A fee based on ad budget is customary for the industry. There are some companies that charge as high as 30% and there are some that charge as low as 10%. However, it is not likely that you will get good management at the low end of these rates. Charge too much and your fees will exceed the client's margin for profit.

A talented PPC manager is not going to work for $2.00 an hour, not even in third world countries. A fee should be high enough to cover the actual cost of labor required for adequate PPC management, but not be so high that the client cannot make a profit. The standard for the industry is 15%, however that is far too little for a really small ad budget. 30% would be about right for clients with tiny ad budgets, say less than $1500 per month.

Totally agree with Don once again. You have to look at it from an hourly rate point of view. A client spending say even 20% of spend will eventually wise up and figure they can save a lot by going to someone else who doesn't charge as much or have a different fee structure.

A percentage of spend never made sense to me but as Don said, customary in this industry. If you charged 15% of $100 spent each month, that is not worth it for you most likely, unless you have a minimum. It may not even be worth it if they spent $1,000 depending on the size of that campaign. That's why I charge a fixed fee based on the size of the campaign. It's mostly based on my desired hourly rate of course and I do have a monthly minimum. The client knows how much it will cost him each month and there won't be surprises. I feel he's also more likely to use the service long term.

15-20% is customary.

Having said that, client interest is shifting to SEO as AdWords costs continue to rise and return on investment diminishes.