Gini Dietrich

Performance-Based Pricing in a Billable Hours Industry

By: Gini Dietrich | September 4, 2012 | 
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A few weeks ago, I met a really interesting business owner.

He has built a company that does more than marketing communications. They also do packaging and point-of-purchase and sales.

A full-on marketing firm that also does something pretty fascinating: Performance-based pricing.

Of course, I was a little skeptical (and very curious) to hear this. After all, when people in our industry charge for performance, it typically means they get paid based on number of impressions, which are totally easy to game.

Put something on BusinessWire and watch the impressions come in. You don’t have to do any work and the perception is it’s been picked up all over the place, including USA Today and Yahoo!

Of course, if you go to those sites (or pick up the paper), you never find the story because it’s buried deep in some spot people don’t actually read, but to an unsuspecting business owner, it looks like you’re doing your job…and they’re more than happy to pay the bill.

What doesn’t happen, though, is the phone doesn’t ring. There isn’t the publicity effect we perceive will happen when we’re all over the news. No one comes in or calls or visits or buys.

So the performance-based pricing sits very poorly with the organization’s leaders because, while it looks like the job was done, they were focused on the wrong things.

Teen Titan

I was reminded of the conversation I had with this business owner about performance-based pricing (and how they do it ethically) when I read “Teen Titan” in the September 3 issue of The New Yorker.

The story is about Scooter Braun, the manager of Justin Beiber, Carly Rae Jepsen, and others, and how he built a teen star out of nothing.

It’s a pretty interesting article; one I recommend you read even if you’re not interested in performance-based pricing because it’s also one of entrepreneurship, the school of hard knocks, and the American dream.

In the article, it describes how Braun discovered Beiber on YouTube, convinced his mom to move Justin to Atlanta (where he paid for their home, furniture, and other expenses) in order to begin to build his following on YouTube and the, eventually, get him in front of music executives.

It also describes how Braun is bringing new talent into a dying industry…or one he describes as changing through licensing, merchandising, and digital sales.

Sound familiar?

What I found most interesting about Braun’s story is how he gets paid. He takes a standard management fee of 15 to 20 percent, but he also takes a cut of all revenues, including ticket sales and merchandising.

Performance-Based Pricing

For the past couple of years, we have been meticulous in working with our clients to deliver results that drive real business success.

Many of you have probably heard me say we drive to one of three things (or a combination of them): Increased revenues, improved margins, or a shortened sales cycle.

For one client last year, we generated $2.2 million in new revenue…and our annual budget was unchanged this year.

So I’ve been thinking a lot about performance-based pricing or taking a cue from the music industry.

What if we were able to get a cut of the revenues we create on behalf of clients?

Of course, there are a lot of variables, but I think it can be done. Not only does this potentially make us more money, it creates a true partnership with our clients. We’re taking risk. We’re putting skin in the game. And, if successful, we win with them.

What do you think? Can it be done in an industry that is notorious for billable hours and retainers?

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, an integrated marketing communications firm. She is the author of Spin Sucks, co-author of Marketing in the Round, and co-host of Inside PR. She also is the lead blogger at Spin Sucks and is the founder of Spin Sucks Pro.

  • In many respects we believe we must move to a performance based model where we price based on value added. @wearepragency has been researching and experimenting with several models.
     
    Best,
    Sanna

    •  @WeArePR  We’ve been doing the same…with the clients who are willing to try. We’ve also found you have to be very clear about the things they have to do in order for it to work. Sometimes you get into working with a business before you find out some things they didn’t tell you in the beginning. Those instances are hard.

  • When prospects have asked us to put “skin in the game” it’s always been some kind of fee holdback to be “rewarded” if the the goals were met. I’d be skeptical if companies would be willing to part with multi percentage, show business-type payout.  It’s an interesting question nonetheless. 

  • When prospects have asked us to put “skin in the game” it’s always been some kind of fee holdback to be “rewarded” if the the goals were met. I’d be skeptical if companies would be willing to part with multi percentage, show business-type payout.  It’s an interesting question nonetheless. 

    •  @BobReed That’s been our experience, as well. So we’re experimenting with a new idea to see if that’ll work. My biggest issue has been not getting paid UNTIL goals are met, which can’t be done because you can’t make your team without something. So we *think* we’ve figured out a way around that.

