Probably the single biggest challenge agencies are facing today is how to deal with -- or ideally eliminate -- poor financial metrics.
Which is why when I recently had Dennis Yu, the CEO of BlitzMetrics on the Rich Ad Poor Ad podcast I asked him to share his best practices and tips for overcoming the financial burden of increasingly long payment terms and payback periods as well as hefty set up fees.
What he had to say about performance-based marketing might surprise or even make you a little bit nervous. But if you’re willing to think outside the traditional agency payment model, it might also go a long way toward eliminating the pressure of poor financial metrics that might be choking off your growth.
1. If you have the balls, charge up front. If not, do “financing”.
“ We had a client who started with us this last month and they wired us in $500,000 upfront. Why? Because they just wanted to write one check that was the media budget, plus the fee. And that's great for us because then we are in all the airline credit card miles. I don't like the idea of post pay.
So when it was like MGM or Nike or Allstate insurance, and we were doing stuff with them, they would pay net 60 and net, net 90, which is brutal. Yeah. Remember we had campaigns that were running for Quiznos. They're a competitor to Subway and we were spending, I think $250K or $300K a month, which was a lot for us to carry.
They switched over to a new system for processing invoices. We went for three months where they didn't pay. I was right at the limit because I'm holding a million dollars in money that's not been reimbursed on ad spend.
What were you going to do in that situation? Tell them, ‘Hey, we're out of money’, or turn off the ad account or go to a friend or go to the bank and say, ‘Hey, I need a short term loan’.
None of those options are very good options. So I like to get paid up front. The only time we don't get paid upfront is when it's a Fortune 500 company and they have some crazy accounting team where like, this is the way they paid their vendors and that's what you have to do.
But with smaller companies, they often don't have the cash flow where they can pay you $20K upfront. So maybe you start off with $5,000 and you get that as a retainer over five or six months. Really what you're doing is offering them a financing plan. “
2. Sell an upcharge this way and clients will happily pay it.
“We have a launch in a couple of weeks for Pitbull and doing a rev share with him. So instead of charging an agency kind of fee, we're getting 7% of the net and we're getting reimbursed on the ad spend based on a 200% ROIs.
So we're paying $600K to $700K in revenue, which means we're going to spend about $300K on ads. And then we're going to make 7% on top of that. So we're taking 57%, 57 cents on every dollar that's coming through originally. And this shows you how negotiations work.
I said, ‘Hey, if you guys want to run the standard agency approach, we'll just charge you 10% of ad spend. Right. So we'll just charge you like $30 grand which is what most agencies would do.
But if you care about performance and they're like, ‘Hey yeah, we care more about performance’. Because otherwise you'll just spend money and it's too risky.
So okay, then we'll run ads on your account and it's your credit card. And we will be paid. I think we said five and a half percent. That was our fee of the overall revenue.
I said, but if we put it on our card and we are taking the cash risk and it's running on our account, then you're going to pay us 7% of the gross as our fee. And you see that they chose the latter, which is kind of what I wanted them to choose anyway.
But if I didn't present the option of being a traditional media agency and also present the hits on your card option, then they wouldn't see the true value of us taking the financial risk.
So I intentionally made those other two options available to underscore the fact that the performance marketing deal needs to be paid or word in fronting. The risk is basically as a super affiliate where there's no other affiliates and they need to pay more for that. “
3. How to make the perfect performance-based pitch.
“Most brands don’t know that it's possible to get performance-based deals. They're used to paying a fee to a media company or agency or PR company or video editing production website building, or whatever kind of company.
But when you show that you're driving them more revenue against their chosen business objects, like store visits as a business objective. When we talked to the folks at Ashley and they want to know ‘How are you different from this other agency? Because we already have these three agencies that do these other things and how are you different?’
And I'll say, ‘It’s very simple. You're going to pay us only on the metric that matters, which of these metrics matter to you? How much money you spent, how many eyeballs you had, how many impressions there were? Or how many people went into the store and how much revenue you got?
Oh, and what if we stand behind our performance so much that we're willing to live and die by that. So if, if it's a one to two 16 ROIs, then, and we don't drive that guess who has to pay for the difference to get you up to the 16, we do, we have to eat that.
But if we drive a 20 ROIs and we get to pocket the difference. Do you know of another agency that's willing to do that? And their answer every time is ‘No’.
And that's when you've won the deal. If you can stand behind it, if you can put your money where your mouth is and follow these techniques that we're showing you here, it's almost guaranteed to win.”
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