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Pay for Performance. Bring it on if you dare

Over the years I’ve been a big proponent of pay for performance when it comes to engaging clients as a marketing firm. What could be better? Clients love the concept because both parties have skin in the game and we get paid according to how effective our work is. The assumption is that we’ll do better work, go the extra mile and deeply care about the client’s success. Everybody’s happy.

However, the reality is not so simple. There are a number of issues that raise their ugly heads every time I’ve attempted to implement such a compensation strategy.

Issue #1: Most clients and agencies don’t really understand how pay for performance (PFP) works.
Most expect the firm to work for free and then be paid only if the work delivers some predefined performance – usually revenue. If the goal is met, the client will then pay the firms normal rate. Why it doesn’t work: The problem here is that no company can stay in business working for free. The other issue is that there needs to be compensation for risk – above and beyond what a firm would earn if they weren’t taking on the risk of the client (plus their own company’s risk).

The solution: The service provider agrees to a specific scope of work at a rate that covers it’s overhead plus out of pocket expenses. This would give the client a significantly lower rate for the work. If the agreed upon metrics and milestones are met, the agency would receive their usual profit margin PLUS a bonus to cover the risk incurred. This is not unlike what an investor requires. In effect, the agency is investing in the client’s business (taking on the client’s risk) and should be compensated above and beyond it’s usual “no-risk” rates. The greater the risk, the higher the compensation.

Unfortunately, clients don’t like this idea even though they are still coming out way ahead and have significantly reduced their risk. The choice is to simply pay the agency and shoulder the risk that the effort may or may not work or transfer the risk and pay a premium.

Issue #2: Metrics and goals not within marketing’s control
Most clients demand that an agency gets paid when they get paid. In other words, if an increase in revenue can be tracked directly to the agencies work, the agency gets paid. The problem here is that there are a myriad of variables that effect the realization of revenue. For example, the sales team is less than effective, the product isn’t good, lousy customer service prevents repeat buyers, market conditions change, supply chain problems, etc.

The solution: The client and agency need to agree on metrics that are measurable and tied to agency performance overall. Often, “leads” are the preferred metric. However, there are often arguments over lead quality, suitability and viability. Another challenge is tracking leads to specific activities – did the lead come from an ad? A press release? The web site? The reality is that an integrated marketing program should be measured as a whole and with a few exceptions (Pay Per Click) cannot be tracked to individual tactics.

Issue #3: Handing over the keys to marketing to the agency
More often than not, clients pick and choose what they want the agency to do allowing only certain activities to be performed by the agency. For example, the agency may insist on doing research to ensure a positive outcome (what everybody wants) but the client doesn’t think it’s worthwhile. Or the agency may build a campaign with certain response mechanisms that the client later changes. From planning to research and implementation, the agency works on a piecemeal basis with little control over the work.

The solution: The client must follow the agencies process and recommendations – including budget. The agency must also be allowed to work long enough for the strategy to work – even if the first six months don’t produce results. If the agency is going to take on risk, the client must do what the agency says. If the client doesn’t trust the agency to work in its best interest, they shouldn’t engage them in the first place. Effective marketing and promotion almost always takes more effort, money and time than any client prefers.

Again, this issue is usually a deal killer for the client. They typically refuse to allow the agency to do what it knows works. The result is a less than effective effort and everybody loses. Issue #4: Disclosure Tracking financial performance (or other metrics) takes time, money and effort. Many clients are uncomfortable sharing financial information or doing costly research to confirm that the agencies work is having a measurable impact. PFP also requires extra legal fees to create and enforce the agreements – thus raising costs even more.

The solution: There needs to be transparency and trust for a PFP arrangement to work. The process of disclosure and confirmation should be spelled out in the client/agency agreement at the beginning.

The above issues are only the tip of the iceberg when it comes to PFP. Any marketing firm or agency that’s any good welcomes a fair PFP agreement because we know our work is effective. In my experience, it is usually the client who ultimately decides that PFP won’t work.

Please post your comments on this topic. I welcome disagreement from my peers and from client organizations. How can we bring agency compensation into the 21st century?


From up on my high horse…

I just had a casual contact excitedly tell me she has hired a marketing company to help her build her fledgling business. No problem for me, I’m not competition minded. I believe in abundance – there’s enough work for everyone. What I don’t believe in is companies that overstate their expertise and take advantage of people who don’t know any better or what to look for when qualifying a potential partner.

While I sincerely hope it works out for her I can’t help but think she’s fallen victim to a slick sales pitch or hard to believe, too good to be true pricing scheme. Why might I think such a pompous thought? I went to the marketing company’s web site.