      •  @ginidietrich If you have, I’d pay money to learn about it.
         

        •  @BobReed It’ll be a 2013 thing…but I’m happy to share what we’re doing!

  • Impressions? Is that like when I ask you ‘Hey Gini, what do you think of Howie HouseMusic ?’ And then I ask 10 more people and put the results on a graph? Then you say, ‘we got 10 impressions, but some of them weren’t so good.’ …..doh………
     
    Performance based, why not? If you believe in what you are doing will generate quantifiable results then by all means you should get a piece of it. In fact, take a lower % up front if you are that sure of what you will be able to do for your customer. 
     
    Our larger accounts are on a fee for services basis. We have benchmarks that need to be achieved to justify our fee. That way, you are not getting paid on the cyclical nature of the insurance industry pricing, but on what you actually do. 
     
    See, I can be serious…………..kind of…………

    •  @bdorman264  That’s what we’re thinking – we still get paid for the work, but it’s for actual costs. If we achieve goals, that’s when we make our profit, but it’s based on how much we generate, not on a margin we created for our business. 
       
      (Does the blog post still look funky?)

      •  @ginidietrich  @bdorman264 looks better now.

      •  @ginidietrich  @bdorman264 That’s an interesting model and one we have not looked at. One key for all of this is having the metrics and be able to operationalize/objectiify the results.

        •  @WeArePR  Yes! There is a lot that goes into it, but it the work is focused on results, instead of activity, it’s doable. 

      •  @ginidietrich All good now….

      • rdopping

         @ginidietrich  @bdorman264 as long as you are ok losing because it could happen. I agree with the concept because it gives the consultant accountability. Do a good job, reap the benefits.
         
        It’s impossible to implement in the Architecture field as performance is not a viable measurement other than “on time & on budget” and there are too many other factors (like contractors) that “influence” the outcome. 
         
        What’s the timing on the performance metrics though. Do you have to wait 6 months before you get paid in order for the results to prove the benefits?
         
        The blog is totally fun…..ky.

  • I guess my biggest question on this is: what about when the client doesn’t hold up there end of the bargain. With me, I can educate them, I can help set them up, i can work with them on a daily basis…but if they don’t execute and do what I ask them to do, it’s a problem, and they won’t see the results I tell them they will see. Kind of relates to my  post from today as well.

    •  @KenMueller I think there is a clause in the contract that says, “If you don’t do X, Y, and Z your cost is A” which covers your profit. But if they do A, B, and C and allow you to be successful their cost is something different. I have it all lined out on paper in front of me. You have to be really meticulous about what you’re measuring and what the client is doing from their end. 

      • FollowtheLawyer

         @ginidietrich  @KenMueller How will you sell this to your clients?

  • I’ve seen this performance-based model take hold with a regional PR agency who holds an event contract with a local municipality. As part of their rider, they take 18% for any event that exceeds projections by a given percentage. 

    •  @jasonkonopinski  And it makes sense for events because they’re more controllable. I’m talking about taking that model and expanding it to every day business.

      •  @ginidietrich Yeah – it definitely makes sense for events. I’ll need to dig into it a bit deeper to see how that can apply to an agency building big campaigns and designing ads. Interesting question for sure. 

  • This is a really interesting question. As the unknowing business owner, I’ve been courted by PR agencies who make grand promises but share the fine print that they are not truly accountable for any results. This is unsettling. I’ve also been courted by the impression-counting types, and after doing about 10 minutes of research, realized it was a game that didn’t actually lead to results, either. PR is hard. I’m savvier than some when it comes to getting my word out, I can write, plus I love social media, so this all adds up. But I still need help. It’s hard to find the right mix. 
    Several years ago, I decided to not charge by the hour anymore. I do this based on value-based pricing. It is essentially a retainer or project fee model, but part of why I did that was because I didn’t like the feeling of tracking my time. There are times I just really get INTO the research I’m doing. I can’t stop myself until I’ve gone down every rabbit hole. This is not great for clients if I charge by the hour, but we are both happy if it’s a project fee. 
    Pricing is emotional, which I think a lot of service providers overlook. What a customer pays (and how they’re asked to pay) is part of the equation in which they judge the value.
    I can’t wait to see where this goes, and love how transparent you’re being about it!

