How marketing agencies can increase profits and keep clients happy using performance-based pricing.

1. Performance Based Marketing
John Courtney, Executive Chairman
Strategy Digital
© Strategy Digital 2014 1

2. Quantifying Marketing Services
Pricing is a powerful factor in your decision to buy:
it defines the relationship with your agency
assigns the level of risks and reward sharing
sets the level of incentive (or non-incentive)
pits you against other clients for attention
impacts your bottom line
…so how to get the right deal?
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3. Pricing Models
From various pricing models available across Digital Marketing services
depending on the type of services provided – within SEO, content
marketing & Social, the traditional and most prevalent one is FIXED
FEES.
In the following we’ll look at the merits & challenges of:
Fixed Fee
Performance
Based
Pricing
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4. Monthly Fixed Fee
Pro’s
Tailored to overall budget available
Straight-forward invoicing (both)
Straight-forward resource allocation
(agency)
No risk for agency
Challenges
Lack of incentive
Resource allocation fixed – no
incentive for over-servicing
Additional work = additional costs
Less flexibility to play with budgets
(e.g. seasonality)
Price comparison of services – instead
of performance evaluation
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5. Performance Driven Marketing
Or: Are you paying for bad ideas?
“The biggest problem with fees is that marketers end up paying
as much or more for bad ideas as good ones.”
Avi Dan, Avidan Strategies, Marketing Consultant
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6. Performance Driven Pricing:
Tying Compensation to Performance
Performance Driven Marketing is enabled through a remuneration
model that considers performance foremost of everything.
Performance-based pricing is linked to results that actually matter to
your business, be that increased traffic, sales, conversions or leads.
Therefore this model has traditionally been
used in PPC and Affiliate Marketing, but
Strategy Digital first coined the Pay-On-
Results (POR) model for its SEO services
back in 2006
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7. How Does It Work?
While performance driven pricing is not suitable for every business, it
can be highly tailored to suit your business model and objectives.
The pricing elements agreed between both parties are:
 Relevant success metric(s)
 Fee structure (percentage or cost per conversion)
 Agreeable baseline for performance element calculation
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8. eCommerce Sites
 The price element may be a percentage on extra sales generated –
based on a pre-agreed baselines.
 Baselines usually based on previous year, which allows to account
for seasonality.
 A cap or staggered percentage brackets may also be applied.
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9. Traffic Focus
 A brand looking to attract more visitors, would link fees to increased
high quality traffic.
 This could also be tied in with specific traffic sources – e.g. organic
traffic and/or referral traffic
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10. Lead Generation
 Where focus tends to be on lead generation, a set rate could be
applied per completed online form
 A baseline against the previous year could be set or a static monthly
target
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11. Performance Based Pricing
Pro’s
Agency invoice reflects income which
helps with client’s cash flow
Monetary incentive for agency to drive
results
No remuneration for non-effective
work
Greater flexibility in resource allocation
to suit actual requirements
Challenges
Invoice values will fluctuate (versus
set marketing budget)
Requirement of reliable data and set
up of correct tracking
Risk of external factors outside of
clients or agencies control
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12. Conclusion
Performance Driven Marketing may not always be a suitable solution
but the dialogue about it should be opened up as it can offer a great
and mutually beneficial alternative through:
 Wealth of data available within digital marketing
 Offers an incentive to drive the most effective campaigns
 Rewards great ideas and motivates your agency
 Allows greater flexibility through adaptable resources that are in line
with your business requirements
 Can help with cash flow and increase budgets as costs are linked to
income
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13. Any questions?
john@strategydigital.co.uk
@strategydigi
0845 838 0936
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