The first thing I noticed was the ads at the top of the web site for GoDaddy. Now I’m all for reducing operating costs, but seriously, getting free hosting (the site proudly proclaims this in the most valuable real estate on the site) saves a whole $20 a month. Wow. I know things are tight but…. really?

But the real issue here is that any marketing company worth it’s salt would understand that this sends a negative brand message to anyone visiting the site. Not only does it scream “SMALL AND AMATEUR”  it detracts from focusing the attention on the firm and it’s work. Another negative is that it allows a visitor a number of options to simply leave the site at the click of the mouse. And it’s ugly.

I could go on about their clip art logo, their template based free web site, the poor grammar and more but I won’t. This isn’t about trashing another marketing firm.

I’m hoping that I can help you choose better, get better results and know what to look for when hiring outside help. And the web site is a treasure trove of clues as to the sophistication of your potential partner.


Do you serve on a board? Know someone who does?

My friend, Scott Ingram has dreamed up something of enormous value to those of us who participate or lead membership organizations (boards, non profits, corporations, etc.)

It’s called the Membership Organization Leadership Series

  • The most common challenges of membership driven organizations (like Associations, Chambers, Civic Organizations, Networking Groups, etc.) are nearly universal:
  • How do we grow our membership?
  • How do we retain existing members?
  • How can we better engage our members so that they attend more events, volunteer on committees and ultimately help the organization and the board?
  • How can we add more value for our members?
  • What can we do to make our events unique, valuable and well attended?
  • How can we control costs and increase revenue so we can do what our mission dictates?

This Leadership Series is designed to bring together the board leaders of these various organizations to learn from each other, share best practices, collaborate, and (oh yeah) network, as we build an even stronger Austin community together.

The series runs three monthly sessions, and the first session is next Tuesday, September 15th from 3-5pm.

Learn more here:


Do your customers trust you?

I’m reading a very good book that hits the nail on the head when it comes to the sea change that is happening in marketing. “Trust Agents” is a NY Times Best Seller written by Chris Brogan and Julian Smith that lays it out clearly and if you plan on being in business five years from now you better pay attention.

If you’ve been reading my stuff for any length of time, you already know that I advocate building credibility and trust as a core principle of marketing strategy. Brogan and Smith’s book not only agrees but it takes the concept to a more focused level (I’ve never been accused of being focused…). What I really like about this book is that it doesn’t just tell you WHY it shows you HOW to leverage social media and other digital tools to achieve the holy grail of marketing – trust.

If you’ve been wondering why your marketing and advertising just doesn’t seem to work anymore (and it doesn’t matter if you are Proctor and Gamble or Joe’s Fish Shanty) it’s because of a  perfect storm of factors including:

  • people are tired of you shouting how good you are or your widgets and interrupting them
  • people don’t believe you anymore and they know you are just trying to sell them something
  • media fragmentation and info overload overwhelms them
  • the very nature of a “market” has changed since the Internet came along
  • buyers have scads of information at their fingertips and are better educated and more informed than ever
  • basic human behavior drives interaction and community building

I’m sure there are more but I hope you are seeing where this is going.  Buyers seek information. They buy from those individuals and brands they trust. No longer will a clever ad on TV do the trick. No longer can you hide behind a carefully crafted brand – there is no hiding on the web. No longer can you trick people into buying. The new era of marketing is about truth, reciprocity and value. It’s about being a good human. It’s about relationships.

The problem is that what works (relationships and building trust) is at odds from what company shareholders want (fast results). Creating trust takes time and dedication.

The good news is that the web is awash in tools and communities where you can shine like a benevolent diamond of value and helpfulness. I haven’t read the whole book yet but from what I have read, the deal is not technology or social media or computers. It’s about people – sharing, connecting, conversing. Take part in this conversation, do the right thing always and you’ll be awarded with trust and business will follow.

Oh, I also had lunch with Chris. He lives by his principles. We had salad.

I’ll be blogging more about this in the coming weeks. Why not leave a comment so we can have a conversation?


Coffee, laptops, wi fi, Starbucks and marketing

moochmugI’m sitting in a Starbucks right now typing this on my laptop sucking their electricity, using their wi-fi, taking up a seat and consuming a beverage. I’m the worst human being in the history of the world. I’m a freeloader. A mooch. A squatter. A parasite. A burden.

As the economy punches laid back coffee shops in the beans, in their hyper caffienated states, they are starting to make rather stupid decisions with regard to riff-raff like me. Another word for these relentless carpetbaggers would be…..uh…customers.

Case in point, one local, Austin coffee shop that is popular with business people, offers good coffee, good food and free wi-fi has been taking customers aside and informing them that they need to spend more money if they are going to patronize the place. Next, they covered the outlets saying they are tired of people stealing their electricity.

