In a perfect world, marketing and advertising would take care of itself. You wouldn’t need to go out and hire anyone for marketing services. Demand and awareness would be created organically, almost magically from the simple fact that you’re open for business. Customers and clients would beat down your door, begging to give you money.
This is a dream for most businesses. The reality is you’ll either have to manage your own marketing or find someone you can trust to provide your marketing services. Once that’s done, the next step is to figure out how you’re going to compensate them for their time, effort and brilliance (hopefully).
We’d like to think we’ve given you enough reasons to trust us throughout this website, what with our methodology and strategic thinking and whatnot. Now, let’s take a look at all of the different ways we could structure a partnership for marketing services moving forward. Wishful thinking? We hope not.
Retainers Are Good…For The Agency
This is one of the most common billing practices for marketing services out there. You pay a fixed amount each month and the agency does everything you need to grow a brand or business. What can go wrong?
The problem is that retainer agreements can create incentives that don’t help the company that’s paying for marketing services. As the client, you pay a fixed cost to your agency for their time, which is itself a fixed asset (meaning there are always the same amount of hours in a day). The agency, being a business itself, wants to maximize the value they get for their time. This results in a dedication to do the least amount of work possible for the highest amount of money.
There’s also an issue agency types refer to as “scope creep.” A retainer agreement contains an outline of what the agency is required to do each month. When a marketing challenge arises that falls outside that scope, one of two things can happen. The client would like the agency to accept this new responsibility as part of the original agreement, of course. If it does, though, there’s the risk of staff running thin and other duties being neglected (due to the incentives explained above).
Otherwise, the agency can argue that it falls outside their agreement and either refuse to do it or require additional fees for it. This causes clients to exclaim “What am I getting for my money?!” That’s never a good conversation to have. Granted, this problem can happen with other types of agreements. It just seems to come up a lot more often when working on retainer.
If you have a retainer agreement with your marketing company, make sure you stay on them to provide value. It’s very easy to collect a check for doing nothing every month. Don’t let them.
Commissions Work for No One
Shifting to the other side of the spectrum, many clients would like to see a pay for performance model, or commissions. This way the business knows exactly what they’re getting in terms of dollar value for their marketing services and can pay accordingly.
Significant questions arise when you examine this model more thoroughly though. Are you paying a fixed percentage of revenues or just the revenues that come from marketing? If so, how do you determine when your marketing leads to revenue? Can this attribution model be disputed at all? If it can, then how can an agency accurately and adequately get paid? Yes, you trust them to run your marketing initiatives, but are you ready to open your books to them so they can be sure they’re getting their fair share?
If you’re going to push for a commissions-based setup, make sure you have very clearly defined goals that can be monitored and measured by all parties.
Also, you may think a pay for performance model is motivating your marketing team. However, if your marketing partner has another client where he’s performing better and getting paid more for it, you’re not going to get the service you think you will. Yes, you didn’t pay him anything for it, but in this instance, you really do get what you pay for.
Pay Per Project Has Its Perks
When a client has a well-defined they can work with a marketing partner who can come in, perform admirably and move on to the next project. A branding overhaul or a website design project are good examples of this.
There are some drawbacks to this one, however. A project-based mentality implies a fixed start and end point. Some marketing services have neither. And who decides when a project is actually done? Is it when the service is rendered or when the client approves? And how many revisions are included?
So long as both parties can agree to what constitutes a “job well done,” this can be a great compensation plan. The key is to develop a plan and stick to it. Once you veer off course, things can get messy.
Hourly Marketing Services: Equality for All
Charging an hourly rate for marketing services does a few things. First, it shows all the effort put into a client’s business very transparently. You see how much time you’re billed for and pay accordingly. It also allows for flexibility built into the agreement. More time can be spent on something than had been previously. This helps the agency stay nimble as marketing demands change.
Hourly billing puts the burden of proof back onto the agency. They need to justify the hours spent each week or month so that the client keeps paying. Some agencies don’t like this since it’s a lot of work on their part. That shouldn’t matter to the client, though, because at the end of the day it’s their money.
Full disclosure: This is how we structure the majority of our deals, because we like our clients to challenge us on our value to their business. After all, if you can’t see the proof, then maybe you need to find a different marketing partner.
Put Digital Pudding to Work for You
When you’re looking for marketing services, there are many different ways you can pay for them. We’ve worked on deals containing every combination of these billing elements. While some make more sense than others, we’re happy to discuss an agreement that makes everyone happy.