I’m sure you remember in school the preoccupation everyone, including your parents had with grades. Everything you did from homework, to studying for exams, to extra credit projects, or in rare cases the decision to cheat, was based upon making the grade. Your entire future, you were told, hinged on your ability to achieve high marks. And even though it may have seemed arbitrary, it was the teacher who determined if you had accomplished what they wanted and that you deserved a high grade. Didn’t really seem fair? It was our first real taste of life, now wasn’t it?
Advertising has traditionally been priced based on the model of how many eyeballs are estimated to actually see an ad. The model of CPM (cost per thousand impressions) is the foundation for determining the value of ad time, placement, geography, location, space and medium. But as David Koretz says, this form of pricing is doomed, in favor of a performance based model such as a cost per action (CPA) or a cost per conversion (CPC). Although there are many arguments on either side of this debate, and this is good fodder for another blog, the concept of performance based pricing is not going to go away.
The marketing industry has struggled a long time with the concept of payment for performance. The idea that the marketing firm should take the risk rather than the client is rather terrifying because it feels like too many things are out of the direct control of the marketing company. What if the product being marketed isn’t that great and people don’t buy? What happens when the economy goes into a tail spin and sales fall? What if the CEO gets into trouble by doing something unethical or illegal? What if………. All of these are great questions.
My opinion, and I know it’s not going to be popular with others in my line of work, is that marketing companies and consultants should be paid (and fired) based upon their ability to perform.
This is my take and how I conduct my business. I am going to make sure that there are clearly defined goals and expectations for all parties involved and that sound methods are in place for measuring progress. I am going to put into place contingency plans just in case something unexpected happens. And, I’m going to make damn sure that the product or service being offered by my client is good enough to be successfully marketed. Lastly, if I am successful, I should be paid handsomely for that success.
Can you think of other products or services that we should pay for based only on performance?
David,
I agree, pay for performance is the way to go. That is the best way to reward performance in sales.
Merry Christmas.
Roger
Hi David,
You raise some valid concerns which cannot be dismissed very easily:
“What if the product being marketed isn’t that great and people don’t buy?
“What happens when the economy goes into a tail spin and sales fall?
“What if the CEO gets into trouble by doing something unethical or illegal?”
If we adopt a pay-for-performance model, then the consultant becomes the party that needs to do most of the due diligence. The consultant is taking an enormous risk: both the risk of his/her failure and the risk of the client’s failure on his/her end.
The commission on sales or the profit sharing better be very substantial.
I agree Larry, this form of pricing for services does put a lot of pressure on the consultant to do their homework. It means that there have to be very clear understandings made up front as to what will be accomplished and how will it be measured. And the payoff should be substantial.
I see this fundamental change in the relationship between client and consultant to be good for all concerned. It forces everyone to define the relationship in no uncertain terms and what it will look like. It can and must be a win-win.
I also see this being demanded more and more by clients from agencies that perform marketing services.