    •  @jeanniecw We stopped billing by the hour too (many years ago), BUT I still have everyone track their time so I know how much to charge for particular things. For instance, I know exactly how much a marketing plan costs. Some of my team goes way above that (which means they need more mentoring and coaching from me) and some hit it right on. I’m going for the “right on.” But if too many exceed the number, it’s time to look at what we’re delivering vs how much time is being spent. Are we overservicing or is it really costing that much now? It allows me to price things appropriately. And what it also does is allows me to look at the numbers and say, “OK. A marketing plan costs this and we know the client has to do X, Y, and Z to be successful.” It takes the emotion out of the deal and supports it solely on numbers.

      •  @ginidietrich That’s smart. I think the emotional side of the customer perspective is something to track, too. Do they think they’re getting the most value? Is there pushback? But if you share the revenue, then that sort of takes care of itself, too, because, as you say, there is a shared risk. 

    •  @jeanniecw Although I’m not “in PR”, as a business coach/consultant, I HATE the concept of billing by the hour. I say: I’m not a taxi cab. I don’t bill by the minute/hour. You pay for value, not time.I resisted posting prices on my blog for ages, and I’m still not happy with it, because I prefer to structure each working relationship on the needs and wants of the client, and come to a mutually agreeable arrangement, both in terms of results and price. After all, the money should come as a result of achieving results! Cheers! Kaarina

      •  @KDillabough  Apologize for being off-topic Kaarina. My copy of E-Myth Revisited just arrived. (That was you who suggested it, right?) 

        •  @barrettrossie Yes! Once you’ve read it, let’s compare notes and maybe do a collaborative blog post on it? We could do a he said/she said analysis, with our own recommendations. What do you think? You can email me and we can chat, if you’re interested in the idea. But first…enjoy the book!

  • DavidOates

    Take a look at us. We’ve been doing it for six years. http://www.stalwartcom.com. We’ve also got another site to promote the idea to other PR firms http://payonperformance.com

    •  @DavidOates Looks interesting…the first case study about bringing in $450K from the walk is the stuff I”m talking about. Did you get paid based on that number? Or just a fraction of it because there were other things that went into it that you weren’t in charge of handling?

      • DavidOates

         @ginidietrich We got paid by the press coverage, but tracked the results from it. In some cases, we will offer to take our fee on donations received but that’s if we run the entire campaign soup to nuts. We can also lower the press coverage fees and spread the monies across other things like increased web traffic, social media followers, attendees at an event and so forth. Bottom line – we look to be paid by a measurable result and not a factor of time. It’s a business model that I’m convinced will be the dominant standard for PR and marketing firms within the next decade.

        •  @DavidOates Ah ha! That’s actually how we get paid now too (but we don’t do much publicity anymore unless it’s part of a bigger campaign). What I’m talking about is getting paid on revenues generated through an integrated campaign. Or on margins that you were able to improve. 

  • Thanks for the great piece and the link to the New Yorker article – great thought starter.  Congrats on the intention to be transformative for your clients by developing a shared compensation model.  
     
    A thought – I have been doing some work on how organizations build break through teams and a major component of that is working out their own internal shared success business model with the parent organization.  By virtue of their “intrepenuerial” need that is the point where your value stream would be built into the model.  When those teams come to market, traditionally they need something new and fresh, and you will find receptive soil for planting your services.  
     
    Looking forward to seeing more on the evolution of your work.

    •  @scottpropp Love this, Scott! I haven’t been doing the same work as you, but I have been very focused on leading my own team toward goals (vs. activities) and it’s not only working, it’s exceeding everything I thought would happen. That’s why I think now is the time to consider how we work with clients. Do we want to just do the job or do we want to help them transform their organizations?

  • It’s an interesting concept and I still toy with how to perfect it. Although I have to admit being paid by the month is far more simple. Having agreed to pay-by-performance a few times in the past, what I’ve learned is that you have to be ridiculously clear in your contract about what constitutes “performance,” because a client can later say, “Well, we made X amount of sales but that was really due to something we did rather than what you did.” Or some actually think pay-by-performance means they don’t pay anything at all until they see results. Not true. The other issue I wrestle with is the factors that they influence in the overall performance that may be out of my control, such as if they have lackluster Salespeople or poor Customer Service. So hypothetically speaking I could be delivering a superior brand strategy and content marketing initiative but their company fails to close the loop of the sale or increased loyalty. What about in that instance?Again, keeping an open mind to utilizing it but I want it to be buttoned up as tight as can be before I do.

