Paying an agency for results: when sharing the upside works

Sooner or later, someone in a budget meeting asks why the company pays its agency the same fee whether the campaign works or not. Paying for results sounds fairer: the agency earns more when you do, and you pay less when it falls short.

It can work very well. It can also leave you with a partner that took the deal hoping for the best. This post draws on two deals I described in 2020, when I was the one being paid on results. It turns them into five tests a buyer can apply before proposing a share, and explains when a fee is the more honest arrangement.

DisclosureJake Jorgovan is a partner in Fieldtrip, a group of marketing agencies, which this essay links to.

What I learned selling on results in 2020

In a September 2020 episode, Why selling marketing services is stupid, I argued that a marketing company that only sells its services for a fee is doing itself a disservice, and that working on a performance basis is probably a better way to structure the arrangement. At the time I ran two agencies, including Lead Cookie, the outbound sales company I founded and later sold. In the same episode I admitted it was "a catchy headline to get your attention." My companies were still selling a large amount of services for cash, and "still for 90% of the deals that come through, We're still doing … cash pay services."

The deals I chose were specific. One client's sales team was a group of cold callers, all of them commission-based reps. Our standard service didn't fit how their organization worked, so we staffed a salesperson, ran our outreach for them and took a percentage of the deals that closed. I said the result was "significantly, significantly more advantageous" for us than a straight fee would have been.

The second, which I had just agreed, was with an earlier client who had paid us a fee for work that built one part of his business. When he wanted to repeat it in a new segment, we asked for a percentage of the revenue from that segment instead of a fee, in exchange for the content, SEO and promotion. I was clear about what that cost us: "the cash doesn't come up front. The cash is probably going to be delayed. There is risks."

A few months earlier, in a June 2020 episode, I had put the same idea to other service businesses: "go and find people who you can partner with and you can become like the marketing and sales arm for them." The trade was giving up the retainer and the down payment for a deal that would pay out bigger over the long term.

Those deals give a buyer a useful starting point, as long as you remember they were judged from the seller's side.

The fee structure changes the relationship

A fee buys a service. A share of results makes the agency a partner in one part of your business. Taking a share, I said, means you're "signing up for a bit more than just a standard client-supplier relationship." The partner is likely to become embedded in your organization and to stretch its usual scope a little to make the result happen.

That has consequences for the buyer. Expect a partner paid on closed deals to ask to see your pipeline, to have a view on how leads are followed up and to know how the result is being counted. It also carries a risk you don't. When I raised the idea, the objection most people had was "how do you know you're going to get paid?" I called those concerns "real things." So the agency is assessing you as carefully as you are assessing it.

Five tests for a share of results

Before you propose paying an agency or sales partner on results, check the arrangement against these. The first and third are the two criteria I named in 2020; the other three come from how my two deals were built. All five are turned around for the buyer.

The result is close to certain

I looked for deals "where we know we are going to knock this out of the park." One test was that "even if we come up short on this performance basis, we're still going to come out ahead of what we would get on a cash pay deal." Ask what evidence supports the partner's confidence, and what each side stands to lose if the result falls short.

Turned around, that test also tells you what a share of results costs. A partner that applies it expects to earn more than its fee would have been. In the same episode I said even a smaller number of these deals "can lead to the same profits and greater profits than what you would get on a cash pay deal." Under that kind of agreement, expect the partner's share to exceed its normal fee if the work succeeds. What the difference buys is paying out of results instead of up front, owing little if the work fails and a partner with a stake in the outcome. Compare what the share would cost at a low, expected and strong result, and what your company keeps after paying it.

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Jake’s historical account, summarized from this article. These results describe his experience and are not a performance forecast.

Both sides can count the result

My two deals were tied to deals that closed and to revenue from one new segment of the client's business. Before the work starts, agree exactly what earns a payment, whether revenue counts when it is booked or collected, how refunds are treated, how long the share lasts, who reports it and how disputes are settled. If the result depends on several channels and a long sales cycle, agree how credit will be assigned; multi-channel attribution explains the models and their limits.

Each side would choose the other as a partner

On the agency side, I said I looked at "values alignment," the other company's "track record" and whether this was someone I wanted to be in partnership with over a longer term. Of the first deal I said: "I knew the person I was getting into business with. I knew the offer." A buyer should expect the same questions, and ask them back.

The partner can wait for its money

If payment depends entirely on results, the partner funds the work before it earns anything, and it may earn nothing. That was the cost I named on the new-segment deal: delayed cash and things that could go wrong. A smaller agency that relies on your fee to cover its costs may agree to a performance deal and then struggle to staff it properly.

Your organization can administer the share

In the commission-based deal, the client already paid its own salespeople on results. Our standard service didn't fit their organization; a share of deals did. If your company already pays partners or employees for a defined outcome, a share for an agency may be easier to approve and administer. If it doesn't, expect more work to agree how the share will be approved, tracked and paid.

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The approach described in this article, shown as a visual guide.

When a fee is the honest structure

If you cannot agree on the result, carry the financial risk or administer the payments, use a fee. That was my own default: most deals stayed cash pay, and I offered a share only where I expected to win. A fee is also the clearer choice when the work builds something whose effect will be hard to separate from your other activity, or when you want to keep full control over priorities and scope. The two deals I've described were pure shares; a smaller fee with a share on top is another way to split the risk, and the share still has to pass the same tests.

A fee doesn't mean you have to settle for a supplier mentality. Later that June, in Invest in your customers, I said "a big case study win can almost be more valuable than profits" for a young service business, and described putting extra effort into clients who worked with us as collaborators. A client had told me: "I just want a company that's actually going to partner with me." I also admitted that some clients we served just for the money, mostly because they did not act as partners to us.

In 2020, the clients I chose to invest in were the responsive ones who carried their part of the work. So the buyer has some control over the partnership either way: share the context, respond quickly, carry your part and agree in advance what success looks like.

Questions to settle before you propose a share of results

My closing question in 2020 was for agencies: "What would your business look like if you really had a percentage of the upside in everything you were generating for your customers?" For a buyer it becomes simpler. Before you ask a partner to share your risk, would they say you are someone worth sharing it with?