All right let’s start with the obvious, if I worked at a different agency I would get fired for even talking about this subject. Performance based comp has become a huge topic of debate in the industry. Let me quickly end that debate… it makes a hell of a lot of sense for both sides period. In my opinion it protects clients from hiring stupid or complacent agencies, and protects agencies from wasting their time with stupid clients. Let me try to give you some examples of what I mean. At Sapient we are simply manic about “client success” it’s in our language, we measure the hell out of it, it’s even tied to our bonuses. Why not get paid for it?
Here is some food for thought. Two years ago we managed to hit our client’s yearly customer acquisitions goals in just two and a half months. Literally by early March we were done for the year. I would attribute that success mostly to the agency’s ideas. A performance clause would have been nice.
This year again we helped raise over $14 Billion dollars in deposits for a leading financial services firm in less than six months. This one I would attribute partly to the offer, partly to a very media savvy client who was not afraid to take a chance, and lastly to our team who cranked out an unbelievable amount of work is such a short period of time. Clearly it would have been nice to partake in some of that bounty too.
In both of these cases we were on the phone with the client almost everyday (on big media days almost every hour) and the first words spoken on every call were “how are we doing?” “What are the results” – that’s a hell of a better lens to be aligned with than “I hope they like this creative as much as we do?” In these scenarios the client would be happy that the agency got a few extra bucks regardless of where the biggest contribution came from.
It’s a very different situation when things aren’t going so well, and here is where I hope to make my point that performance based compensation schemes drive all the right behaviors on both sided, and actually grease the wheels for client success.
A performance deal actually empowers the agency to be a true partner. It facilitates tough conversations that have to happen to change the course of the campaign. I now know better, but I can recall when in a previous life we would just throw our hands in the air and say “well if that’s what they want” when we knew it was not what they needed. It gives the agency a voice at the table, which is sorely needed. “your pricing is wrong” “the call center process is broken” etc. there are many factors outside of creative and media that can effect success.
One major pitfall that is avoided though performance compensation is Agency complacency, meaning that after banging their heads against the political walls on the client side, the agency just stops thinking and does exactly what they are told. This creates little value for the client and completely squashes any appetite to innovate at the agency.
I also protect good agencies from bad clients, and bad clients from themselves.
Not to long ago we were running a campaign (again an FS client) where they offered a competitive rate. The campaign was doing very well and then “the powers that be” decided to change the rate significantly for the worse. You can imagine what happened to the results, but the client insisted we come up with more compelling creative to get the numbers back up. The right thing to do would be to kill the campaign altogether and focus on other initiatives. Imagine if you had a gas station as a client who decided they would sell their fuel for $1.00 per gallon more than the station across the street. Not too bright right? Well when they realize no one is buying fuel from them anymore – they decide to spring for a bigger sign in hopes of better results. Imagine this scenario when you are being paid on performance. Many agencies say this is why performance comp cant work, I say nonsense it would drive the right behaviors. In this situation the agency would fell more compelled (and financially motivated) to help the client change tactics, if that failed they get the hell out of that account. Both- better outcomes.
Comments (4)
I couldn't agree with this more. I work on a team where we are aor for a cpg in a regulated industry. We have had the account for several years and we are in a performance arrangement. There are pitfalls, for example this year because of tax and regulatory pressure from the government they had to tighten their metrics and it affected our ability to perform in a major way but we have had 4-5 solid years out of this client and next year we will return to looser metrics. The truth is they hired us because they need help dealing with the fluctuating landscape of their industry and we rose to the challenge. Sure we took a hit along with them for a quarter or two but ultimately, when they were challenged we had skin in the game and we worked with them as a team to overcome it. Isn't that what an agency is supposed to do in the first place? Help the client with their marketing problems. So sure there is some risk but, I would say if you don't plan to do a good job and continually innovate, should you really be in the game?
Posted by sgt | November 7, 2007 3:40 PM
Posted on November 7, 2007 15:40
I like the idea of performance based comp being a piece of the puzzle. Frankly, if you look at the revenues from a couple of years ago for those end-to-end pay for performance shops (the Connexus and FreeJunkHere.com's of the world), they were on par if not north of the some of the major agency players. I suspect an interesting convergence as (1) the companies that own the final touchpoint to the customer (ad servers) start to blend with (2) the companies that pick the touchpoints (media strategists, planners, and buyers) and (3) the companies that make the creative that will ultimately live in those touchpoints (creative shop).
If an advertiser can say, "Here's some money; go get me some customers, and if and when you do I'll pay you accordingly" and not have to worry about everything else, that's pretty powerful stuff (see also: success of affiliate marketing).
One challenge to this is the existence of very middling, very meddling legal departments and of course, the dark cloud of fear in the minds of risk-averse marketers. ("We can't do that kind of creative treatment! We shouldn't buy space on SiteX.com!" etc.)
All that said, I do think that straight up branding efforts will still be important. I'm not sure if and how the compensation to an agency can be performance based here, given that "performance" for a branding campaign can be difficult to measure within the online silo.
Great post.
Posted by ANP | November 7, 2007 4:45 PM
Posted on November 7, 2007 16:45
Yes, I for one manage a campaign for 2 years where not only have we surpassed our monthly goals early on but nearly doubled their volume year over year... It would have been and still would be sweet to partake on some of that cash...
We should be giving our clients our honest opinions as subject matter experts regardless if we are in performance based compensation or not. But to your point, by being in a performance based scenario, it would give us a stronger say in the ultimate decisions rather than just being executioners... If anything, it should shift some of the responsibility towards the clients if they insist in doing it their way rather than our suggested approach, because the first thing they'll do when things go wrong is blame the agency.
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November 7, 2007 7:24 PM
Posted on November 7, 2007 19:24
I've thought about this post some more and here's where my head's at currently:
1. In times where margins are lean and risk-aversion is high, oftentimes marketers (agencies and brands alike) place the safe bets.
2. Safe bets = proven bets. If you know a tactic has paid off before, you're likely to repeat it like a Johnny One Note come crunch time.
3. So does a pay-for-performance model mean that creative execution becomes really boring and mediocre? Will all campaigns begin to play to Peoria? Are we doomed to a lifetime of banality?
4. The only shops that can then afford risk are the big ones; they can amortize their bigger gambles across a larger portfolio.
5. This means the little guy is locked out; smaller shops are the ones that will be more likely to be forced to place the safe (=boring) bets.
I have no conclusions on the matter, but it does seem like risk should be distributed across both the agency AND the brand -- but also distributed more evenly across customer lifetime value. Right now seems that pure pay-for-performance marketers (affiliates) bear the upfront risk of acquiring the customer, while the brand bears the risk of converting and maxing lifetime value. Perhaps in a world of trust, agencies and brands can hold hands and bear risk of full customer lifecycle for a given campaign.
Which would mean: better metrics, longer-term reporting ... and getting the plumbing right.
Own the pipes!
Posted by ANP | November 9, 2007 7:18 PM
Posted on November 9, 2007 19:18