Posts Tagged ‘recession marketing

19
Sep
09

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?

07
Jan
09

The Truth about Recession Marketing

Either you have a solid, best practice process for marketing or you don’t.

13
Oct
08

Marketing in a recession. What’s the difference?

Everywhere I turn I see companies attempting to leverage the much hyped “downturn” in the economy. All of a sudden, they are touting special “Recession” services and techniques to overcome impending doom. Marketing and advertising agencies are especially guilty offenders. So, in my inimitable tradition of cutting through the smoke and smashing the mirrors, allow me to deliver some straight talk (McCain and Obama aside).

When it comes to marketing, there is no difference between a recession marketing strategy versus a boom time marketing strategy. There are simply two ends of the marketing strategy continuum. On one end, there exists the Well Planned and Executed Strategy. On the other, the Wild Ass Seat of the Pants Unstrategy. That’s it. All companies are on this continuum somewhere.

If you find yourself on the right side of the continuum, you will experience more pain when the economy gets tight. It’s as simple as that.

The fact is that there are always deals going on. There may be fewer deals but even a 20% downturn means that 80% of business is still being transacted. Companies who have investing in “real” marketing strategies and programs (a customer centered message, a clear position, a consistent marketing communications effort, etc.) will naturally be in a better position to win business in this type of circumstance. Those who don’t have a best practices process in place will be victims of Market Darwinism.

So what makes a “real” strategy? Here’s a few points to help you figure out where you are on the continuum:

  1. Objectivity: If your marketing and sales programs are based purely on internal information or the dictum of a single person, it’s most likely not going to be very effective.
  2. Research: Going hand-in-hand with Objectivity is customer, competitive and industry research. Yes, it’s expensive and not as fun as building a new web site, however, if you really want to get the facts as to how customers buy, how competitors sell and how to leverage industry thought leaders to your advantage, no strategy should skip this important step.
  3. Budget: Two opposing objectives are very common in businesses: Saving Money or Growing the Business. These objectives are mutually exclusive. You can’t save your way to success and making money requires careful, investment.
  4. Commitment: Marketing programs take time to work. Pulling the plug every time the stock market hiccups destroys any momentum and equity your efforts may have created.
  5. Execution: Having a well researched, objective, adequately budgeted plan means nothing if you don’t execute. Build a team and get it done. And keep doing it until it pays off.

Good times or bad, it pays to bring your marketing programs up to par with the rest of your carefully planned business. Of course there is more to it than can be covered here. But this is a start. Marketing is a business process. The outcome (increased market share, revenue and profit)  is only as good as the process used to get there.




Who is Pete Monfre

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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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