Performance-Based Pricing in a Billable Hours Industry

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.

Great Thread, and a great read.

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 ...

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

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

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. :)

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.

Totally, totally agree.

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!

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

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.

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.

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"?  

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.