How Can an Agency Implement a Performance-Based Pricing Model?
In today’s episode, we’ll cover:
- The benefits of performance-based pricing.
- Maximizing agency revenue using performance-based pricing.
- Tips for turning your videos into low cost, high quality lead generators.
Today’s episode is by far one of my very favorite — and no, I don’t say that about every interview:) Tom Breeze not only trains people on getting more leads for their business using video, but he’s also so confident in his agency’s skill to do the same, that Viewability operates on performance-based pricing.
With undergraduate and master’s degrees in psychology, Tom launched his agency only after learning to successful market his private anxiety counseling practice using video on his website. This was back when video for web was pretty new. (We’re talking pre-smartphone era… Tom carried a camera-less PDAs and recorded his videos old-school, with a camcorder!)
He discovered his videos had a great conversion rate and cost far less than he was spending on Google Adwords. This transformed his business and eventually launched a whole new career into business video training and digital advertising.
What are the benefits of performance-based pricing?
Tom compared his business model to a the trojan horse story. On the outside it appears his agency takes on all the risk and fronts all the costs. In reality, they’ve got a killer process for qualifying their leads, they’re very picky with who they’ll work with and they know how to crush it when it comes to fulfillment.
Performance-based pricing is packaged with the notion that it must work, otherwise the agency wouldn’t be doing it… This means the agency’s inbound leads are “pre-sold” on the idea of working this way – there’s very little convincing or converting.
So exactly how do they get paid? At the onset of a new relationship, they have a frank discussion with about the breakeven CPA (cost per acquisition). They create a script, edit footage and run the ads in a 4-6 week test. Then analyze, tweak and repeat a second month. Tom’s agency usually absorb the first month’s costs, breaks even the second month and is profitable by the third month. Once the campaign is up and running successfully, they can “set it and forget it” – so there’s a greater profit margin.
About 4 out of every 5 clients are a win. And, when the client is seeing results they’re happy to pay, even though this structure ends up costing more than a traditional agency’s pricing model. Viewability’s qualification process is so efficient and effective – they’ve never been stiffed on fees.
Setting up success for agency performance-based pricing.
Thinking of a performance-based pricing model for your agency? Here’s some of Tom’s very best advice for minimizing risk and maximizing revenue potential:
- Do not act as an agent, act as an affiliate. Rather than structuring client relationships like most service-based businesses, Viewability establishes a partner relationship where they work with their clients instead of for them.
- Know the formula for what makes a good client. Tom’s agency has a super specific list of questions and criteria that determines who they’ll work with – selecting quality over quantity. They take on fewer clients, but they have more time to spend with them.
- Work directly with the decision-maker. For Viewability, that’s the business owner who can provide specific direction as well as maintains accountability for payment.
- Maintain realistic expectations. Goals need to be measurable and attainable. Ask and answer these questions first: Do they know their current cost per lead and what they’d like it to be? (If not, that’s a major red flag.) Is it an evergreen offer that just needs more promotion? Has the funnel already been tested?
How can you predict cash flow with a performance-based model?
In a sense, the revenue from current clients funds the activity for future clients. However, within a couple months they’re self-sustaining.
It takes a shift in mindset. As a results-driven agency they’re dedicated to only taking on clients with a greater lifetime value. The drawbacks, of course, are the upfront cost and the lack of predictability that retainer clients provide. However, as highly effective specialists in a narrow niche with a great profit margin the benefits outweigh the disadvantages.
Turn your agency YouTube videos into lead generators.
Tom says to look at the 4 P’s in order to lower the cost per lead, maintain or increase the volume of leads and improve the quality of the leads,
Here’s a few simple hacks to make your existing video content lead generators:
1- Platform – learn where your leads hang out and put your video in front of them. He says you should connect on YouTube and convert on Google.
2- Person – connect with your organic traffic by linking your YouTube channel with your AdWords account.
3- Pursuit – change the customer’s journey. Why didn’t they opt-in? Change your lead magnet to improve results, some may prefer a webinar and others a download of swipe files.
4- Promotion – improve the ad itself by using pattern interruption or dynamic keyword insertion.