workload stays roughly the same.
Brand View: If you double spend, your CPA (Cost Per Acquisition) usually rises. Your efficiency drops. You might actually make less profit.

The Conflict: The Agency will always push for “Scale”. You need “Efficiency”. Unless you are VC-backed and burning cash for growth, this model is dangerous.

The Fix: Performance-Based Tiers Switch to a model that rewards Profit Contribution.

Base Fee: $3,000 (Covers their overhead).
Performance Fee:
- 5% of Review if ROAS > 4.0.
- 10% of Revenue if ROAS > 5.0.
- 0% if ROAS < 3.0.

Now, the agency fights for efficiency. If the ROAS drops, they lose money. They are “in the boat” with you.

2. The Talent Bait-and-Switch

Agencies have a hierarchy:

The Partners: Brilliant, charismatic, sold you the deal.
The VPs: Smart, experienced, show up to the QBR.
The Juniors: 22 years old, managing 15 accounts, actually pressing the buttons.

During the pitch process, you meet the Partners. You are impressed. The day you sign, the account is handed to the Junior. The Junior is learning on your dime. They are overwhelmed. They spend 2 hours a week on your account.

The Defense Strategy: Put it in the contract: “Key Person Clause”. “We require [Name of Senior Strategist] to be on the weekly call and oversee all campaign changes.” If they refuse, walk away. You are paying for expertise, not for a logo.

3. The Communication Loop (Weekly Pulse)

Most brands accept a “Monthly Report”. This is a PDF sent on the 5th of the next month. It is useless. By the time you read it, the money is gone. You need a Weekly Pulse.

The Agenda (30 Minutes):

Last Week’s Numbers: Spend, Revenue, MER (Marketing Efficiency Ratio).
What Worked: “The UGC video with the dog performed best.”
What Failed: “The static image had high CPMs.”
The Hypothesis: “Next week, we are testing a new angle: ‘Gift for Mom’.”
The Creative Request: “We need 3 videos about gifting.”

If the agency cannot articulate “The Hypothesis” for next week, they are on Auto-Pilot. Auto-Pilot is the silent killer of ad accounts.

4. The Creative Bottleneck

Here is the biggest secret in 2026 marketing: Targeting is Automated. Creative is the Variable. Facebook’s AI (Advantage+) does the targeting better than any human. The only lever you can pull is the Creative (Video/Image).

The Friction:

Agency: “Performance is bad because you didn’t send us new ads.”
Brand: “I thought you made the ads?”
Agency: “No, we are a Media Buying agency. We just run them.”

The Solution: You must clarify Scope of Creative. Most Media Buyers are terrible Graphic Designers. Do not let the “Ads Guy” design your brand assets. You need a “Creative Strategist” or a “UGC Creator”. Often, it is better to have a separate Creative Agency feeding assets to the Media Agency. Or, bring an Editor in-house.

5. When to In-House (The Lifecycle)

Stage 1: Seed ($0 - $1M Revenue)

Strategy: Founder does it, or Freelancer.
Why: No budget for big agency.

Stage 2: Growth ($1M - $10M Revenue)

Strategy: Hire an Agency.
Why: You need instant expertise. You need to scale fast. You can afford the $5k-$10k fee.

Stage 3: Scale ($10M - $50M Revenue)

Strategy: In-House.
Why: At $10M, your ad spend is likely $2M+.
10% Agency Fee = $200,000 / year.
For $200k, you can hire a world-class Head of Growth and a Data Analyst full-time.
They will think about your brand 40 hours/week. The agency thinks about it 2 hours/week.
The institutional knowledge (what works) stays in your building.

The Hybrid Model (Best of Both):

In-House: Strategy, Creative Direction, Facebook/Instagram (Core channels).
Agency: TikTok (Specialized), SEO (Technical), Google (Tedious). Hire agencies for capabilities you lack, not for core competencies.

6. The “Black Box” of Attribution

Agencies love to report “Platform ROAS”. Facebook says: “We made you $100k.” Google says: “We made you $100k.” Email says: “We made you $50k.” Total Claimed Revenue: $250k. Actual Shopify Revenue: $150k. Where did the extra $100k go? It’s Double Attribution. Both Facebook and Google claim credit for the same sale.

The Fix: MER (Marketing Efficiency Ratio). Ignore the platform dashboards. Look at the bank account. MER = Total Revenue / Total Ad Spend.

If MER is > 5.0, you are healthy.
If MER is < 3.0, you are bleeding. Hold the agency accountable to MER (The Truth), not ROAS (The Vanity Metric).

7. The Skeptic’s View: “Agencies are Useless”

Some gurus say: “Fire your agency, just use AI.” This is naive. AI can run the ads. AI cannot understand Human Psychology. AI cannot write a hook that resonates with a frustrated mother. You need humans for Strategy and Empathy. Good agencies are excellent at Strategy. Bad agencies are just “Button Pushers”. Button Pushers will be replaced by AI. Strategists will not.

8. The Churn Mirror (It’s You)

Agencies churn clients. Clients churn agencies. Average tenure is 9 months. This is expensive transfer of knowledge. If you have fired 3 agencies in 2 years, the problem is not the agencies. The problem is you.

Are you giving clear briefs?
Are you paying on time?
Are you treating them with respect or contempt? The best agencies fire bad clients. Be a “Client of Choice”. The agency will put their best talent on your account because they like working with you.

9. Conclusion

An Agency is a partner, not a savior. You cannot outsource your lack of strategy. If you don’t know who your customer is, no agency can save you. You own the Strategy. They execute the Tactics. If you force them to own the strategy, they will default to their own playbook (Growth at all costs), not yours (Profitability). Take the wheel. Direct the car. Let them shovel the coal.

Paying for poor performance?

Is your agency fee higher than your profit margin? We conduct “Agency Audits” to review contract terms, account structure, and incentive alignment.

Hire our Architects.