Performance-based marketing contracts ain’t cheap

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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.

tags : conversation marketing

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11 Comments

  1. Hey thanks for these, I usually get asked if I can go into some agreement like this with customers, and to be honest 9 out 10 times, its so that they think they are getting a cheaper deal, after putting my conditions on the table, they actually realise its not cheap at all.

    As if I’m going into partnership with someone, I’m going to make sure that I devote a lot of my time to this project, and ensure that I have full control to make it work. All this takes up time and money.

    I think its more of educating customers and getting them to have the right mindset.

  2. Ian, you hit the nail on the head here. Most people do performance based marketing because they were cheated in the past and they want to save money. They never think about all the stipulations you just mentioned. That’s why their contracts are just laughable. And your point #1 is the most important one they usually overlook. Thanks for a great post.

  3. It’s very simple for me. You are asking me if I want to be your partner. No, I don’t want a partner.

  4. When someone asks for performance based marketing, what they are really saying is, “We’re not sure if we can actually sell any of our products and we don’t want to pay anyone unless we do. Even though you have done a lot of work for us.” Its not a great way to start a relationship.

  5. And marketing content. I get the right to add, modify and delete every single aspect of content on the entire site, including your “about” page, your CEO’s bio, and your terms of service.

    And Your price point. I have the right to change the prices you charge as I see fit.

    And product warranties. Unless you acknowledge in writing that my income is not downward adjusted if 80% of your products are returned for a refund. But know that I will put in the contract that if x percent of your products are returned for a refund, my percentage goes up accordingly, to a certain point, at which time the rate I am entitled to will be more than you are willing to pay me because that’s what it will take to deal with the ensuing ORM.

  6. Mark Farrell

    Really liked this one. Very nicely put down. Always makes me laugh when we get offered a deal like this as the potential client believes in their website so much they can understand why we reject their offer. Although wish id taken Facebooks offer when they approached us with claims that they had an idea for a site that would see individual people checking it daily.

  7. Performance-based internet marketing is a recipe for disaster because results simply can’t be guaranteed by either party.

    Good SEOs often don’t deliver amazing results. Sometime’s crappy SEOs get hooked up with a great client and just tag along as the traffic flows and the cash follows.

    Who deserves the blame and who deserves the credit? Nobody really knows because there are too many variables at play.

    The only way to enter an internet marketing agreement is when both parties agree to a fixed cost and understand that positive results can’t be guaranteed. If things go great, wonderful. Both parties make money.

    If the client loses 50% of its traffic, no hard feelings. They knew up front they were taking a risk and results weren’t guaranteed. SEOs, however, shouldn’t complain. They get their money no matter what, which isn’t a bad position to be in at all.

  8. Great post. Great comments.

    Accountability and authority have to match. Don’t hold me accountable unless you’re going to give me total control of outcomes.

  9. This is so great. Pennywise and pound foolish. This is really common question from people. It would almost be worth it if I didn’t have to answer some of the inside baseball questions.

    My personal favorite was when a client wanted me to get paid commission off “profit,” which would be approximately x amount. Commissions need to be on gross, profit is too easy to manipulate on paper.

  10. We have a client that is proposing a revenue share on a product that is new to market and there is no site for it yet. We would have total control. Is there any scenario where such an agreement does make sense? What are the things to watch for?

    • Ian Lurie

      ian

      It CAN work. Just be sure you have:

      1. An agreement that you’ll be paid for X months AFTER you the contract ends. Remember, your work will pay off far after you’re gone.

      2. They can handle whatever business you send their way. We’ve had clients say “whoa, whoa, slow down” when they start getting lots of traffic/sales/interest.

      3. You have right of first refusal on additional web work or campaigns.

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