Jeff this is a fantastic post - and you are spot on about the advertising. You should send this post into Crain's, or even other non-automotive magazines.
This post is sort of hilarious to me because it's basically our sales pitch! I'd only add a couple more points:
9) Discuss the agency fee. Flat rate, % of spend, sliding scale, performance oriented? We've been running with a 15% fee, and have been thinking about rolling that down to 10% after certain thresholds. I'm honestly not sure this is the ideal structure, but it is simple and easily auditable.
This is really important, not just so you get a good deal, but that the company you're working with is going to be making enough money on your account that they can actually spend some time with it. When you ask for your reports, it's a good time to discuss your current monthly specials, or problems, ideas, and get them rolling on updating your campaign for the next month.
Which leads to...
#10) Watch out for long term contracts. Unless it's part of some this-for-that negotiating, we don't want them from our clients. Pay us up front for the month, and if you hate us after 5 days and kick us out we'll only keep what we spent and our 15% on that.
This work is really front-loaded, and yeah, we'd lose out on a client that canceled after just a month or two, but we gotta keep ourselves honest - if it's just not working for you, that money needs to fix whatever's broken. Now hopefully we can help with that, but if not, fine. Fix it, and come back to us in 3 months so we can relaunch your campaign bigger and better, and ultimately we both make more money.
Maybe just one more thing... be a little willing to experiment once in a while. One of our clients gives us some impressive freedom to try new approaches out, and it's been a good thing. Several months back, we cut, across the board all the max CPC's by 30%. It resulted in a drop in position, but a 50% increase in clicks, and conversion ratio actually went UP. It was a gamble, and only because we had already seen a pretty solid trend of falling CPC and rising CTR, which we assume was due to good ad copy. Granted, it could have easily gone the other way, and we've had experiments flop on us before, but if you totally buy into the herd mentality you lose out on one of the biggest SEM advantages, which is super-flexibility.