Incentivizing your agency based on results.  Be Careful What You Incentivize. avatar
Incentivizing your agency based on results. Be Careful What You Incentivize.

incentivizing-your-agency-based-on-performanceAs a consulting agency, we work on a retainer basis. Yet, every once in a while, we get an inquiry from a potential client who asks if we’re willing to work and get paid according to results.

“The better we do, the more you get paid”, they say. And they add, “If you’re so confident this will work for us, then you should be open to it.”

Yes, we are confident in our expertise, so this should be no problem, right?  It only seems natural that clients want to pay only as results are achieved. From the agency perspective it could make sense too. Most clients don’t know the potential of their businesses online and very often we significantly surpass our customer’s expectations. On such occasions, had we been on contract for a pay-per-results basis we would have considerably exceeded our would-have-been retainer.

The reality is that we rarely, if ever, take clients up on such pay-for-performance offers.

The truth is that “Results” can be a tricky word. It has different meanings to different people. So a client may say, “I’ll pay you 10% of revenue” or “I’ll pay you X if you increase web leads by X%”, or “I’ll give you XX dollars per lead”, etc.

Here are some examples of the types of  pay-for-performance  clients have requested:

1)      Increase web traffic

2)      Increase clients

3)      Increase in revenue

4)      First page on Google

5)      Increase in Facebook fans

6)      Increase in web sales

The reader might say “well, these seem to make sense to me! What’s wrong with that?”

The problem is that most people that want to pay you based on these metrics, don’t really know what they’re truly asking for, or worse, what they’ll get when they do.

 You May Be Motivating the Wrong Metric

Let’s say an agency takes the deal of getting paid as web traffic increases. Many times, customers are not even aware of the difference between paid or organic traffic, or relevant traffic or average CPAs (cost per acquisition). Sure, we can deliver twice as much traffic to your site, or even 10 times more, why not?  But the better question is WHAT PRICE are you willing to pay for a lead?  So what can happen is that the agency starts bringing traffic to the site at an unreasonable cost, or perhaps irrelevant traffic that does not convert. At the end of the day, do you care if you have thousands of visits that don’t turn into paying customers?  My guess is that you don’t. So as an agency, this is a losing deal. If you bring too much traffic that costs too much, the client will not be happy, if you don’t bring enough, you’ll not get paid. In truth, it takes time to increase qualified traffic to a site. It also costs time and money to do so, and it’s unreasonable to expect your agency to work for free while you get there.

 “Put me on the first page of Google” they also say.

The idea is that you get paid as you improve ranking. Well, this request many times also comes from naïve clients that are not very familiar with SEO. First of all, an agency can often choose the words that they’re going to rank the client for, because they are easy, or easier. We’ve seen quotes from other agencies where they propose ranking the client for xyz word(s) that are easier for the agency, but not necessarily profitable for the client.

Getting Paid As Sales Increase.

This situation not only happens in the digital world, but it’s very common in the brick-and-mortar world and it takes the form of sales commissions. A few years ago, when my wife, and now business partner, used to work for a large corporation, she, and the entire sales team were paid on a combination of salary and commission. Their commission structure was based on hitting revenue targets. On a quarterly basis, people would receive commission checks ranging from $10,000 to $80,000. The sales team worked tirelessly to sell sell sell. However, the company continuously missed profit targets. Operations was not able to increase profit margins. The sales team was focused on selling the less expensive gadgets that had more volume – and generated more revenue – than the more expensive gadgets that were much more profitable, but that were difficult to sell in volume. After years of failed profitability, the leadership decided to change the incentives and focus commissions on profit. Problem solved? Unfortunately not. Sales plummeted. Why? Sales people were focused now on selling very few of the most profitable gadgets. This is basic psychology. If you push it, the employee, or the agency, will hyper-focus on whatever will make them more money, regardless if it will benefit the overall goals of the company.

 You May Not Be Able To Capitalize on The Increase In Leads

On one occasion we did agree on getting paid a % of sales generated by each lead. The client was a lawyer and we started questioning our decision as we were starting to see the traffic to the site increase, yet the new client leads were not growing in the same proportion. We knew something was wrong, and we knew it was not our work that was the culprit. When we called the answering services of the law firm – as if we were a new client – we were put on hold for very long times, we were treated poorly by poorly trained staff, we were hung-up on…. The issues went on and on.  When we started call-tracking the calls, we could see the challenges the firm had converting leads to customers. The volume of calls had increased well beyond their capabilities and they could not handle the volume. This resulted in poorly trained staff handling the calls, the long wait times and the overall lack of ability to take calls and convert them to clients. For us, this meant that the poor operations of the company was directly affecting our revenue. (For more about this topic, you can read our blog post titled “Don’t Blame Marketing, It’s Operations That’s Killing Lead Generation.”) So lesson learned. Many times, an agency will provide results but the customer is not able to capitalize on such results and turn it into profit for the company, and everyone suffers.

We believe that if you put a monetary incentive  –  other than what it costs to actually do the work – in place, then you might very likely end up in a situation where the agency is more focused on hitting your set metrics than they are on watching out for your best interest.

Although, such incentive programs can work well in certain industries, digital marketing consulting is not one of them. Especially if you are not an expert on the subject. Successful digital marketing requires many different tools and tactics and almost certainly your business needs flexibility . So perhaps for a few months you work on increasing leads, then you need to work on increasing conversion, then you need to improve your customer outreach, etc.

The best advice I can give you is to think of your digital marketing agency as an entity similar to your lawyer or doctor. One of the most important elements of a good working relationship is trust. But trust builds with time. If you are hiring a consultant you must be involved in what they’re doing, the strategies that they are proposing and be on the same page as to the goals established for the month, the quarter, and the year.

 The Best Relationships are Those Where We’re an Extension of the Leadership Team

We’ve always believed that our best clients are those that see us as an extension of their leadership team, whether that’s a boardroom, or a single owner. Our best clients care and are committed to the strategies we come up with together. Our best clients are not looking for the same nonsense automatic report that a software tool spits out, but for tactical recommendations that are derived from our data analysis and fact-based strategies.

If you engage an online marketing company as an extension of your team, you are certain to establish a great long-term relationship that favors you both for years.