The economics don't quite work the way you describe.
The brokerage is forwarding your flow to one of it's partner broker-dealers who is providing the actual execution service. Those BD's would happily take this flow for free (as evidenced by the fact that they now _mostly_ pay for it). The executing BD, not the brokerage, is on the hook for trading fees _if_ they need to execute the order in the public market - which is rare as they mostly internalize that flow. The executing BD's business model is based on the assumption that the flow is not particularly toxic and that at scale, the profit margin per share exceeds any execution costs.
The larger point stands though: from the perspective of the executing BD the payment for order flow + price improvement are both costs, which they want to cap. If you dial up PFOF, you naturally get less price improvement.
The brokerage is forwarding your flow to one of it's partner broker-dealers who is providing the actual execution service. Those BD's would happily take this flow for free (as evidenced by the fact that they now _mostly_ pay for it). The executing BD, not the brokerage, is on the hook for trading fees _if_ they need to execute the order in the public market - which is rare as they mostly internalize that flow. The executing BD's business model is based on the assumption that the flow is not particularly toxic and that at scale, the profit margin per share exceeds any execution costs.
The larger point stands though: from the perspective of the executing BD the payment for order flow + price improvement are both costs, which they want to cap. If you dial up PFOF, you naturally get less price improvement.