Granted, I am there about once a week working with my coaching clients. Sometimes I scarf down stuff. Sometimes not. I use the wi-fi very little. However, I do see people sitting there who never buy anything, crank the laptop for hours and generally take up space at the shop’s expense. That’s not right. And I don’t doubt that it’s a problem for the coffee shop.

But here’s the problem I have with it and why I no longer bring my clients there (none of whom had ever stepped foot in the establishment before and all of whom buy something when they are there). I understand the owner’s issue and I agree but it’s the way it’s being handled that will ultimately drive customers away and hurt the business even more.

The truth of the matter is that most coffee shops don’t market their businesses. They rely on passive word of mouth. When times are good economically, they can thrive. When things get tough, word of mouth isn’t enough. In essence, their failure to promote and market their businesses is what is causing them to hurt financially.  Blaming your customers and making draconian decisions that drive them out is not the solution.

I’m not suggesting that they start spending money on ad campaigns or start cold calling customers. But they can do some very low cost tactics that will drive customers, strengthen loyalty and communicate their expectations in a positive, supportive way. For example, how many coffee shops have an email list of thier customers and regularly touch them with offers, specials and other info? How many are strategically using social media? How many are marketing events? Partnering with other businesses to cross promote? How many have web sites that are pathetic? Developing products that people want to buy?

Even simply posting a sign saying “We welcome our wired brethren, but please do your best to help us keep the lights on and the electrons flowing” would be better than pissing off the very people you depend on for survival.


How to screw yourself when buying web development services

As a solver of marketing problems, I see more than my fair share of projects gone bad. But in terms of percentages, web projects rule the stinking pile by a vast majority. I’ve lost count of how many clients come to me with tales of wasted money, disappointment and angst because they were led down a primrose path and wound up with a site that was a digital car crash.

In almost every case, they relied on a vendor (or internal person) to advise them because they didn’t really have much expertise in this area. But to be fair, that’s why they were reaching out to someone else in the first place. I’m not saying that developers are evil bastards – they mean well but many simply don’t have the broad knowledge required to pull off a successful project. It takes more than I.T. chops to make a site that sings.

Before my development buddies show up with pitch forks and torches, let me be clear. There are people and teams who have experience in design, interfaces, content, programming, marketing, sales and business in general but they are few and far between. (You know who you are). But the reality is that these individuals are as rare as they are in demand.

The absolute worst way to find and evaluate a developer (or any service provider) is to create an RFP. Just don’t do it. If you knew everything you needed to know to create a complete RFP, you wouldn’t need a developer. I’ve never seen an RFP that wasn’t significantly ambiguous. RFP’s also reduce the conversation to price. And in the web business price is endlessly elastic. But quality is not. If ever the adage that “you get what you pay for” rings true it is in web development.

Basing a decision on price also opens you up to manipulation. Web sites are complex animals. A scope of work can be many pages long. Even small changes and request can have significant impact on fees. But many developers are experts at limiting the scope to submit a low ball bid. They know that the job will require more work and they are ready with a change order at the drop of a hat.

Bidding out web projects also doesn’t allow you to personally meet and vet candidates. In fact, the best firms will simply toss your RFP in the round file. Your gut will tell you more about a partner than any polished proposal.

A better way is to first determine what you want to accomplish with the site. Be specific. If you need some help in this area, engage a consultant to assist you in a strategic analysis of the problems, resources and opportunities. Then, reach out to your network to find out who they recommend. Ask about their experiences – did they have a strategic approach? Did they meet deadlines? Did they stick to budgets? Did they offer ideas?

Make your short list of companies and then check who their clients are. Ask for references. Talk to the references. Before you ask “how much” share with the developer your ball park budget. You don’t have to lift your skirt – just give them a sense of what you are thinking in terms of investment. I’ve had people go on and on about the site they want to build and then I find out their budget is $500.00. Great. You wasted your time and mine.

In many cases, however, you may not know what a reasonable budget is. The solution is to choose the best candidate from your short list and have them create a functional specification and a creative brief. If they don’t know what you are talking about, move to the next name on the list. Pay them for these documents – not only will they require much time and expertise, they will be invaluable to you as you implement your new site. Part of these specifications is determining the right budget for production. Exactly.

Approaching the process as outlined above will save you significant money and headaches. Even better, you’ll get what you want: an effective web site that will serve your business for a number of years. Even better than that, you’ll be among the proud few who didn’t screw themselves.

If you are thinking of revamping your web site, first contact me. I’ll help you navigate the process, find the right people and ensure you have a fantastic experience and ROI.


Hail to the Spammer in Chief: Where Obama Went Wrong

CORNYN: The Republican senator from Texas alleged that the administration was using the e-tip box to collect names. The White House denied the claim.

