Should I press my Lead Gen agency to work on a Cost-Per-Meeting/Cost-Per-Acquisition basis?
Should I press my Lead Gen agency to work on a Cost-Per-Meeting (CPM) OR Cost-Per-Acquisition (CPA) basis?
In our opinion the answer to this common question is short and sweet; no.
Wouldn’t it be great if every marketing investment came with a full guarantee? Total success or your money back.
It seems a logical ask.
Why shouldn’t agencies have some skin in the game?
A simple, cast iron commitment that your campaign delivers consistent ROI from day one.
Well… you’re not alone in liking the idea. Plucky marketing budget holders have been hard balling agencies with this type of powerplay for years.
CPM/CPA models. Cost per sale. Risk based pricing. The dreaded rev-share model… A beast with many faces.
Is it a fast track to risk free marketing or could it introduce terminal complications to your agency relationship?
Thinking about it? Here are a few points to consider first.
(1) There is little chance of you talking your agency into it
You might have discovered the CPM/CPA model yesterday… or you might be looking to impress with a reduced risk marketing strategy. Whatever your reasons, bear in mind you’re likely the 3rd person this week to request non-standard pricing from your agency.
Given the frequency of the request, your ask won’t be considered in isolation, every agency has reviewed the viability of supporting CPM/CPA pricing at length and will likely have a firm stance on the matter.
If your agency does consider risk-based pricing to be viable, it will be on the website already, as it’s a huge selling point, and if they don’t… there is little chance of you talking them into it. So probably not the best use of your time.
(2) Your agency will resent you
No point beating about the bush on this point.
You might see smiles today but no agency appreciates the introduction of a performance-based billing model.
The best and most productive relationships are built on mutual admiration and enthusiasm between agency and client. Confidence built on trust.
Spoil that magic with a one-sided fee structure and you just became the least important client on the books.
(3) Prepare to be phased out at the earliest opportunity
It is worth noting that your Agency is almost certainly already pricing at the lowest rate they can afford to offer.
Most agencies can’t work on a loss-making basis, so if pressured into non-guaranteed billing structures the focus quickly switches to chasing revenues, scrutinising cost, and ultimately working to phase out the client and reassign employees to safer activity supported by guaranteed terms.
Moving to CPA terms introduces the real risk that you’ll be dropped at the first opportunity.
(4) The productivity death spiral
Once on the profitability treadmill your prospecting agency no longer fully cares about whether you are closing deals…
Focus shifts, resource decisions are impacted. Attention is drawn from achieving client success, to balancing books and keeping cost in line with revenues on the campaign.
That shift in attention and focus can often signal the beginning of the end.
(5) Contrary to popular opinion, risk based pricing introduces conflict into the relationship, not harmony
Perhaps the most insurmountable aspect of CPM pricing is the commercial conflict introduced to the client/agency dynamic.
Your once budding partnership becomes a totally transactional relationship.
The agency’s goal becomes very much about stacking the meetings. Maximising billable meetings within criteria. While your objective as the client remains closing new business.
Cue high volume of meetings. Low volume of sales.
Our experience on this point is worth a read… right now, we know only too well that SoPro’s client relationships live and die by the value of new business signed.
As a result, the collaboration and extra-curricular campaign support is incredible.
Switch to a CPM model and your weekly calls quickly degenerate to arguing the definitions of what is and what isn’t billable. Endless debate over whether this prospect meets criteria, or whether that meeting qualifies.
The subjectivity of the billable criteria becomes a point of friction, and in the end, it consumes the focus. Invoices are queried, productivity flatlines and relationships overheat and fail.
(6) It’s probably not the look you are going for
Let’s call it what it is.
By pressing your agency to offer risk-based pricing, you are asking them to take your risk for you.
From an accounting perspective, commercial risk is really just another form of cost, so in a roundabout way, you are really asking your agency if you can have some of their money, which helps understand why it generally doesn’t go down well.
(7) Services will be degraded to reduce agency risk
Marketing is such a competitive space that most agencies already price at the lowest viable rate. As such, any agency accepting work under a heavily reduced or risky price-model will almost certainly be stripping out elements of the service to accommodate the discount.
As a result, you are not saving money you are just buying half a service.
When it comes to Prospecting, this point needs to be underscored, magnified, printed out and read loudly for those at the back. Take it from the horse’s mouth, there are several critical steps and stages within each SoPro prospecting campaign… here are a few for reference.
Removing even one of these steps can reduce performance to zero.
Remove half of them and your campaign won’t just sink, it will be dead before it hits the water.
(8) Will CPM/CPA based pricing help me pay less for services…?
Think about it.
Any price model that includes a chance of not being paid is a fairly straightforward commercial risk. Any accountant will tell you a 20% chance of non-payment is generally accounted for as a 20% reduction in forecast revenue.
If your agency can’t support a 20% discount without stripping back the service, then they definitely can’t support performance-based pricing without similarly reducing the service.
If they do find themselves billing less, then they will serve notice. If they find themselves billing more then you have increased your own pricing. In either case you lose.
(9) Always better to learn from other people’s mistakes
We hear it time and time again. The number of SoPro clients that have previously trialed low cost or CPM based lead-gen options is massive. Several of our client testimonials attest to exactly that.
It never works but it is very difficult to convince headstrong execs that it is not always about headline pricing.
Some lessons just need to be learned first-hand.
If you can bring yourself to make use of others’ experiences then the consensus is definitely to avoid pressing for CPA deals.
(10) Never make your campaign incompatible with your agency’s performance management framework
Most agencies have an established management framework in place to maintain focus on key performance indicators (KPIs). Each team member will have performance targets in place across all KPI’s and a clear entire reward structure setting out the remunerative and progression-based upside of achieving targets across client activity.
Moving your campaign off the standard business model changes the key performance metrics completely. This causes management issues when employee progression or bonuses are being calculated and non-standard billing models are generally excluded from measurement when it comes to employee targets.
Who is then motivated to ensure the success of your campaign?
There you have it. Ten sound reasons to consider carefully before pressing your agency for performance-based pricing.
Are you in the process of looking at prospecting service providers…
Or maybe you just need a few more sales.
Take our 90 second quiz and we’ll tell you if you should be looking for a prospecting tool or a prospecting service provider.