How to put skin in the game without losing your shirt
Whether it's called pay-for-performance, outcome-based or something else, "putting your money where your mouth is" is not a new concept in the ad industry. But the recent announcement by Horizon Media that it was launching Big, a performance-based media agency, is an interesting development. It's fair to say that creative agencies such as Anomaly have been there and done that already. But that doesn't mean that media shops can't play follow-up. And we should.
Pay-for-performance is all about getting paid for good work and less (or not at all) for bad work. Quantifying the ability of an agency to meet specific client business goals requires careful consideration, especially at the onset of a relationship. But before offering up a clever "10-cents-for-
every-widget-sold" fee model, agencies need to do homework: They need to know how to control what they can and how to neutralize what they can't. Even if a shop is really, really good at selling widgets, diligence in the home stretch will go a long way.
Whatever your approach, consider the following to avoid getting in over your head:
Sweat the details
In a new engagement, there are often unknowns that can lead to rushed assumptions to get a deal done quickly. Assumptions have no place in performance-based compensation. Now is your best opportunity to go down the rabbit hole of scenarios to ensure your agreement is viable and worthwhile for both sides. Cover your butt and get paid. You'll be glad you did.
Fools rush in
It's nearly impossible to know exactly what you're dealing with until work begins in earnest. Unforeseen client-side barriers may exist that, through no fault of your own, inhibit you from reaching your goals. Suggest getting a solid six months of work in before agreeing to specific KPIs. It's a reasonable ask and could end up benefiting all parties.
Single source of truth
Agreeing to one measurement source or platform upfront is crucial to eliminating any performance ambiguity. Multi-touch attribution is a great method to identify marketing contribution to sales, for example, but be certain that there is universal buy-in from all client-side parties.
Also avoid linking your agency's value to metrics that are more directional in nature (brand health, footfall, etc.). There are many tools in our universe that can contribute to successful marketing work, but not all of them should dictate compensation.
Accidents of nature, and people
When crafting the small print, consider extreme factors outside of your control that would impact results (and compensation). Be excruciatingly clear in your contract about what happens if your client's CEO goes on a tasteless Twitter rant, for instance. Far less dramatic incidents happen all too regularly, and even the best marketing won't help a nasty PR situation. Consider agreeing upon a flat fee, or reverting back to hourly compensation should all hell break loose.
Don't apologize, differentiate
If for any reason there's simply too much risk or uncertainty for your business, it's OK to say "No thank you" to a request for creative compensation solutions. Sometimes potential clients just want to hear what you're willing to do and how confident you are doing it. Strong track records of successful work can be easily shown through client testimonials, case studies and other "we know what the hell we're doing" examples. Be proud and confident about what got you to the negotiation table in the first place.
The truth is that there's risk in every piece of business, no matter how much contractual preparation is conducted to avoid it. As soon as you win an account, you start to lose it, right? Despite all of the precautions listed above, sometimes big, fat, unadulterated confidence in your craft is the only way to go. Sometimes you just have to take your shot and hope for the best.
Whatever you do, just try not to work for free.
Ray Valcich is the general manager of Crossmedia's Philadelphia office