Their Price Structure Gives it Away / Performance-Based Pricing and Why We Believe in It
When you look to work with a marketing agency or hire a marketing expert you will find many people who are willing to take your money. Most charge for their services either by the hour or a flat rate. There are many reasons why this is the pricing model most often used:
- It is easier to charge this way.
- It ensures predictable monthly revenue for the agency.
- The agency is able to take on more work because the pricing is easily applied to every business. “Pay us X and we will give you Y.”
- The agency can charge for “results” that do not necessarily lead to return on investment… and are easier to achieve.
- The agency can succeed and grow independently of your business
In essence, it is a safer model for the agency.
But that does not mean it is the best model for the client.
Scrape away everything else. Businesses market because they want to grow. In other words, they want to increase their profits. Marketing is an expense. If it does not yield a return, you are wasting your money. Think about it. If you are hiring someone who promises you that they can grow your business, they have to grow your business or it does not make sense for you to spend your money with them.
Of course, I am not saying that a marketing agency that uses a flat-rate or hourly pricing structure cannot grow your business. Of course, there have been some clients that have succeeded with virtually every agency.
But, it does mean that the agency does not necessarily have a vested interest in the growth of your business. They will get paid either way. You end up taking all the risk.
It can be easy to take that risk with someone else’s money. But, what about taking that risk with your money? That is where the real test comes in.
A flat-rate or hourly marketing agency lends itself to being over-booked, providing non-optimal results, limited service if you are not holding them closely accountable. This is not always the case, but it is what I have seen from my time in the industry. Most clients that come to us have been burned in the past by less than invested marketers who took their money and left the clients with little to nothing to show.
A performance-based pricing structure changes the entire model. Now, the agencies fate is intertwined with your own. They must deliver you the results you want, if they are to succeed as well. Now the client-agency relationship is truly more of a partnership than a transaction. You are guaranteed that you will get results for your money and the agency has incentive to actually dig in and maximize those results for you.
While this might sound like the perfect arrangement, there are cons to this structure as well.
It is Messier
If you are to measure the businesses ROI, you must have a way for both parties to access an accurate measurement of the marketing ROI for an agreed period of time. The business must be able to measure things like Customer Acquisition Cost, Customer Lifetime Value, and other metrics. There must be honesty from both parties.
Unpredictable Revenue for Agency
The agency now cannot count on sitting back and taking in a consistent check every-month without providing results. Many agencies count on the technical ignorance of the client in order to charge premium prices for minimal work. Optimizing a marketing budget requires constant refinement hours of research into new marketing opportunities, revising under-performing campaigns, and much more. This is harder to do and requires more time than most agencies are willing to devote.
The Agency Cannot Acquire Unlimited New Clients
If the marketing agency gets a new client. It must first implement a working campaign for that client before it can acquire another one. That client must grow in order for the agency to collect a payment. An agency cannot afford for any of its clients NOT to grow. (See how this works out?). The time it takes to ensure a successful campaign cannot be allotted to every business. The agency must work with businesses that they feel they can actually help.
Lack of Universal Compensation Structure
The two sides must come to a fair agreement of a compensation structure that is acceptable to both sides. On the client side, they must yield a return from the entire marketing budget that is acceptably profitable. The agency must get an acceptable return based on their time and value provided to business.
As you can see, most of the cons are directed towards the Marketing Agency. But, most of those cons for the agency are pros for the client. It is much riskier for the agency to use the performance-based price structure, because it says that they may not get paid unless they actually produce the results that the clients care about.
How a business makes their money gives a very accurate description of their values. A marketing agency that takes a percentage of your ad spend has incentive to convince you to increase ad spend. A marketing agency that charges a flat fee has incentive to provide enough “results” to keep you happy and constantly sign new clients. A marketing agency that uses a performance-based price structure has incentive to provide the maximum ROI to your business dedicating time to your growth rather than chasing new clients.
At TEEDUP, we believe in the performance-based price structure because it aligns our incentives the closest with those of our clients. Instead of a normal client-agency arrangement, now we are both on the same team working for a common goal. TEEDUP agrees to take on some of the risk alongside of the client, and the client has confidence that we are doing everything it takes to get them optimal returns on their marketing budget. We both have skin in the game.
If you are interested in learning how TEEDUP can help you grow your business, we are always happy to talk.
Contact us here: https://teedupinc.com/contact-us/ and we will schedule a FREE consultation!