Performance-based marketing contracts ain’t cheap
Ian Lurie Oct 26 2011
Can I pay you based on performance?
I hear that a lot. On its face, performance-based pay for internet marketing seems really fair: Clients pay their marketer a percentage of sales, or some dollars per lead, or something similar. If I help you sell more stuff, you pay me more. If I help you sell less, you pay me less.
So, to avoid any future confusion or bad feelings, here are the rules if you want to hire my company on a performance basis:
- We have 100% control over your site’s design and development. Oh, you don’t like that? Guess what: I’m not going to trust my income to your internal branding team and the two developers you have stashed away in Sri Lanka. If my income depends on your site working, then I want to make sure it works.
- You guarantee fulfillment capabilities. Right now, you have to produce one turnip twaddler per day. If things go well, and you have to manufacture and ship 20 per day, can you handle it? The answer had better be yes, if you want your agency to stay happy.
- No interference. You’re paying me for performance, not diplomatic skills. I shouldn’t have to explain why adding a button that reads “Order now” to your home page is important.
- Complete trust. We have to trust you, and you have to trust us. If both aren’t true, this will never work. If you’ve been burned before, don’t look to performance-based marketing as a way to keep us honest. We’re already honest. Or we’re not. Changing the contract won’t change that.
- You’re stuck with us. It’s easy to say “Hey, 10% of our revenue is a great deal!” when your revenue is $5/month. When revenue hits $500,000, though, it may seem like less of a deal. But that’s what I was gambling on. Some part of our agreement will require you to pay us for a fixed amount of time after we leave.
- Stuck with us, 2. This isn’t a way to get cheap marketing. Pay-for-performance is far, far more expensive than fee- or retainer-based. That’s because it’s also far riskier for me. Deal with it.
- Other sources. Other stuff you do will generate sales, too. We’re not doing any print marketing, for example. Nor are we telling friends about your product at parties. That’s your job. There’s no way to know exactly how much of each sale we generate. Keep that in mind when negotiating a percentage.
- Keep it simple. If you try to add in clauses about how we only get 2% of sales between August 10th and September 3rd in years when Mars is in ascension, but not if an albino calf is born in Montana, I’m going to bolt.
Usually, performance-based marketing is not worth it. It’s complicated, it’s hard to track, and most folks who use it end up unhappy. Before you enter into a percentage or pay-per-transaction deal with a marketing agency, make sure you check your motives: If you’re doing it to save money, stop.
Ian Lurie is CEO and founder of Portent Inc. He's recorded training for Lynda.com, writes regularly for the Portent Blog and has been published on AllThingsD, Forbes.com and TechCrunch. Ian speaks at conferences around the world, including SearchLove, MozCon, SIC and ad:Tech. Follow him on Twitter at portentint.He also just published a book about strategy for services businesses: One Trick Ponies Get Shot, available on Kindle. Read More