I'm making media buyers angry. Again.

This is your 2025 reminder to never accept paying a media buyer or ad agency a percentage of ad spend. Why?

“Show me the incentives, and I'll show you the outcome,” as the late Charlie Munger said.

With a % of ad spend, the media buyer’s incentive is to spend as much as possible of YOUR money.

It’s not to make you money.
It’s not to make sure you grow profitably.
It’s not to make sure your cash flow isn’t destroyed by acquiring customers unprofitable.

It’s to spend more. The more he spends, the more he earns.

It’s like paying a financial advisor based on how many trades he makes instead of whether he’s making you any money. Or an email marketer based on received emails instead of… you know the gist.

And yes, I know the counter-argument: “But we only spend (more) money if the numbers make sense!"

I think media buyers honestly believe that. They’re not bad people or trying to rip you off. But their incentive is to spend more. And incentives drive human behavior whether we’re willing to admit it or not.

“I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. ” - Again, Charlie Munger.

In my opinion, the best way to align incentives is to pay a fixed fee per new customer (NC) based on profitability.

For example:

• $5 per NC if profit per NC is over 0.

• $2.5 per NC if profit per NC is between 0 and -$5.

• $0 per NC if it's below -$5.

Now, the media buyer is incentivized to get you as many new customers as possible. The more new customers, the more he’s paid. But not at any price. Not in a way that hurts your business. So, he’s forced to think about more than squeezing as much through Meta as possible.

Good media buyers can still get massive paydays. But only when their clients do too.

In other words: perfect aligned incentives. As they should be.

“You do not want to be in a perverse incentive system that’s causing you to behave more and more foolishly or worse and worse — incentives are too powerful a control over human cognition or human behavior.” - Charlie Munger, once again.

*Profit per New Customer = (Sales from new customers - returns - tax - variable cost - COGS - ad spending) / number of new customers.