How does a pay for performance ad agency get paid?

A pay for performance ad agency is paid a percentage of the sales its ads bring in, usually measured by the ad platform's attribution. Many agreements add a floor, so no fee is due in a month where results fall below a set return on ad spend.

Is a share of sales cheaper than a monthly retainer?

It depends on the month. In a strong month a share of sales usually costs more than a retainer, and in a weak month it can cost nothing. Compare the total over a realistic year and against your contribution margin, not one month's fee.

What ROAS do I need for a pay as you grow model to make sense?

Add ad spend as a share of revenue (1 divided by ROAS) to the agency's percentage of sales. If that total stays below your contribution margin, the model pays. At 4x ROAS and a 12.5% share, ads and fees take 37.5% of revenue.

Who owns the ad account and the ad spend in a performance deal?

That should be in the contract. In a common setup the brand keeps its own ad account and the spend is charged to the brand's card by Meta directly, which keeps spend visible to the brand at all times.

Can a performance based agency inflate results?

An agency paid on attributed sales has a reason to favour generous attribution settings. Fix the attribution setting in the contract, deduct refunds, and check monthly that total store revenue moves in line with what Meta reports. If you run a Shopify brand and want to see the full terms of one share of sales model, [read the pay as you scale page](https://www.adsome.io/pay-as-you-scale). ## Sources - Meta for Developers, Meta Pixel documentation: https://developers.facebook.com/docs/meta-pixel/ - Meta for Developers, Conversions API documentation: https://developers.facebook.com/docs/marketing-api/conversions-api/ - Meta, Ads Manager overview: https://www.facebook.com/business/tools/ads-manager - Shopify Help Center, Reports and analytics: https://help.shopify.com/en/manual/reports-and-analytics

Pay for Performance Ad Creative and How Agency Fees Work

Pay for performance ad creative is an agency model where the agency is paid a share of the sales its ads bring in, instead of a fixed monthly retainer or a percentage of ad spend. In a pay as you grow setup the fee rises only when tracked revenue rises, and a well built agreement adds a floor, such as no fee in any month where the ads return less than a set multiple of the ad spend.

Key Takeaways

There are three common ways to pay an ad agency: a monthly retainer, a percentage of ad spend, or a share of the sales the ads bring in. Only the last one ties the fee directly to revenue.
A share of sales model is only as fair as its tracking. Agree on the attribution source, the attribution window and what counts as a sale before you sign.
Run the maths on your own margin. Ad spend as a share of revenue plus the agency fee as a share of revenue must stay below your contribution margin, or growth loses money.

If you want to see a live version of this model, here is how a pay as you scale agreement for Meta ads is set up.

What is pay for performance ad creative?

Pay for performance ad creative is an arrangement where one partner both makes the ads and runs them, and is paid from the results those ads produce. Return on ad spend (ROAS) is revenue attributed to ads divided by the ad spend, so 4x ROAS means 4 units of tracked revenue for every 1 unit spent. A pay as you grow model is the same idea seen from the brand's side: the fee grows as the brand's ad driven revenue grows, and it shrinks or disappears when results drop.

The word "creative" matters here. Under a retainer, production is often billed separately or capped. Under a performance model, the agency has a reason to produce as many ad variations as it takes to find winners, because its income depends on them. If you want to see what that testing looks like in practice, our AI creative testing framework for DTC brands walks through it.

How we compared the three agency payment models

Same hypothetical brand for every model. We used one round, made up month: 20,000 USD ad spend and 100,000 USD in sales tracked in Meta, so 5x ROAS.
Example rates, not market rates. The retainer and percentage of spend figures below are invented for the example. Agency prices vary widely and we do not state what other agencies charge.
One real published model. The share of sales row uses the terms Adsome publishes for its own model, quoted exactly.
What we looked at. What the fee rises with, what happens in a bad month, who pays for production, and which incentive each model creates.

How the three payment models compare

Model	What the fee rises with	Fee in the example month (20,000 USD spend, 100,000 USD sales)	Fee in a bad month (20,000 USD spend, 60,000 USD sales)	Who usually pays for production
Monthly retainer	Nothing, it is fixed	Example retainer of 8,000 USD	8,000 USD	Often billed on top or capped
Percentage of ad spend	Ad spend	Example rate of 15% = 3,000 USD	3,000 USD	Often billed on top
Share of sales with a 4x floor (Adsome's published terms)	Tracked sales	12.5% of 100,000 USD = 12,500 USD	0 USD, because 60,000 / 20,000 = 3x, below the 4x floor	The agency

Read the table by row. The share of sales row costs the most in the good month and nothing in the bad month. The retainer costs the same whatever happens.

