For our latest Twitter poll, we asked marketers how they felt about using a performance-based compensation model with their agency partners. We can’t say that we were exactly surprised by the results.

Of 405 voters, 65% have never even tried using a performance-based compensation model, and 44% of them won’t even consider it. We asked ourselves, what is it about pay-by-results (PBR) that makes these marketers so apprehensive?

Twitter poll results showing marketer's reaction to pay by results

If you search for “performance-based compensation for marketing agencies,” the first few pages will show you numerous articles claiming that this type of payment model does not work. We dug a little deeper and what we found was surprising. Research shows us that it’s agencies that are rejecting this type of payment model more than marketers.

Performance-based compensation obviously works in the marketer’s favor as it motivates agencies to produce their best work for the best results, but what’s in it for the agencies? Considering the myriad of variables that can influence marketing outcomes, it’s hard to justify marketers paying their agency solely based on results. Maybe that’s why agencies are rejecting performance-based compensation models.

At Nelson Schmidt, however, we embrace it. We recognize that marketers desire PBR as an indication that there is a commitment by the agencies to deliver a return on their clients’ marketing investment in their work. But by offering performance-based compensation models to our clients, we are demonstrating our commitment – so much so that we are willing to put our paychecks on the line. That’s why, instead of validating excuses as to why PBR doesn’t work, we’d rather be part of the solution. One common excuse for not investing in a performance-based compensation model is the lack of enterprise data needed to measure results. It hasn’t been until just recently that agencies could access data quickly at an affordable rate. With the boom of digital driven data, agencies are just now able to pull metrics at a moments notice. Oftentimes, however, analytics are too spread out within a marketers’ company structure and they are missing that enterprise data that is necessary to capture the desired results. While we can offer stellar work, if the clients don’t have the pieces in place to optimize fully for conversions, the results can only show so much success. To combat this setback, Nelson Schmidt offers services that allow our clients to develop that data and strengthen these disciplines so that we can show not only are we able to produce the work that the client wants, we can prove that it is working by enabling them with the technology to account for it all.

Scott Penniston, VP of Media Services on media’s role in Pay-By-Results

 “In the PBR model, all channels of communication are performance media and contribute in communicating with prospects during the customer purchase journey.  The importance of this model is recognizing the right levers to pull to drive ROI and achieving performance KPIs.”

Another factor working against the shift to PBR is the “it’s not fair” argument. An agency can produce their best work and while it may be spectacular, catchy and memorable, that does not mean the work will necessarily produce the desired results. Should agencies be punished for factors they cannot control? This idea of “punishment” versus reward has more to do with the attitude of the customer. If the marketer’s goal is to cut costs, pay-by-results can be a sneaky way of not paying an agency what is due. It makes sense that marketers are focused on results while agencies are focused on producing high quality work, but both parties need to have goals aligned and the right technologies in place so both mindsets are working towards the greater good. That alignment of goals is why we are proponents of performance-based accountability. While there is a compensation aspect to it, accountability goes beyond pay-by-results. We like to show our clients that we are fully accountable for what we do. Our attitude is that of partnership. We hold up our end of the deal because we are accountable and want to grow with our clients as a trustworthy, dependable, long-term agency partner.

Marketers and agencies, pay-by-results IS the compensation model of the future. Admen, we need to hold ourselves accountable for the job we are hired to do. Once the proof is there, marketers will no longer feel dubious about agency service fees, and agencies can boast about their services with proof that they are an effective partner. The sooner we can perfect a performance-based compensation model where both the marketer and the agency feel compensation is appropriate and effort is balanced, the better we can improve the relationship between marketers and agencies and ensure satisfaction for each party involved.

Originally Published 2017