To give or not to give?

It is every customer's desire that he/she achieves tangible results for every marketing dollar spent. Traditional search engine marketing approaches may not meet this basic expectation. Online competition is getting tougher by the day as search engines gradually switch from keyword density and link based algorithms to ranking sites by overall contextual relevance. Online marketers (including me) are finding it increasingly difficult to meet clients' expectations; expectations that hovers around return-on-investment. The intricacies of search engine marketing which encompasses your website, the nature of your business, and competition for targeted keywords/key phrases doesn't make things any easier for us.

As online marketers we always strive to minimize risks, increase revenue while keeping our prices rational and competitive, and meet client expectations at the same time. Agencies use a wide assortment of pricing models (monthly retainer, percentage of spend, customized services, fixed hourly, etc.) and are constantly testing new pricing structures to accomplish these goals. The permutation and combination of the aforementioned pricing models are done with the sole intention of formulating hybrid models that are in sync with our and our clients' requirements – one that is fair to both the sides. As for now let’s term it as a hypothetical win-win situation.

Pricing model based on performance aka pay-for-performance seems to be the panacea; we all have been desperately looking for. Performance based search engine marketing is centered on a simple principle, you pay for results. For clients, this translates into rationale marketing expenditure and maximum revenue. The performance criteria can be benchmarked against metrics such search engine rankings, qualified traffic, conversion ratio/sales, downloads, opt-ins and double opt-ins, registrations, and list goes on. The choice of key performance indicators (KPIs) varies from one agency to other. Irrespective of the KPIs used, performance based solutions are touted to be better than guaranteed services.

There is however a question that keeps nagging me; is pay-for-performance a risk free proposition, both for clients and agencies? Sounds too good to be true! A little 'digging' on my part revealed serious issues with this business model. The rosy picture (win-win situation) I had painted before is not entirely true in reality. The feasibility of performance based model is marred, especially in the case of performance benchmarked against sales/conversion ratio. Lack of total control of the client's website (which is hard to come by) would result in delayed implementation of optimization elements. This would eventually spell under performance and the agency tends to lose money for client's reluctance or ignorance or both. A lot can be done to client's website and even under favorable circumstances the limitations to what can be performed is inevitable. Tracking sales related performance is another stumbling block. There would always be some amount of ambiguity surrounding the actual source of sales. The client may attribute it to a different set of marketing activities when it may be the fruit of your hard work. Regardless of the downsides, I am reluctant to write it (pay-for-performance) off completely.

I don't think it is impossible for online marketers to charge clients on the basis of performance. Toeing a conservative approach, a performance model benchmarked on qualified visitors or rankings has the potential to address the above mentioned issues and at the same time act favorably for us as well as the clients. The value proposition of 'no qualified traffic = no cost' is sure to catch the attention of prospective clients. There are various other pricing structures than can be improvised to fit the pay-for-performance criteria and are waiting to be explored. It is a process of constant refinement and subjective to trials and corrections.