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How do start-ups want to pay for media?

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


36 Replies

Trevor Doerksen
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Trevor Doerksen Entrepreneur
CEO and Founder, Mobovivo
I love the model. Removes conflicts which are deal killers so many times. 20% is standard for our company for this scenario.
Barbara Wainwright
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Get Certified with LifeCoachTrainingOnline.com and Join over 6,000 Coaches Worldwide LION
Hi Peter, I give 20% to my affiliates. I use Infusionsoft to track affiliate leads.
I would LOVE to give you 20% of my business :)
Andrea Raimondi
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Andrea Raimondi Entrepreneur
Computer Software Consultant and Contractor
Hi!

I am replying mostly as a learner in this case, because I don't know a lot about advertising. However: that model will work, in my view, only if you can guarantee really outstanding results.

Also, in my opinion, you need to ensure you get paid appropriately for outstanding performance: in other words, jf you make 5x the original target, then it stands to reason that you should receive a windfall as a result. And your customer - in theory - should be quite happy to oblige for an outstanding result obtained.

But as I said, I am mostly a learner in this case, but I wanted to throw my opinion out there anyway, if you don't speak, your misconceptions don't get cleared.
Mary-Lis Urueña Viñuales
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0
Managing Partner
10%? The question is: how do you assess what your sales impact Has been? I would readily enter into a scheme Like the one you propose For OZOAQUA (www.ozoaqua.us) but how would we know what increase in sales is due to your services?? Please excuse the typos. Sent from my iPhone
Tim Kilroy
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Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
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
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Robert Honeyman Entrepreneur
Financial Consultant at Michigan Small Business Development Center
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.
Arunas Rolicius
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Arunas Rolicius Entrepreneur
Business development manager at Kings Market
Hey Peter. I wouldn't call it a "shake up". Success fee isn't anything new in the marketing industry. What you are referring to is the only reasonable way to do business with this sort of agencies. Most of them are nothing but smoke - scam with more steps. So usually companies that agree to this sort of partnership without hesitation are the real deal. Now regarding the cut - i think it depends on the scope of the task, product itself and the company. So it's always up for debate. And it's usually not a problem to reach a fair prodit share if both parties are transparent. Do you have a company established already? Or is it still in the works?
Peter Bray
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Peter Bray Entrepreneur • Advisor
CEO at Bray & Co
@ Tim Kilroy

I don't of an companies that pay for their media with no margin taken from a 3rd party, can you point the way? There are plenty of pay for performance companies but where is an a agency doing both creative and media that takes no margin for service, would love to talk to them for advice. The large media agencies never to do it, that's who I am going after. Lets break the holding company model!
Martin Omansky
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Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
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.
Peter Bray
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Peter Bray Entrepreneur • Advisor
CEO at Bray & Co
@Arunas RoliciusThecompanyis up and running, though small wehave an advisoryboard built to take on the big media companies - as an example one of my board advisors is the former Chairman of Fox TV. I come from the large agency background and they ALL take a commission for media. This isn't somethingwhere we arecommission based, this iswherethere is a media spend already but I am wanting to remove thecommission element. This is thechallenge but one Ibelieve we need to overcome as an industry.
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