CORNYN: The Republican senator from Texas alleged that the administration was using the e-tip box to collect names. The White House denied the claim.

NEW YORK ( — Regardless of where you fall on the political spectrum, one of the few things about Barack Obama’s presidential campaign that was hard to criticize was its use of e-mail and database marketing. But in the past few weeks, Mr. Obama’s team has gone from a digital-marketing case study to being regarded as a lowly spammer.

White House senior adviser David Axelrod sent an e-mail touting the administration’s embattled health-care-reform plan to thousands of people who apparently hadn’t asked to be contacted. Was it an innocent mistake on the part of the administration? A Machiavellian stunt pulled off by opponents of health-care reform? Or an act of desperation mixed with some hubris on the part of the administration in an attempt to push its plan on as many citizens as possible?

Zain Raj, CEO of Havas’ Euro RSCG Discovery, said he doesn’t believe it was an innocent mistake; the Obama team simply acted like many major brands do.

“The [administration] has become so arrogant about the amount of trust and credibility they have with their constituents, they think they can take advantage,” he said. “They forget who they are serving, and that’s what has happened with the brand Obama. When the campaign was building the brand, it was part of a movement, but now it’s become part of the establishment.”

Mr. Raj said part of the reason that happened is the absence of the marketing professionals who brought a tightness and focus to the campaign’s messaging. “The behaviors seemed to parallel the rhetoric. Since they got into power, there has been a fundamental shift happening in their approach,” he said.

Placing blame
Steve Cone, chief marketing officer at Epsilon, said there is no upside for the administration in just spamming people. “I wouldn’t assume they did this intentionally,” Mr. Cone said. But he said the White House could be guilty of assuming that those who subscribed to the updates signed up their friends only after asking permission to do so.

“In their ongoing e-mails, [the administration] asks that you get as many people involved as possible,” Mr. Cone said. “They assume you will ask permission before signing your friends up, and that’s clearly not practical. If they’re guilty of something, perhaps that’s what they are guilty of.”

But Stuart Ingis, partner at Venable, a leading consumer-protection, marketing and advertising law firm, said he doesn’t think the administration is guilty of anything; this is simply democracy at work.

“If elected officials can’t communicate with the public through whatever channel to make their case on important issues, that’s a real problem for our democracy,” Mr. Ingis said. “The question we need to ask before we talk about whether … people don’t want to receive these [e-mails] is whether this type of communication should be frowned upon. And I believe quite to the contrary.”

Mr. Ingis said the administration should be allowed to send out e-mails to citizens, but if people say they don’t want to receive them, the administration should respect that.

“The law is to honor a choice when it’s offered,” he said. “It doesn’t violate the CAN-SPAM Act, because that applies to commercial e-mail and this isn’t commercial e-mail. It’s not violating any laws.”

Fueling flames
Whether it’s breaking any laws or not, Margie Chiu, exec VP-strategic services at WPP’s Wunderman, said it doesn’t look good for any marketer using e-mail if the administration is seen as a spammer. “Something like this makes it more difficult for us, because there’s already such a distrust of e-mail and spam,” Ms. Chiu said. “And an incident like this fuels that mistrust.”

She also said the White House handled the aftermath very poorly by not taking the blame.

In the wake of “Spamgate,” two things happened. First, the White House issued a statement laying the blame for the snafu at the feet of “outside groups of all stripes” who may have added the disgruntled recipients to the e-mail list without their knowing, and apologized in a roundabout way, saying: “We regret any inconvenience caused by receiving an unexpected message.” It also shut down its e-tip box, which was being used to collect misinformation or “fishy” allegations about the administration’s health-care plan. John Cornyn, a Republican senator from Texas, alleged that Mr. Obama was using the e-tip box to collect names, a claim White House Press Secretary Robert Gibbs later denied.

“It was really bad form,” Ms. Chiu said. “In general, whether or not it was a third party, the fact is that they need to own up to it and be accountable for something that came from their delivery system. Blaming a third party is just not great form.”

But Euro’s Mr. Raj said the Obama administration, like other brands that have stumbled before it, will make the necessary adjustments. “For every big brand, there’s an event that shakes them,” Mr. Raj said. “The Obama brand is going through that, and my hope is they learn from that and don’t continue to deflect to somebody unnamed, because that’s the political way. I hope they learn, like all good brands do, that it’s better to listen to our customers vs. not.”

Who is Pete Monfre

CLICK HERE to visit my web site

I'm a serial entrepreneur, marketing and media guy, raconteur, writer, producer and consultant. I write this little blog to help you unravel the mysteries of marketing and selling, to expose the silliness that masquerades as marketing and help you make better decisions that will grow your business. And I have fun with it. Why not comment? That way we can have a conversation. Or better yet, hop on over to my web site and drop me a line.

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