June 9, 2017

The Perils of Only Paying for Performance

Alisa Crowley

What You Should Know About Working with a Performance Marketing Agency on a PI-only

vs. Retainer Model

Picture this scenario: You’re reviewing your current marketing strategy and want to see if your brand will experience significant growth and ROI by utilizing the affiliate channel. Perhaps you already know a little bit about how the industry works or maybe you’re starting from zero. What do you do next?

We understand that when it comes to paying for a service, you want to make sure you are getting the best advice. At PartnerCentric, we are trusted advisors for our clients, which means we’ll always be honest and completely transparent, especially important when it comes to budget and costs.

There are a few ways that performance marketing agencies set parameters around how they get paid. Some will only charge a retainer, which is meant to cover operational costs as well as performance. This is often seen as a higher flat monthly fee. Others will have a smaller retainer as well as PI (performance incentive), which often takes the form of a percent of sale, commission, or other share of the performance being driven. And yet others will work on a strictly PI-only basis, which is often the model that those attracted to affiliate marketing are drawn to, as a pay-per-performance driven channel. However, while it might sound like the most cost effective option, the PI-only structure isn’t always in the best interest of the client or program. Below are some reasons why investing in an agency that requires a retainer may be in your best interest:

A retainer ensures your program is being proactively managed, not just maintained.

An agency’s retainer ensures that their operational costs are covered, so they are positioned to proactively manage and grow your program at all times; not just when they are making a return on peak seasons or promotional periods.

When an agency gets paid on a PI-only basis, growth may be achieved using strategies that are not in the best interest of your brand. Rather, the focus can become one of quick, not smart, growth as increased program revenue results in increased agency revenue under this model. Typically, growth incentivized this way comes from high-volume discount partners, which presents itself as rapid success but eats into margin if not properly managed. A PI-only relationship with your management team could prevent steady growth and optimization while potentially increasing fraud. In the short-term, it feels like you’re paying less because you’re not committed to a retainer but you may really be losing money along the way due to mismanagement, overpaid partners, and loss of margin.

At PartnerCentric, you get a full team of experts to manage your program and they each bring a unique set of skills to ensure that your program is seeing ROI quickly and strategically. We make sure the agency and client are aligned on goals and expectations and focus on data-driven management. You will see the results of our work every step of the way. We aim to be an extension of your team and always put your success first. We’re primarily focused on growing relationships with a thoughtful approach, and always consider the integrity of the brand in our recommendations.

A PI-only agency tends to put all the eggs in just a few baskets.

At PartnerCentric, we have a healthy mix of diverse partners that we utilize to grow your program. Depending on the goals and needs of your brand, we can use a combination of email, content, mobile, loyalty, and coupon publishers, just to name a few. This ensures that we aren’t relying too heavily on just one partner and can be nimble when it comes to recruiting the right affiliates.

Conversely, there is huge margin and concentration risk with hiring a PI-only agency. Often, they go for high-volume “plug and play” affiliates, resulting in only two or three partners driving 75% or more of the revenue. If one of those partners leaves, the program is immediately in trouble and loses significant revenue. Because the goal is to grow as quickly as possible with limited regard to stability and maintenance, there isn’t an emphasis on choosing strategic partners, diversifying your partner portfolio, or preventing this very top-heavy mix. At PartnerCentric, we make sure our clients are in the position of calling the shots for their program, instead of being at the mercy of their top few partners.

A retainer agency is always looking for ways to save you money.

A PI-only agency has little incentive to ruffle feathers with partners so they are less likely to negotiate and reduce commissions. They want to keep everything as smooth and easy as possible with those top two to three partners who are driving 75% or more of your revenue. We have seen cases where partners were grossly overpaid and under-performing when we took over management of a program.

Our team has over 60,000 partnerships and we aim to save our customers money wherever we can. Because our base costs are covered, we will negotiate commission rates and paid placements with affiliates to get you the best possible ROI.  We genuinely care about the success of your program, and success is not always seen as simple growth - reducing cost, incrementality, increasing ROAS, and diversification are just some of the additional KPI’s we care about.

The safer bet.

If you are someone who cares about your brand’s value and wants to work with high-quality affiliates, you’ll appreciate a premium agency that is always looking out for your best interest, not our own. We’d love to hear from you.