    • DavidOates

       @Dan Gershenson Dan, good points, and it absolutely must be spelled out before engaging. But doing so shows the difference between a PR flack and trusted business advisor, to which I hope all of us in the Marketing and PR field strive to be.

    •  @Dan Gershenson I agree with you, Dan. That’s why I think it has to be with existing clients or prospects where you already have a relationship (former clients/colleagues). Of our current client roster, I’d only offer it to three of them. I don’t think this is a one size fits all and I certainly don’t think it’s for a start-up looking for some freebies while they get going.

  • MikeSchaffer

    Points for using Justin Bieber in a non-link baiting way 🙂
     
    We’ve actually dabbled in that game with clients over the past few years. You are basically asking them to give you an ownership stake in the company, which is, on paper, a great thing.
     
    If you, as a PR person, are financially motivated by the financial success of a client, it SHOULD make sense.
     
    But in my experience, the clients that are willing to agree to such an arrangement are the riskiest ones. They generally don’t have the capital to pay a project fee or retainer, let alone billable hours, which is what makes the pay-for-performance option attractive to them.
     
    When work is in the shop, it’s harder to prioritize those clients, too. Are you more likely to invest time in a guaranteed $10,000 retainer or a profit share that COULD get to that number if the audience buys the product you are promoting?
     
    Where it does make sense is in letting junior staffers “own” the account with senior guidance. They can cut their teeth on a worthwhile endeavor without jeopardizing planned income.

    •  @MikeSchaffer Solid point. It’s one thing to talk about pay-by-performance as an option among others both parties might consider. It’s quite another when a prospect is offering it because it’s their only feasible financial option. Accept those at your own risk.

    • DavidOates

       @MikeSchaffer Good points. Performance-based PR firms like ours need to pick our clients carefully to make sure they are ones in which we firmly believe we can drive results. For every client we take on, we usually turn down two.

      •  @DavidOates  @MikeSchaffer This is another but related point – You need to select your clients carefully always whether you use value based pricing or the old hourly system.

        • DavidOates

           @WeArePR  @MikeSchaffer Yep!

    •  @MikeSchaffer Ha! I didn’t even think about Beiber being link bait. I should have used him in the title! 
       
      Your experience has been mine as well. That’s why I don’t think we’d do it with just anyone…and we’d do the inviting, not the other way around. I also think it has to be with an existing client because there are way too many variables that you don’t know about/learn until after you begin working with an organization. But, if you use my example in the blog post, we could have made some serious money with that one client if we’d done it with them…and they already treat us like a partner.

  • JodiEchakowitz

    Gini, I’m very interested to see where the conversation goes on this topic. We had a company approach us that wanted to use what they called performance based pricing, but in essence, they wanted to pay us a fraction of what we felt a particular project should cost, and then pay the balance if we reached a set target in terms of the number of interviews set up with mainstream business media/dailies. I declined the opportunity because I didn’t think we were being compensated fairly. Working at a huge discount with the ability to then bring the fee in line with what it should be based on tactical (and not business oriented) results achieved from the PR campaign was just not something I was prepared to consider. I do however think that what you are proposing could actually make for an interesting model. It’s more strategic, and shows the potential for a true client partnership.

    •  @JodiEchakowitz That’s been my experience, as well, and the reason I’ve shied away from billing this way. But I think there is an opportunity, with those clients who truly treat you as a partner, to do something really progressive. Let’s say we got a “standard management fee” as the music industry does on the client I mention in the blog post. We would have made significantly more (as in five times more) if we’d done performance-based pricing.

  • Now, we are in a different industry, but we get asked this a lot! And, we always decline! See for us, we do the programming, not the design, not the content, etc. The site we program will work as outlined in the specifications, and if doesnt we fix our mistakes.  We feel that the performance of the company is based on the company.
     
    As others mentioned below, those that ask this always seem the riskiest, and make us wonder if they actually have the funds.  If we end up working with them anyway, it seems they are always the ones we have payment issues with – so maybe our gut was right! 

    •  @sydcon_mktg But here’s the thing…we wouldn’t do it for those that ask for the reasons you and others raise below. The ones who ask rarely have the budget so, even if we did exceed goals, they probably still wouldn’t pay. We’d be selective about it and we’d offer it only to a few.

