Recently, we began working with a new client on a Web analytics and optimization program, and the client asked if we could guarantee the program’s ROI (define). They felt that since site optimization was something new and wasn’t in the existing corporate budget, it would be easier to get the funding if they had a way to lock in a known return.
Makes sense, right? We love hearing questions like this at our shop. An ROI guarantee works well when you look at performance marketing initiatives. How many of your marketing initiatives do you have ROI targets for? Do you truly hold your agencies and partners accountable for those targets? When they exceed them, do you reward them as well?
We rarely find that companies have specific performance targets for different initiatives outside of online media. Even when they do have goals or targets for media, they often aren’t comprehensive and rely too heavily on click-throughs to the site or the completion of one or two specific behaviors on the site.
There are often far more than one or two things people can do on a site to make a visit successful, of course. And much of the success the Web can deliver won’t occur on the corporate site — or online at all. Consider someone researching Sony’s site, then jumping to a partners site to buy or surfing to CNET to read a review. Ultimately, the consumer may go to a local Best Buy to check out, feel, and purchase the product. All sorts of triggers can indicate an improved likelihood of success as visitors navigate a site.
These measurements must include the impact to offline behaviors, and they often aren’t measured only through behavioral Web analytics methods. Attitudinal measurements (surveys, etc.) can bring clarity to understanding key site behaviors’ impact, particularly when the final success occurs offline.
To return to our client looking to lock in ROI: we dug in to determine how this could work (we’ve done these types of arrangements in the past and they’ve worked well). The key is to lock in the proper way to measure impact and come up with something that makes sense for both sides.
In this case, we’d been working with the client and already assembled a monetization model that quantified the impact of the Web channel through the site as well as via the multiple partners, both online and off-. For this particular industry we knew (from multiple third-party studies) a lot of research is conducted on manufacturer/corporate sites. Then, some transactions are completed online, but most occur offline in brick-and-mortar locations. We’d already gone through the process of creating a full monetization model for the Web channel, so we had a process in place and agreed to quantify in dollar terms the overall value of the Web channel.
I won’t delve into how to create monetization models in this column, as I’ve written about it in the past.
Once you have an agreed way to quantify success, pick a target and define what happens if the target is hit or missed. We agreed with this particular client fairly quickly on the ROI target we’d aim for. Based on the client’s fiscal year, the first round of the optimization program was only four months (a bit on the short side, but the fiscal year and budget timing were important).
We set up specific review periods with the following triggers:
- After three months: If we hit the ROI target, we’d be paid for the full four months of the agreement but wouldn’t need to spend the hours in the fourth month. This makes the contract much more profitable to the agency. It’s a win/win scenario: more profit for the agency and the client hits its target. Of course, the monetized value of its target dwarfed the four-month contract fee.
- After four months:
- If we hit the ROI target, the contract would be complete and we’d move on to phase two if both parties thought it made sense.
- If we didn’t hit the ROI target, we’d extend the contract one more month (free hours, per our agreement) to continue the initiative. This helps ensure we make the most impact on the target. This also greatly reduces chances for our profitability on the initiative, but we share the risk with our client.
The scenarios offers great incentives to both parties. It’s in everyone’s best interest to beat the ROI target. The client maximizes the benefit to its business (again, the amount paid for the initiative is minor compared to the ROI target’s monetized value), and the agency, if successful, can be more profitable.
Shouldn’t this be the way agency relationships work? Truly aligning rewards with defined and measurable client success?
Let me know your thoughts. More important, start pushing your agency partners to put some skin in the game and be more accountable for their decisions, processes, and work.
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