Pay for performance: another scary urban legend
Remember when you were a kid and were told about the boogey man, or any of the other urban legend stories that incited fear the first time you heard them? When you got older, you realized that the boogey man wasn’t scary after all. You started to understand that urban legends were just stories and that once you applied logic and looked a little deeper, being afraid seemed a bit silly. Pay for performance is a lot like that.
For years marketing agencies have heard about pay for performance, that scary monster that wants to devour your revenues and make your business suffer. While marketers have heard about the fairy tale pay for performance that magically brings greater ROI and makes bottom lines more attractive, the fact is that the story can be both scary and happy, depending on your perception.
When thinking of pay for performance, it would be wise to appreciate both sides of the story to get a full view of what is involved. The only way this works is if there is understanding from both points of view. Then it can truly become a win-win situation.
First let’s look at the marketer’s side of things. When executing a marketing plan for any product or service, the marketer has to plan their marketing budget according to what channels they will use to try and meet their overall goals and objectives. Marketing has traditionally been an upfront cost with no guarantees. Marketing agencies propose an overall strategy and budget, often paid on a monthly retainer schedule, and are paid regardless of the ultimate outcomes. It’s like gambling. I reference how all marketing is a gamble in my previous article “Are the majority of marketers poker players?” These days, marketers are faced with a more demanding leadership and tighter marketing budgets, so they are always looking for analytics and increased ROI to justify their marketing spend. Paying marketing agencies can be frustrating to a marketer because they have a set cost and seem to have no skin in the game when it comes to the success of the marketing campaign.
Pay for performance can seem like a fairy tale to marketers. Finally, a way to ensure that they are only paying for successful outcomes to their marketing investment. A way to ensure that the marketing agencies have skin in the game: Knowing that marketing agencies are fighting as hard as they can, employing analytics wherever possible, to make optimal adjustments for the success of the marketing campaign. After all, if certain methods don’t reach the goals and objectives that were set, marketers simply don’t have to pay.
{{cta('c4ae2dc8-ca3e-4dba-9bc0-f88c88d57009')}}Now let’s take a look at the marketing agency’s point of view. When executing a marketing plan for marketers, there is a considerable amount of effort and work that must be completed up front to establish the marketing strategy and execution of the plan. Many times a greater portion of the agency’s cost is on the front end of the marketing campaign. Often marketers are set on particular channels and are not amicable to making changes based on recommendations from the agency. Various other elements that can have a great effect on the marketing success are often out of the agency’s control. Many times agencies are not authorized to access critical pieces of information that can be useful in making changes or adjustments to campaigns.
Pay for performance can seem like a scary nightmare for agencies: No pay for all of the work and services that have already been completed unless they are successful and reach the goals and objectives that were set for the campaign. You may have to float the costs for a year or more. Marketers will decide to stick to their plan even though analytics and data suggest changes should be made. Aspects that are completely out of the agency’s control will affect the success of the marketing execution. Agencies will be provided information on an as-needed basis when it suits the marketer.
No matter which side of the story you relate more to, these pay for performance models are doubtlessly on everyone's radar, and their establishment depends on how much risk marketing agencies are willing to shoulder. They're also a work in progress for marketers. For all the talk about these structures, they have not been broadly adopted. A 2010 study by the Association of National Advertisers found that pay for performance accounted for less than 1% of compensation agreements. Reporting on the study, Ad Age said that performance incentives had dropped slightly but that fee-based models (which during the 1990s replaced commissions as the main compensation method) had soared to an all-time high of 75% versus 63% in 2006 when the previous study was conducted.
One of the reasons pay for performance is becoming more accepted is the shift to digital marketing. The ability for agencies to employ analytics, measure effectiveness and make on-the-fly changes to optimize performance has allowed the pay for performance model to become more of a reality. While more agencies experiment with evolving pay models, most industry executives remain skeptical and believe a wholesale shift to pay for performance is a long way off.
One of the areas marketing agencies are leading the way in terms of pay for performance is content marketing. Insights offered with blog articles, ebooks, guides and various other aspects of content marketing can be easily measured and optimized for peak performance. Content marketing can be utilized to perform more like response marketing. Incorporating landing pages, PURLs, forms and opt-in email opportunities can help content marketing fuel outbound marketing efforts as well. Click here to learn more about how to optimize your content marketing strategy.
Whether you’re a marketer or a marketing agency, pay for performance is something that will be coming up in conversations more often.There are still challenges, especially when negotiating which terms and areas compensation will be based on. Pay for performance marketing is meant to be a winning position for all parties involved. By working together, pay for performance can become a pleasant reality for everyone. Look out for my next article on 4 easy steps to a pay for performance agreement.
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