  • jacobstoller

    I think the stipulations should be that a) the onus is on the client to define what constitutes performance, and how that will be measured and reported and b) that the provider, in considering of investing in the client’s business, gets a decent return, making this a fairly expensive option.  This will separate the serious believers in pay for performance from the pretenders who are looking for a fee break.
     
     

    •  @jacobstoller Totally agree again. I would never do it with a client (or prospect) that was looking for “free” work until they get going and generating revenue. We have start-ups ask us all the time and it’s just not worth the risk. I looked at a prospectus a few weeks ago where the executive team was predicting a 1,000% jump in revenues their first year. I would never take the risk on that type of company because even I know that’s too aggressive.

  • I go back and forth about this. It sounds great but there are an awful lot of variables that impact things. It reminds me of when I sold online ad space and my clients wanted to pay based upon performance.
     
    It put almost all of the power in the client’s hands. They were tracking all of the post click activity. I had no control over their sales force so I might provide 100 qualified leads and have none of them convert because they had bad sales people.
     
    Sometimes the numbers would show a discrepancy between how many people we sent and how many they said they received. It was never in our favor.
     
    Perhaps that was always correct and they were always honest, but what if they weren’t or what happened if they were sloppy book keepers.
     
    What about the time factor. What happens when someone learns about the client in December but doesn’t choose to sign up to purchase their product/service for another six months or more. They learned about the company because of your efforts but you don’t get credit.
     
    Sometimes it drove me nuts because I could bust my ass and know that I did a great job but it just didn’t matter and I earned bubkis for it.
     
    Our time is worth something.
     
     

    • DavidOates

       @thejoshuawilner Time is cheap if it doesn’t product results.

      •  @DavidOates That is not really an answer.

        • DavidOates

           @thejoshuawilner Why?

        •  @DavidOates Because it doesn’t address any of the points listed.
          Accountability cannot be held solely by one side it has to be addressed by both parties.
           

        • DavidOates

           @thejoshuawilner Agree with you there. It’s why we do as much due diligence on our prospects as they’re doing on us. For every one we take on, we decline two.

    •  @thejoshuawilner I think it has to be an existing client and it has to be a client that already trusts you to do your job. The client I mention in the blog post is a perfect example of this. They trust us, take our recommendations, and follow our advice. And we’ll generate close to $4MM in new business for them this year. Why wouldn’t I want to take the risk of charging them less in retainer in order to get a piece of that?

      •  @ginidietrich  I have a friend who had the opportunity to do work for a client based upon a flat rate or a portion of the proceeds.
        The first time they worked together that portion of the proceeds would have come from several million dollars but since they were new he opted for the flat rate.
        Had he gone for the percentage the gross on that one account would have accounted for 90% of everything he brought in the entire year.
         
        Second time around he figures he is not going to miss out on an opportunity so he opts for percentage. He works like a dog an goes nuts providing extra services but things don’t work out the same way.
         
        Why?
         
        A change of personnel on the client side meant that someone didn’t pay attention to the leads and business that came from his work so when it came time to pay they ended up fighting about how much he really deserved.
         
        So I agree with you about the potential upside and the need to work with a client you know well, but I also think if you don’t have all responsibilities mapped out…

  • Thought-provoking post, Gini. Questions it raises (among others) 1) How much risk will the agency take? What if its advice is followed but the results aren’t there? How much does the agency get paid, if anything; 2) Clients are so involved in success. When they change/weaken the agency’s “work product” before it’s released, as happens to many agencies, this can reduce impact and results. Are agencies willing to risk this? Or in this kind of approach, is it “We’ll take the risk if you implement exactly what we recommend.  If it doesn’t pan out as we predict, we’ll take a lot less compensation.”  But are clients really willing to “let go”?  

    •  @KensViews This is the way I’m looking at it: We get paid what I would call our expenses. So I have to know exactly how much it’s going to cost to do something. But we don’t make any money unless we achieve results for the client, which are agreed upon after a trial period (maybe it’s 90 days, maybe it’s a year) where we do the research, we develop the strategy, and we outline the plan. There also are benchmarks every week and every month that are agreed upon. If we’re not reaching benchmarks, it’s either because we did something wrong in the analysis and research or the client isn’t cooperating. The contract could be written in a way that, if it’s the latter, we get what we would have charged without a percentage of the revenues created. Like I said to Jacob above, it may only work with existing clients.

