Getting What You Pay For
There are a whole lot of pricing models out there. Whether it’s pay-for-performance, a retainer, hourly, percent-of-media, or something else entirely, there is no shortage of options for how an agency might choose to set up your billing.
FiveFifty was born on the performance side of the industry. As a direct result of that fact, we made the purposeful decision to avoid using a strictly performance-based pricing model.
Performance pricing is great for an advertiser in a number of ways. After all, if you spend money on advertising and fail to see any commensurate results, then something is ultimately going wrong. Under more traditional pricing models, agencies could explain away poor performance through awareness, lift, engagement, recall, and other soft metrics. Those all help tell the story of how consumers take in the ads. The question they are meant to prompt: what more can an agency do if they show the ads to people, those folks remember or engage with them, and then they simply don’t make a purchase?
Performance pricing attempts to solve that disconnect. At first glance, it aligns the financial motivations of the agency and the client. If the people who view the ads aren’t buying the product, then the agency doesn’t get paid. It’s as simple as that. On the flip side, if more impressions convert, then the client enjoys lower variable costs and the agency rakes in more revenue.
The problem with that set-up is that it over-simplifies advertising and places a misleading emphasis on lower funnel tactics. The sales journey is much longer than “see ad, instantly make purchase.” To be truly effective, your marketing campaigns need to acknowledge that complexity. Clients should know that awareness is necessary to maximize sales volume. However, performance pricing incentivizes the agency to maximize their profit margin on individual transactions. As a result, agencies cut awareness tactics with higher relative costs compared to low funnel tactics. Low funnel strategies, which have a higher arbitrage value from media cost to payout, receive a higher concentration of budget.
Put simply, agencies are quick to cast aside tactics that increase brand awareness and fill the top of the funnel because they would yield poor performance metrics. Similarly, hourly pricing for media disproportionately rewards the agency that can convince their client to try new projects. There is no connection between the output of those projects and the results they produce for the client. These kinds of shifts distort the alignment between the client’s goals and the agency’s income. That misalignment can fundamentally warp the relationship between both organizations.
FiveFifty believes wholeheartedly in the value of performance goals and accountability around them. All of our campaigns are designed to hit a predetermined metric, and all of our reporting illustrates very transparently how well we are doing when it comes to hitting our goals. We even include our fees in the cost of the media, so that our clients know exactly how it costs them on a daily basis for our work to generate sales, sign-ups, etc. We dive in hand-in-hand with them to understand their conversion flows and where people are dropping off, not to bill more time, but because it’s an investment in our shared success. We work closely with their in-house staff to maximize conversion rates and campaign performance. This kind of behavior leads our clients to invest more in media, because it becomes a predictable revenue-generating model that we developed together as a team. If they invest more money in media because they are making more, then we as the agency make more money, too. We remain in constant alignment.