Inspired by a post on performance based SEO, I thought I’ll add to the debate from the perspective of Paid Search. Whatever the campaign, these models have one thing in common – they can be very efficient during the right circumstances and when both parties have a clear understanding of what to expect.
Having an affiliate and performance based PPC background, I’ve spent the past few years working mostly on performance based remuneration models which have ranged from cost per lead, cost per acquisition, revenue share and percentage of gross profit etc. Here are three points that I’d like to share with you aimed at educating merchants that are considering this type of model for their paid search agency.
Unleash your Budget
In order to make this model successful, the budget needs to be close to unrestricted and optimally be accounted for as cost of sale. E.g. if you implemented a revenue share model, but your PPC spend is coming out of a closely capped marketing budget, this model is likely to do very little for you. The benefit of a performance model for the agency is that if they can efficiently scale the performance they reap the rewards of high volume conversions and improved campaign gross profit, whereas you as the merchants get higher volume sales or leads.
Expect Less Granular Reporting
As the PPC agency is spending their own money there is also no need for time sheets, and hence the agency will typically not provide as transparent reporting as you would expect on a management fee model. Be aware of this and remember that they are taking a big risk by spending their own money and hence are incentivized to work hard to make the campaign profitable for themselves. At the end of the day, what’s important to you is to achieve your targets, and hence…
Agree Clear KPI’s
Even if utilise a performance based remuneration model for paid search, you should still expect your agency to drive the campaign and hit your challenging KPI’s. Although online marketer managers typically have several different KPI’s (e.g. traffic, conversion rates, sales, page views etc..), understand that if you pay someone on a revenue share model you need to decide on one single KPI – the one that will define how much they are remunerated. Your agency is going to be very reluctant to spend any extra money on costly short-tail “branding” terms if they are remunerated solely on sales. If necessary, there’s always an option to look into hybrid models to reward several KPI’s (e.g. a budget on management fee for traffic objectives, and performance based remuneration for sales targets).
I hope you found this post useful, please drop a comment below to share your thoughts and experiences on this topic. And also check out this great post on performance based SEO.
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