      •  @ginidietrich  @KensViews Couldn’t you have just picked an easier line of work? LIke, rocket science or something? 

        •  @barrettrossie  @ginidietrich  I actually left the practice of agency PR to become a consultant and trainer to PR firms. Many are dealing with the issue Gini outlined here. Few have found the magic sauce to make it work, at least yet. They know the problem: that by  billing merely by hours, they’re not getting full credit for the impact that they have on their clients’ business. It”s determining the balance between appropriate risk and reward that’s so tough to figure out.

        •  @barrettrossie  Just subscribed to your blog via email, Barett.

        •  @KensViews Thanks Ken! 

        •  @KensViews Thanks Ken… and I just did the same! 

  • Very hard for marketing/pr/advertising to connect cause and affect. I can see being paid based on leads generated then converted that can be clearly linked to the work one does. This is the problem for many businesses.
     
    If I go into a store and buy something was it an impulse buy? Did I see from a Sunday circular? Did I research online? Did my friend tell me about it? But if one group is in charge of all that they don’t care because they get credit for the sales. And this is easier for a small business than a big one because big ones need various inputs.
     
    On that note Coke and a few big brands have been trying to force pay for performance on the major ad agencies and media buyers. Starcom MediaVest has also been trying to push this on the media outlets they buy media from. It gets really messy. Why did the effort fail? Crappy product? Poor price points? Bad creative? Bad media buy? Bad media planning? Better competition? Why did it succeed? everyone wants credit.

    •  @HowieG The Martin Agency thrives on performance for their ads for Geico and FreeCreditReport.com. I’m not sure how it affects their compensation. But the direct response nature of the work gives them tons of cred with their clients and in new business pitches. 

    •  @HowieG I think the difference is you’re talking consumer and I’m talking B2B. It’s MUCH easier for me to cause someone to buy from marketing because I know where the customer came from, I know what got them there, and I know how much they bought. For a consumer business, your point is on target.

      •  @ginidietrich  @HowieG Agree absolutely on B2B. Howie brought up Coke and other big brands, so my point is REALLY on target. 😉   
         
        Overall, I’d like to get paid a project fee based on the factors you (Gini) mentioned elsewhere, and a bonus for meeting or surpassing clearly established goals. (I’m just thinking out loud here, and I have NO experience in this area.) 

        •  @barrettrossie  @ginidietrich Hey Barrett funny you bring up Geico. Their marketing is brilliant. Everyone knows give me 15 minutes I can save you 15% on car insurance. They pay for that with massive media buy to go with the creative side. I use them as an example (with say cheap beer commercials like Budweiser spots) that if I find funny I will watch over and over yet not spend a dime.
           
          But Geico is not an impulse buy and they just want you calling when it is time to re-up or you get a new car. What I always found curious is zero mention of if Geico sucks handling claims. Usually low cost providers give you service to match. They have to in order to keep their prices low.

      •  @ginidietrich I agree. It is also why usually the biggest force for B2B is the sales team. My last sales gig there was no more than a handful of companies that could use my service in every major city. Maybe 100 in the western third of the US with really only 50 to be focused on.
         
        BUT marketing did try helping. They paid for lead generation. And where I think an A-D would of excelled is improving lead quality. Ours sucked. For every 50 leads one would be reasonable quality. And often it was hard for me to penetrate companies that might have 2000 workers on site and I have about 20 I have to reach through security (sometimes military security). Yet one good lead via A-D could reap 100K’s and 1mil+ programs per year.

        •  @HowieG We’re actually going through this with a client right now. They’re spending a lot of money advertising in buyer’s guides because it looks like they’re getting a lot of leads from them. But, as we began to dissect those leads, we discovered only 25 (out of thousands) were warm leads and only one was a real lead. One. The ROI on that is terrible so we’re reevaluating where they put their money in 2013.

  • jacobstoller

    I think we need to make a distinction between “performance based” and “results based”.  I can do a great job for my client, but because the company didn’t execute effectively, or had problems in their customer base, the results may be lacking.  If results, for which we have limited control, are the metric, this is really about a co-investment.

