Pricing models for marketing agencies – what should both of us be looking for?
There has been some excitement in the office past few days. We have been talking to one of the largest airlines in India and they are interested in doing a paid search advertising contract with us. It is quite exciting for us also because they currently work with one of the biggest names in this space.
There are a few billing models in play for paid marketing. You have a commission percentage of the media spend, a fixed Cost per click, fixed cost per booking, fixed percentage of revenue generated are some of the popular ones.
We would like to put in our two bits about these models. Only those models will work long term which align the interests of the agency with that of the client. In quite a few cases, we think that the client interests can be easily compromised. In a tenancy or fixed CPC contracts, such cases are more common than in others.
No matter which model, the client should have an idea of the cost at a unit level. For example, a marketing manager should be able to ask – what is the cost of generating a valid customer lead from the internet using agency A doing activity X and compare it with agency B doing activity Y. Such a question will cut across pricing models and the answer will compare the financial effectiveness of the agencies and/or the activities.
The agency should strive for such a question to be answered. It does work in our interest. If an agency is favourably placed in terms of financial effectiveness, the onus suddenly is with the client to try and drive more and more business through this agency. For example, if a marketing manager finds out that an agency is able to generate leads for him at a cost which his 30% lower than his next best channel, he would ensure that he spends as much as possible with the agency before allocating budgets to other channels.
This is the sweet spot we aim for in all of us client engagements.