Pay-for-Performance: Winning Strategies for Advertisers and Agencies

March 24, 2009
By Lisa Barone in Internet Marketing Conferences

Hey, hey. You guys still with me? I hope so. I’m bopping to some awesome 80s tunes while trying not to freeze to death. There’s a whole dancing in my chair thing you’re missing here.  But enough about me.

Matt Van Wagner is moderating speakers Richard Zwicky, Ron Belanger, Brian Klais, Tom Cuthbert, and Jonathan Scott. Everyone say hi. Don’t be rude.

I’m staring at the stage realizing this session has five speakers. FIVE! Holy presentations. Why does SES hate me?

First is up Richard.

We’re faced with a lot of challenges today. The economic model in search is broken. Einstein taught us that everything is related.  Within this ecosystem, paid search has a really simple, but powerful, model. Agencies earn based on spend.

SEOs operate in a messy business model. It doesn’t matter what happens. You do a really good job and you’re capped. You can’t earn a penny more than what the contract says. Does this mean that advertisers earn as much as they could? Not a chance. Advertisers handicap themselves by limiting the SEOs ability to earn.

Is an organic referral worth as much as a paid click?

Right now, the marketplace says not a chance. We need to focus on value. It’s what we look for in everything else we work in.

Do advertisers pay the same amount for value delivered in either case? Not a chance.

12 percent of the traffic comes from 88 percent of the market spend.

What do SEO’s really earn? Comparing data regarding billing rates vs. value delivered, SEOs are making almost 1/50th as much as PPC people for the same value. (!)

Performance = Success

A top PPC specialists delivers massive ROI, can’t make errors, makes clients happy. For performance he earns for value delivered.

A top SEO specialist can deliver massive ROI, can make errrors, will make this client happy, and for their performance they get to negotiate a new contact. Boo.

Let’s fix the model. We all deserve to be compensated for value delivered.

Next up is Ron. He’s from Yahoo and says hopefully you’ve heard of them.  Then he starts talking about the Red Sox. I like Ron already.

Agencies: Minimize the Sorcery

Pay for performance is problematic:

Issues the agency may not influence

  • conversion flow
  • pricing
  • shipping
  • brand trust
  • customer service

What is Performance?

  • Competitive Environment
  • Macro-economic factors

Affiliate Marketing

Percentage of Media spend has issues too. Agencies are encouraged to spend more on paid media. Agencies bleed red during first 90 days of engagement. Search marketing is more than buying keywords. It’s SEO, social search, link building and insight & strategy.

Creating a win/win model like the Red Sox

  • FTW model with fair rates
  • Data is the new black: Pay for it. Agree that it’s valuable
  • Strategy and Insights
  • Incentives for cost savings: technology deployment, outsourcing, inhouse support
  • Reach and stretch goals: Upside for heroic work. Win/win as business climate return

Tom is up.

The only constant is change. We need to take the strength of online and leverage it in a way that works best for everyone. Measurement matters.

Change is here for us. We have to embrace it.  Fortune 500 advertisers are less interested in changing compensation, but 15 percent is dead. Creative methods are being considered. Outsourcing is a new trend. Tools are not optional (but costs are passed on to the client). Campaigns need to have the best ROI possible.

Advertisers are concerned that changing compensation costs brand mangement. More transparency from providers is key. Better communication prove worth. They’re considering spending MORE online because its more trackable.

[He’s going long and moderator Matt has pulled out a trumpet. If he doesn’t wrap it up soon, we’re gonna get a solo!]

Measure everything, looking beyond Yahoo and Google for quality. Embrace the change and get creative.

He made it before the trumpet!

Next up is Brian.

We need to start talking about performance metrics. Things like marketing opportunity, clickthrough rates, acquistion costs, keyword coverage, nonbrand reach, page placement, page yield, incremental traffic/revenue, and ROAS.

Being able to tie the market opportunity to real sales is a must. From an agency perspective, you can increase margin-based on value delivered. It better aligns agency and marketer interest.

From a marketer side, it ensures positive ROI, you maximize market penetration, etc.

Drawbacks of a performance model from an agency side: investing resources ahead of revenue, you lack control over execution and conversion, channel attribution is difficult to manage, you can succeed out of a job,  a program may contain baggage.

Drawbacks for a marketer: costs can scale indefinitely. Bigger $$ temptation for risky tactics.

Revenue Sharing Model

Define a fair commission rate:

  • % of brand? nonbrand only? incremental only?
  • Consider affiliate levels for brand merchants

Handle channel attribution

  • does a session last less than 30 days?
  • Last click likely to be credited to PPC

Understand a visitor contribution

  • AOV x conversion rate
  • How many searchers needed to acheive goals?

Yowsa, we’re buzzing through these presentations now. I think everyone’s afraid of Matt’s trumpet.

Finishing things off is Jonathan.

Whether you are a client or an SEO you should embrace performance contracts. As an SEO, you should expect to do them and as a client you should demand them.

The SEO Gold Rush is over.  If you say you’re going to do something you should do it. Too many people have had their fingers burnt. Correctly made deals and contracts are much more likely to win for everyone involved.

Isn’t it too much of a gamble? You can win.

Panel are agreed that PRPs generally look either pure performance or base + performance. Essentally the team is looking for incentives, shared risk, focus on outputs not  inputs, protection on both sides, clarity, etc.


Seasonality and External Factors

  • Time: When your baseline is averaged you need to protect both parties from seasonality.
  • Data from Google Adwords and Trends used to establish a month by month ‘size of prize’ traffic.

[Again, we’re whizzing through these.]

He goes through some real-life examples super quick.

These PRP agreements fail because of humans.  About three out of four clients probably won’t be able to go into a performance contract right away. You need to build up trust. The client should always feel in control. There needs to be a warm up trust period. The agency should keep final control and both sides need a get out clause. Close out periods to protect SEO latency.

And we’re done. Which is super because my head is surely about to explode from information overload. Go reward yourself with a nice cold beverage.  I’ll see you bright and early tomorrow! :)


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