    •  @jacobstoller Totally agree with you. That’s why I think it has to be for existing clients where you’re already doing great work. I don’t think I’d do it for a new client because there are too many variables – what if our day-to-day person leaves or what if the CEO decides to spend the profit on a Ferrari (that actually happened to us and we were held to profitability goals). So you really have to be part of the business, every day, to make it work.

      • jacobstoller

         @ginidietrich If you have effectively co-invested in your client’s results, you are, to some degree, a stakeholder in your client’s business.  The guy (I’m assuming a gal would never do this!) who bought the Ferrari was, in principle, a violation of his fiduciary obligations to you.  (I assume you can’t sue him, though.) The term “pay for performance” was, in this case, a euphemism that served his purposes.  So…..maybe we should be careful about using that phrase.

  • Lisa Larranaga

    Very thought-provoking and a great topic for discussion for the industry as a whole. I received a release from Ginny Grimsley/Penny Carnathan in August that discussed this same idea and outlined a “grid” system: “[We] set prices according to the placements EMSI obtained. For instance, when the agency got a client mentioned in a newspaper, he paid based on variables such as the paper’s size and the extent of the mention.”
     
    This started to pose a problem, as some clients didn’t have the budget to support their placements, so it seems like your option would leave less room for client frustration. 
     
    Out of curiosity, would lead tracking be an issue? Would you only count revenue that could be tracked back to you (a mention or a link from a release that leads to a sale) or would all revenue during a certain time-period be counted toward the percentage your company receives?
     
    We shared this article with our clients as it is something that needs to be discussed and they need to be aware of. Thank you for sharing 🙂 We look forward to seeing where this leads you!
     
    Best,
    Lisa

    •  @Lisa Larranaga We don’t do any media relations (or, if we do, it’s very rare and only part of a bigger campaign) so ours is less about stories/ink and more about real results. For instance, the client I mention in the blog post, we do PPC, SEO, email marketing, content, advertising, a bit of trade media relations, video, and trade shows. We know exactly which part of the campaign was the first touch, which part created the need, and which part sold. Their revenues are in the hundreds of millions so our measly $2.2MM is nothing, compared to what their sales teams are doing, but it’s more than paying for us and providing an opportunity that the sales guys never have to make cold calls. We’re very good at tracking results, from this perspective, and I think it’d be interesting to get a piece of what we help them achieve (it looks like we may double it this year).

      • Lisa Larranaga

         @ginidietrich  Hi there, Gini! It does seem like it would be much easier to track if you can attribute “real results,” and especially if tracking results is simple. And give yourself a big pat on the back – $2.2MM is still something to write home about! 🙂 I look forward to seeing where you take this in 2013 and beyond.
         
        Best,
        Lisa

        •  @Lisa Larranaga I certainly haven’t figured it all out yet (which is why I blogged about it  – all of you are great to brainstorm with!), but I’ll definitely blog about how it’s going.

      • Keena Lykins

         @ginidietrich  @Lisa Larranaga I’ve been trying to figure out for years how to tie marketing communications and PR to the bottom line, and while it can be done, I’ve yet to have a client willing to tie the whole spectrum together, as yours have, or be willing to pay for the research to ID the touch points that yield results. Frankly, I think for many, it would be cheaper to keep going as we are than re-align their structure or pay for research.

        •  @Keena Lykins  @ginidietrich  @Lisa Larranaga in my comment I mentioned business size (need to follow up and make sure) it is easier if you aren’t one of many agencies all working towards a common goal.
           
          But I would bet in Gini’s case study she has buy in from the top. I never was a believer in selling to silo heads. Vs company heads. I would rather get buy in from the CEO than the CMO or VP of Sales. The main reasons are vision and patience. In a healthy company the CEO will have both so your strategy can be given proper time to pay off. And from the top there would be less fighting for recognition and more support for the bottom line.

        •  @Keena Lykins Unfortunately, I agree with you. It probably is cheaper to stay the same than change…at least in the short term. I don’t see this working for every client. But I do think it can work for some that already treat you like a partner in their business.

        •  @HowieG  @Keena Lykins  Oh yeah…we have only one client where we don’t have at least weekly contact with the CEO. It’s part of our business model.

