SMX-Day 1-Business Track: Money For What? Search Marketing Payment Models

Chris Elwell, President of Third Door Media – moderator

Panelists: Ken Jurina, President of Epiar
George Michie, Principal of Search Marketing at Rimm-Kaufman Group
Paul Wilson, Chief Revenue Officer at iProspect.

Ken Jurina: His co. does SEM — SEO + paid search + paid inclusion. Needs analytics to prove value.

Client profiles by size: Small – + buy in quicker but will have (-) small budgets. Mid size companies provide (-)some level of stickiness. +Can get exec approval easily. Large companies +sometimes but not always have large budgets. (-) multi dept approval layers, legal and brand issues limits, slows things down.

Typical industry pricing models include 1) retainer based, 2)pay for performance, 3) fee for service and 4) hourly consultation. One pitfall on hourly is that you are probably never getting the best reward.

Ken’s company uses the “fee-for-service” model most often for SEO. Have branded core services which include keyword research and analysis, landing page optimization, inbound link building and reporting/analytics on all these factors.

Sticks to the model 75% of the time, have to customize 25% of the time for virgin domains or established sites which are SEO mess. Web site audits are a very good way to get your “foot in the door.” Different services may be needed for specific client projects.

Diff levels available – audits for $5500 or $9500 for full

Some disadvantages of the fee-for-service model include no residual payment for years of good ROI. Also the constant education and reeducation of process for clients. Finally having to adjust deliverables over time. Market changes – what’s included or not included has to change too. May be helpful breaking pricing into phases rather than a one price for all as it allows clients to “taste the goods.”Detailed and comprehensive proposals and solid contracts strongly recommended – show seriousness and professionalism and lay out what is expected of each party. They define work without necessarily having to provide a guarantee. Offer transparency.

In differentiating services, you have to be able to offer a value proposition, not focus on price. Define what your competitive advantages are. Focus on organizational strengths and tangible deliverables. Keep focus on your niche service. Offer flexible payment plans. $25K proposal met with sticker shock, so break it down to phases and variable costs and then $9500 seems reasonable if prove value and ROI.

George Michie: Paid search only — no organic search marketing. 100 clients. Spend betw $10K-$1M/mo in media. They wrestled with pricing issues in the beginning. The idea was to charge a fair price where the client feels like they are getting value. Of course there is also the goal of actually making a profit. They wanted to create incentives that would motivate client to “do the right thing.” Aslo important was to build a scalable model.

When they started out, they expected to be the highest priced and highest quality service provider in the space but discovered they were actually very low priced. They actually have lost accounts because their pricing was too low – scared off big clients.

Why not Rev Share pricing model? First of all there is too much easy money on brand keywords, disincentive to dig deeper. He also didn’t want to dicker with clients over credit allocation or in other words — who is responsible for what. Also didn’t “invent Christmas” – shouldn’t profit from holiday spending when it’s not that much more work.

Why not straight cost mark-up? On the low spend end, they did not make any money. Also didn’t want to get paid for wasteful spending, and for larger clients, fees become divorced from the cost of providing the service. He warns that if your fee structure gets way out of line with the service that is provided, it may encourage your clients to shop around. For example, client is spending a million a month and you are charging 15% or $150,000/mo. !!

Solution: Charge a percentage of ad spend with a minimum monthly fee and also a maximum monthly fee. This keeps fees in line with service that is provided. Their pricing is as such: 12.5% of ad spend, minimum monthly fee – $3,000/mo.; maximum monthly fee – $12,500/mo.

Benefits of their model is clients are profitable for them, they are able to attract Marquis clients, clients who are “capped” are kept super happy (there is no incentive to waste money), and finally there is stability as no single client determines their bottom line. Some huge clients opt for more coverage than their cap which they are happy to do.

Analysts handle 4-6 clients depending on the size. Some with huge clients only 2. KPI = rev/analyst and then Analysts as a ratio of Admin people which don’t contribute directly to billable hours.

Paul Wilson from iProspect. Compensation based on performance with Bonus targets. Does it with a team approach (NASCAR and Indy images)

Bonus targets, incremental fees and percentages of revenue are all aspects of this type of pricing model. Advantages: goals are aligned, incent partnering, maximize performance, and protects against bad performance. Cons – constant monitoring, accurate tracking data, goals may change, challenges measuring SEO and paid media, over and under performance.

Get started by define conversion metric, define value of conversions, then factor in all costs as service provider, and finally pressure test and play around with diff scenarios.

Look at 12 mo historical data to establish a baseline. Establish real value of conv metric. Do “what if” analysis and adjust metrics accordingly. Spell out EVERYthing contract form. Many times do a hybrid – mgmt fee plus perf based model.

Lessons learned: Need to re-establish baseline if faulty data, have to say no to a lot of changes, if long sales cycle need to establish measurable conversion metric.

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