Monthly retainer

A retainer is a fixed monthly fee for an agreed scope of work. It is simple to budget. The weakness is incentive: the agency is paid the same whether your ads sell or not.

Percentage of ad spend

The agency takes a set percentage of whatever you spend on the platform. The problem is that the agency earns more by spending more, and spend is not profit. Watch for budgets that rise faster than revenue.

The agency is paid a percentage of the revenue its ads generate, as tracked by an agreed source. This is the only model where a month with poor sales costs the agency directly, so tired creative cuts its income.

What we built into our own model

This section describes Adsome's own pricing, exactly as published, as one example of how a share of sales agreement can be written. Adsome is a film and ad production studio in Stockholm that makes AI produced ad creative for brands that spend on paid social. The published terms are:

No monthly fee. Adsome makes and runs the ads and pays for the production.
The brand pays Adsome 12.5% of the sales the ads bring in, tracked in Meta.
If the ads bring back less than 4 times the ad spend in a month, the brand pays Adsome nothing for that month.
The ad spend itself goes from the brand's card straight to Meta.
It is built for Shopify brands selling more than 100,000 USD a month.

Our own observation from writing these terms: the floor and the percentage have to be read together. At exactly 4x ROAS, a 12.5% share of sales equals 50% of the ad spend (12.5% of 4 units of sales is 0.5 units). So the fee never kicks in below a point where the ads already return four times their cost. Ad spend going straight from your card to Meta also keeps the spend visible in your own ad account.

The test is your contribution margin. Contribution margin is what is left of each sale after product cost, shipping, payment fees and returns, before marketing. Do the check in this order:

Work out your contribution margin as a percentage of revenue from your own figures, for example in Shopify's reports plus your cost of goods.
Work out ad spend as a share of revenue at your current ROAS. At 5x ROAS that is 1 divided by 5, so 20%.
Add the agency fee as a share of revenue. Under a 12.5% share of sales, that is 12.5%.
Add the two. In the example, 20% plus 12.5% is 32.5% of revenue going to ads and fees.
Compare with your contribution margin. If your margin is 50%, each sale still leaves 17.5% after marketing. If your margin is 30%, every extra sale at this ROAS loses money.

At the 4x floor the same sum is 25% plus 12.5%, so 37.5% of revenue. A brand with a contribution margin below that should not take a share of sales deal at 12.5%, and probably needs a higher ROAS target or a different model. Our guide to writing a performance creative brief covers how to set the targets the creative has to hit.

How sales are tracked decides how fair the deal is

"Tracked in Meta" means the sales Meta attributes to your ads, based on the Meta Pixel on your store and, ideally, the Conversions API, which sends purchase events from your server so fewer are lost to browser blocking. Three questions to settle before signing:

Which attribution setting counts. Meta lets advertisers choose click and view windows. A sale credited to someone who only viewed an ad is counted differently from one who clicked. Agree on the setting and do not change it mid contract.
Gross or net sales. Decide whether refunds and cancelled orders are deducted before the fee is calculated.
Overlap with other channels. Meta will claim some sales that email or search also claim. A share of sales model pays on Meta's number, so compare it with your total store revenue each month to see if the two move together.

Which payment model fits your situation

A new store or a new product with little sales history. A share of sales model is hard to price for both sides, because there is little data to forecast from. A small retainer or a project fee for creative is usually more realistic.
Steady revenue, healthy margin, and the main problem is stale creative. A share of sales model fits well, because it pays the agency to keep producing and testing new ads. See how teams produce 100 ad variations per week with AI to get a sense of the volume involved.
Thin margins, a contribution margin below about 37.5%. Run the maths above first. A fixed retainer may cost less per sale once volume grows.
You already have an in house creative team and only need media buying. A percentage of spend or retainer for buying alone is the cleaner fit, since you are not buying creative.
You want to compare a shortlist of agencies first. Our overview of AI ad agencies and alternatives by brand fit sorts them by the kind of brand they suit.

Common Mistakes

Comparing only the fee in a good month. A share of sales model looks expensive in a strong month and free in a weak one. Compare the fee over a full year of realistic months, including the slow ones.
Signing without agreeing on attribution. If the attribution window, view through counting or refund handling is not written down, it will be argued about later.
Ignoring margin. A deal that grows revenue but pushes ad spend plus fees above your contribution margin grows losses.
Letting creative go stale under a retainer. A retainer with a fixed number of new ads per month can quietly cap testing. Ask how many new concepts are tested each month, whatever the model.
Not checking store totals. Pay on Meta's numbers, but judge the result on your total revenue.

Want ads that are paid from what they sell? Adsome makes and runs Meta ads for Shopify brands and is paid a share of the sales they bring in.