        •  @ginidietrich  That’s  @Danny Brown , isn’t it?  (I didn’t want to announce this publicly, but he’s asked that all communications between you filter through me)

  • Hell yeah it can be done… It’s done in many financial service fields. Heck, it’s how I get paid, but only a fraction of the revenue comes my way (but hey, I don’t own any of the risk they say). How sweet would it be to build-in a revenue stream from work you’ve already performed? That’s marketing in sphere, Gini!

    •  @SociallyGenius The difference is, though, you have a “product.” We don’t have  a product, which is why this is so progressive for most. It certainly isn’t what the big agencies are doing, by any stretch of the imagination.

      • @ginidietrich well maybe you should stretch the imagination and be a trendsetter… After all, Augusta let two women into the Masters club. If they can change, anyone can! And, I also think that people are products. I mean you are what a communications pro looks like, after all!

  • rustyspeidel

    Totally, totally agree.

  • rustyspeidel

    I think, like the music biz model, it takes a base fee plus points for measurable contributions to revenue. Discount the base to put skin in, but take an upside.

    •  @rustyspeidel That’s exactly what I’m thinking, too.

  • It’s something I wrote about back in 2008:
     
    http://dannybrown.me/2008/11/25/drop-the-retainer-if-you-want-to-retain/
     
    It does seem that the retainer-based model is coming to an end (or needs to). After all, where’s the hunger to succeed if you’re being paid regardless of results? That’s a scenario for shady agencies and businesses to thrive in.
     
    Though i will say, you guys are worth every penny. 🙂

    •  @Danny Brown The problem is, particularly with us, not every client would be willing to do this…and I also don’t think it’s the right model for every organization. But I do think there is something here. I may have you think it through some more with me.

      •  @ginidietrich You bring the wine, I’ll being the glasses and moleskin.

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  • ginidietrich

    @ericamallison I certainly don’t have all the answers yet…but we’re working on it!

    • ericamallison

      @ginidietrich Of this, I have no doubt!

  • Great topic Gini, and great comments below. My appreciation to all. 

  • JCMorganKreidel

    Fascinating conversation overall.  Like others, I’d say there’s definitely opportunity.  And isn’t that what we’re all looking for: NEW opportunity.  I think I find it easier to accept it, as a theory, because I’m in government contracting — very often we see solicitations where a incentivized fee is add to reward performance.  Usually has more to do with delivering early or under budget, but they’re out there.  Still, I understand why you, Gini, might have hesitation and I don’t disagree.  Because so many others out there are just in it to make a buck, the rest of us still may avoid some opportunities if only to avoid being painted with the same charlatan brush.  It’s good to be cautious, it’s even good to turn down things to protect what’s most important — your credibility.  Good blog — you’ve given me something to ruminate over …

    •  @JCMorganKreidel And I think your point about new opportunities is a good one. I don’t know that you can make it work with new opportunities. I think you have to already have a good working knowledge before you can find ways to make something like this really be effective.

  • Great Thread, and a great read.

  • Sandy Malloy

    Great post!  As part of Business Wire’s measurement team I should thank you for mentioning us (though if I were scoring sentiment…..<smile>)    I’m offering my own personal opinion here (not speaking for Business Wire) and  I have to agree with Dan Gershenson that to make this work you have to be crystal clear about what constitutes “performance.”   I’d be the first to say that even noting the # of viewers of press releases, while a much better measure than impressions or placements, is only part of a communicator’s or marketer’s total strategy.   As far as compensation goes, though, I feel that if creating press releases or writing advertising copy or producing any other “outputs” are part of the job you are doing for your client, I would want to be directly compensated for those duties.  That fee can be hourly or flat.
     
    Beyond that, I believe it is perfectly legitimate to negotiate a contract with your client that spells out achievable, measurable goals tied to business objectives and what you expect to get paid for achieving or surpassing those goals.  As many others have said, you’d also need to incorporate specifics of what the client is expected to do.
     
    Of course, the hardest part is all the measurement that needs to be done to figure out the portion of the clients’s success for which you’re responsible.   Probably one reason some practitioners will do something easier.

    •  @Sandy Malloy Ha! Sorry Sandy…I didn’t mean it as an affront to BusinessWire. We’re customers – we love you guys! I only meant it as an example of how shoddy PR “pros” use the stories that get picked up from your service and count that as all the hard work they did. Unsuspecting clients don’t know that stuff is automated so it’s not really fair to get paid for “results” based on that.

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