What it costs: three line items, not one
Ask most business owners "what do your ads cost?" and you'll get one number: whatever goes to Google and Meta. Wrong. Performance marketing costs three things: your ad budget (you set it, usually as a share of revenue), management (an agency typically charges 10–25% of managed spend, or a retainer) and creative, tools and time. For a small business that means a few hundred to a few thousand dollars a month; for a mid-size online store, tens of thousands or more. And the real cost only shows up after a year. A company that only funds performance harvests the people who were ready to buy anyway, and every next customer gets pricier and pricier.
What the cost is made of
| Item | Small business (estimate) | Mid-size business / online store (estimate) | What drives it |
|---|
| Ad budget | hundreds to a few thousand $ a month | tens of thousands of $ a month or more | revenue, margin, industry, stage |
| Management (agency or freelancer) | retainer, often from $1,000–3,000 a month, or 15–20% of spend | 10–25% of managed spend | number of channels and countries |
| Creative (copy, banners, video) | hundreds of $ a month or your own work | thousands of $ a month | how many new ads you test |
| Tools and tracking | tens to hundreds of $ | hundreds to thousands of $ | analytics, feeds, reporting |
| Your time | hours a week | a person who manages the agency | who checks the numbers |
According to a survey of PPC agencies published by Credo, about half (51%) have a minimum monthly retainer of $1,000–3,000, and a common model is 15% of spend above a certain threshold. The ranges above combine that with the Don Marketer calculator model (estimates). But whether your budget pays back isn't just about its size. It's about the ratio between what a customer costs and what they're worth.
For the hairdresser: spending $150 a month on Instagram ads and running them yourself? Great. Just know the real cost isn't $150. It's $150 plus the two or three hours a month you're not cutting hair. That's money too.
The honeymoon: why the first months look great
Performance advertising is the best tool in the world for showing up in front of people who are already looking. Someone types "hairdresser near me" or "warehouse windows" and you're first. It's easy to measure, it pays back fast, and the report lights up like a Christmas tree. Easy.
The catch: there's a limited number of those people. Ads don't create them, they harvest them. In the first months you collect the warmest ones, and plenty of them would have found you anyway. It's like walking into an orchard nobody has picked in years. For the first few weeks, the apples practically fall into your basket.
The honeymoon's over: why everything gets pricier
After a while, three things happen at once. None of them is your agency's fault.
- The warm audience runs out. The next clicks come from people who don't know you and buy less. Cost per customer rises even when cost per click stays flat.
- Clicks get pricier on their own. According to the WordStream by LocaliQ benchmark (16,000+ campaigns, 2025), the average Google Ads cost per click rose roughly 13–16% versus 2024 and went up in 87% of industries. Cost per lead rose 5%.
- Your measurement lies. In your favor. Performance ads take credit for purchases that would have happened anyway. That's exactly what adidas ran into. It judged ads by last click and assumed digital ads drove digital sales. The data didn't back that up. Brand advertising drove sales in stores and online more reliably.
I know the outcome by heart from countless meetings: "The agency must be getting worse." Usually it's NOT. The demand simply ran dry and nobody refilled it. You with me?
I know this best from iGaming, where I spent a big part of my career. It's an industry where dozens of brands fight over every single player, and a new player rarely comes cheap. The script repeats almost every time. A new brand launches performance campaigns and affiliate partners, the numbers shoot up for the first few months, and leadership is thrilled. Then the cost per new player starts climbing. The company swaps its agency. Then its affiliates. Then its CMO. And the numbers keep getting worse. The real cause? Almost nobody knew the brand. Every next player had to be bought again, at a premium, because nobody thought of it on their own. And in an industry where regulation limits where and how you can advertise, that hurts even more.
The harvester, not the field: what brand does about it
Brand does exactly one thing: it grows the number of people who think of you when they're ready to buy. That makes every performance ad cheaper. People click because they know you. Performance advertising is the combine harvester. Brand is the field. And a harvester on an empty field is just an expensive machine driving back and forth.
- The data: British researchers Les Binet and Peter Field analysed campaigns from the IPA Effectiveness Awards databank (1980–2010). Their work is the source of the guideline to spend, on average, about 60% of the budget on brand and 40% on direct sales activation. It's an average, not a law. The right split depends on industry and stage.
- Airbnb: started moving money from search ads to brand-building back in 2019. CFO Dave Stephenson said the shift "has proven to have been the right shift." By early 2022, nearly 90% of Airbnb's traffic was direct, and in countries running the brand campaign, traffic in Q4 2021 was almost 20% above the same quarter of 2019.
- adidas: in 2019 Simon Peel named brand-building channels – video, TV, out-of-home and cinema – as the better investment.
That's why, in my article on the Revenue department, I argued that even a company run entirely on revenue needs a protected brand budget. One that doesn't get renegotiated every quarter the moment the CFO turns pale.
For the hairdresser: brand is when the neighborhood knows you. A window sign, the local youth team's shirts, a workshop for clients, Google reviews. None of it brings in a client tomorrow. But it's why more people click your Instagram ad: they already know you. That's the whole trick.
How much for brand, how much for performance
Here's a rough split by company stage. The Don Marketer calculator runs on the same logic:
| Company stage | Brand (selling to consumers) | Brand (selling to businesses) | Why |
|---|
| 0–1 year (starting out) | 35% | 30% | you need first customers and cash flow |
| 2–3 years | 45% | 40% | performance starts hitting the ceiling |
| 4–6 years | 60% | 46% | brand makes every click cheaper |
| 7+ years | 65% | 50% | you protect what you've built |
Companies selling to businesses usually put less into brand because more selling happens through salespeople and referrals. But it's never zero.
The three-minute test: have you hit the ceiling?
- Cost per customer has risen three months in a row while cost per click is about the same.
- The number of people searching for your name isn't growing. Check Google Search Console or Google Trends. Takes a minute.
- You pause a campaign and sales barely drop. That's what happened to adidas. It means the ads were taking credit for customers who would have come anyway.
Two out of three? Then you don't have an agency problem. You have a field problem.
Expert perspective: "In twenty years, much of it in iGaming, I've seen plenty of brands switch agencies every year because 'performance stopped working'. The problem was almost never the agency. The company had spent years harvesting and nobody was planting. Performance advertising is a great tool – but it's the combine harvester, not the field," says Michal Krčmář, founder of Don Marketer and a CMO with nearly two decades of experience in global marketing.
The takeaway
Before you fire your agency, do three things. Add up what performance marketing really costs you: ads plus agency plus creative plus your time. Check how your cost per customer has moved over the last 12 months. And work out the brand : performance split that fits your business. The Don Marketer calculator gives it to you in 2 minutes, free, including the break-even point below which you lose money on ads.
If all you do is harvest, a year from now there's nothing left to harvest. Period.
Sources: HORIZONT: Performance vs. Marke – der Fall Adidas (25 Oct 2019; Simon Peel, 77% vs. 23%, search-ads switch-off test); WARC: Efficiency to effectiveness: How adidas changed its focus (24 Oct 2019); Marketing Week: Airbnb CFO: We were right to shift spend from performance to brand-building (Feb 2022); Search Engine Land: Google Ads costs keep rising, but conversion rates improved in 2025 (WordStream by LocaliQ, 16,000+ campaigns); Alex Murrell: Les Binet and Peter Field – The Long and the Short of It (summary); Credo: PPC Pricing (PPC agency survey); Don Marketer: calculator methodology (budget ranges and brand : performance split by company stage).
