• by Matt Kelley , July 5, 2013

Pay for performance is a hot topic. Why? Because too many in our industry fail to take responsibility for generating results that matter to their clients. 

Brands today require real results from each of their partners, regardless of the compensation model they use. Building these goals directly into fee structures and client agreements brings instant clarity to the agency-client relationship, making sure that everyone is rowing in the same direction.

As some have pointed out, forgoing potential revenues can be risky, for both agency and client. We think it’s far more helpful -- and accurate -- to frame the discussion in terms of value-based performance rather than simply “pay for performance.” What does that mean exactly? In a value-based performance model, an agency takes the time to understand specifically what the brand is trying to achieve, whether that is increased sales or improved brand awareness connected to the launch of a new product or service. The agency then commits or guarantees to help its client achieve the predefined results.

When executed successfully, this model paves the way for a more well-defined and trusting relationship between client and agency, more innovative thinking, and a budgeting method that is defined by market share opportunity rather than hard costs. Value-based performance is not about bonuses or short-term rewards. It’s about sharing in the clients’ expenses as well as their revenue. Those agencies that play a part in their clients’ success are invested -- literally -- in the success of the concept and the execution.  

Here are some ways that agencies can make this work.

See the big picture:  Looking at the business as a whole, and what makes it tick (or not), is essential for a successful value-based relationship. Agencies whose livelihood depends on the success of a program must be able to affect -- or at least weigh in on -- every aspect of the sales process.

Understand your channels:  It is critical to recognize the idiosyncrasies of each sales channel -- and the way customers buy and interact with brands there. Truly understanding the importance of mobile, for example, could result in uncovering revenue that might otherwise be left on the table.

Follow the money: Getting customers to buy is the end goal -- not pretty ads, or memorable slogans.  Understanding how customers buy -- what moves them, what their triggers are, and how to make it easy for them -- should be the core of this effort. With sales as the objective, agency and client both benefit.

Risk it all:  Understanding that metrics tell all, client and agency decide together what defines success and then develop programs that get them there. It’s up to the agency to diagnose the issues and develop solutions. Then -- and only then -- will the results justify the rewards.