“Half the money I spend on advertising is wasted; the trouble is I don’t know which half” – ever since John Wanamaker, a very successful marketing pioneer, said that it’s been on every businessman’s list to turn marketing into an accountable industry. More than a century had passed before the online world united with the powers of technology to enable and perfect a marketing approach that makes it possible – pay-for-performance marketing business model.
Nowadays, it’s called “the new normal,” with businesses putting their money on the table only when the results are in. With that, it’s still walking alongside the traditional agency business model, in which fees are paid up front and do not depend on marketing success.
A recent conversation with our CEO, Inbal Lavi, sets the two side by side and sheds light on why pay for performance marketing model is the way to approach business in digital.
From a client’s perspective, post-result payment is the main benefit of the pay-for-performance marketing business model, any others you can see?
There are others, for sure. Since you pay-on-results, businesses are more trustworthy in the eyes of clients. The interests are aligned, and the relationship is deeper: the two become partners.
As a client, you can get a higher ROI. This is because you pay only after you get the desired results, so there’s no precious time – or potentially, even budget – wasted on various business decisions, like whether to switch to another traditional marketing agency, if the one you worked with before did not live up to your expectations.
Also, by choosing to partner with a performance-based marketing company, you can get higher margins in a shorter period.
And what about a company’s perspective?
I’d say, you’re not just a business-to-hire, which can be easily replaced one morning by some other business capable of doing the same thing. There’s also a question of expertise, but still, from the company’s perspective, the switching cost is much higher.
Plus, margins are higher too. If we’re talking a traditional agency-based business, then your margins can be about 15% of the budget, for example. As far as pay for performance marketing business model goes, the margins can come up to 50% of your revenue minus the marketing cost, for instance, given you have the right amount of capital, of course.
All in all, it’s important to remember that the better you are at optimizing your campaigns, the more money you’ll make.
If our readers want to start running businesses based on the pay-for-performance marketing model, what should they bear in mind or get ready for?
It all starts with a change in the way you and your employees think: all should have a very results-oriented mindset. Remember, it’s not just about ‘how to spend more,’ but also about ‘how to get the highest ROI.’
When asking yourself all the above, keep in mind that you need to be prepared to take risks, as you’d be investing your own capital. The risks are higher than those of the traditional agency model, it’s true. However, it’s important to be careful and to increase your digital spend gradually, taking baby steps, without throwing money away.
While you do that, don’t forget to allocate resources for the development of relevant tools and know-how.
What do you mean by ‘relevant tools and know-how’?
The technology that’s allowing to track your user funnel and post-action activities fully. You need to have the best tech and algorithms to be able to set automatic rules to target the most relevant potential users, activate a ‘stop-loss’ when required, find other interesting funnels or perform A/B tests in the best way possible. I believe technology is key to making profits and reaching high ROI.
Do you think a performance-based business model fits any business or product?
Given the ever-changing digital industry – yes, but again, it all depends on whether the product/service you’ve got has proper tracking, including the tracking of the revenue resulting from a specific user or campaign (if you are on rev share).
Webpals Group, for example, has succeeded in taking the pay for performance marketing model to the world of mobile applications and games, evident in the acquisition of Clicksmob and its merger with DAU UP to form DAU UP Clicksmob this year. The customers that work with us based on this model understand that we have more of a partnership rather than ‘we-give-service-for-your-money’ relationship, with absolutely no conflict of interest.
Apropos Webpals Group, what did the company learn running on this model?
One of the biggest lessons learned: the continuous evolution of the digital industry makes performance-based marketing more relevant to businesses. It’s not just about bringing more users or installs quantity-wise, it’s about getting results and succeeding, with an emphasis on quality.
Do you think the performance-based business model influences your company’s culture?
For sure. I believe – and I see it every day – drive for results is something that’s in the DNA of every employee here. They see nothing, but ROI as their target, which works in sync with the two of our core values: results-driven and financially-led business. It’s all about us making sure that we get the required results from anything we touch and do – and it’s true across the entire group.
Where do you see the model in the future in comparison to the traditional agency one?
I think the pay-on-results marketing is set towards penetrating more industries and mobile is a good example. I think we’ll see customers that used to work on ‘lighter’ pay-for-performance models like CPI shifting towards more advanced performance-oriented models like CPE / CPA or, ultimately, Rev Share – the highest form of performance marketing because you pay only out of the actual dollars you make.
As for the traditional agency business model, it may evolve into being even more KPI-oriented or evolve into performance marketing.
To me, the performance marketing business model is a guarantee of money for clients and the way for businesses to get the best ROI in the long-run.