Marketing · Startups

How do start-ups want to pay for media?

Peter Bray CEO at Bray & Co

August 29th, 2016

My little startup advertising agency is trying to shake up the ad agency industry, and instead of taking a commission for buying media and doing the strategy, we plan to take zero. Instead, we want to be remunerated on performance only. In my mind this makes sense as why should anyone take money for their expertise when their expertise may not work? On top of that, start-ups need to be largely performance based.

So the question becomes, what are you prepared to pay as a bonus for performance, if there are no upfront fees? 10%, 15%, 20%? As I would be absorbing risk, I would want to make more money than the usual commission fees, but would what be a good model for this? Could it be something like you say what your CPA target is, and if we get below this then we keep the difference? Help please!

Peter


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Martin Omansky Independent Venture Capital & Private Equity Professional

August 29th, 2016

Your plan is an easy way to starve. Use the example of lawyers: they use their expertise to try a case in court, but they lose. Do they still get compensated for their time? Except for personal injury lawsuits, which is a special case and depends on a statistical model, lawyers generally do not speculate, because success is often not in their hands. You can of course discount your fees and get a reward for success, or you can accrue some fees until the end of the process, but I would protect your professional integrity and your cash flow by charging something up front (and be sure to get paid). My experience has told me that there are many ventures that are glad to take up your time and skills when you offer them for free.

Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

August 29th, 2016

This isn't a revolutionary model - there are tons of marketing groups that work this way (including mine). However, I just want to warn you that the model is great on the low end (eg, at the beginning), but at scale can be very painful (when you are send large invoices, clients start to get concerned). Further, it makes your business management difficult. Seasonality, slow months, business changes, etc. make it very hard to forecast your company cashflow...

Best of luck!

Robert Honeyman Financial Consultant at Michigan Small Business Development Center

August 29th, 2016

As a CFO type, I would run away from this sort of model. I want fixed pricing for a service that is at best difficult to measure. The companies I've worked for always run multiple marketing campaigns. You know the saying: half of all marketing spend is a complete waste. The trick is trying to figure out which half. No one I'm aware of has been able to do that.

Sidney Sclar SID the SECURITY PRO at sidthesecuritypro.com

August 29th, 2016

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Martin Omansky Independent Venture Capital & Private Equity Professional

August 29th, 2016

I was referring to the independent actions of judges and juries. Lawyers, like accountants, are committed to rendering professional services. In the past, I have paid lawyers outrageous fees, and was not always satisfied with the results, but I was realistic about their expertise, limitations, and overhead. I also don't want lawyers or anybody else to have access to my books. Sent from my iPhone

Brad Forbush Need Leads for your Legal, Medical or Dental Practice? Let's Connect!

August 29th, 2016

I love the idea. I see where you are going with it. I run a small marketing shop that was originally focused on Legal, Medical, and Dental. Based on results we are quickly getting bigger and bigger companies outside of those areas. So I will be following to see how things work out for you. Nice work!

Holden Hume Creative / Brand / Marketing

August 29th, 2016

Typo?

Sudhakar Atmakuru CTO, Director (Business & Marketing) at JT TechnoSoft

August 29th, 2016

I absolutely agree with Martin Omansky. You should be paid a basic service fee first and then bonus based on the performance. There should be some thing (for you and your employees) to motivate thus keeping you work on it with your best possible initial effort, which otherwise does not give you any guarantee.

My strategy would be, a basic upfront fee and then prorated bonus for every successful result. Say a client X walks into my business asking for help building a fan base (ie, user base) on facebook or such social media so the client X can advertise his product with periodic emails/promotions to those signed-up users. Discussing the expected results (monthly basis or so, like number of page visits, click counts, website traffic, etc a month)., put it on the paper that I will be paid based on the performance (like 1000 page visits, 1000 user sign-up, 100K video hits, etc a month) an x% of amount, with anytime breakup clause. The success depends on several factors, and not always guaranteed as expected. So, if he is not happy, he can walk out anytime without any penalties. But, at the end, I will have been paid at least for what I put my efforts best for.

Simple, the (entrepreneurial)rule of thumb is that you and your team should always be fed regardless of profit or loss.

Hope this helps.





Leslie Wolfe Founder - ThunderAccess.com ... WhaleOfAnIdea.net

August 30th, 2016

When you say you're taking the risk. Do you mean your paying for the advertising?

Rob G

August 29th, 2016

@ Martin O, I'd like to see more startups taking on the law establishment.  The field of law, including how lawyers are compensated (not to mention the rampant conflicts of interest), is completely broken and ripe for change.  I for one, would like to see more lawyers working on a pay for performance basis. "lawyers generally do not speculate, because success is often not in their hands."    Success is not in the hands of many professions - certainly the case in the world of startups.  Success is certainly more often in the hands of the lawyer than that of his client.  It's refreshing to see startups like Peter's taking on the establishment.