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boogle
09-30-2010, 08:24 PM
I have been employed in the non-profit sector for several years and have recently gotten out. As the director of an arts organization, marketing wound up being one of my primary responsibilities. I got pretty good at marketing on a dime. The town I live in has seen pretty exponential growth over the past 10 years and there are literally hundreds of small businesses struggling to keep their doors open (as in many towns) I am unemployed right now and enjoying being a stay at home dad, but really itching to do some work.

I had the idea of starting a small marketing company focused on small businesses, offering practical solutions guaranteed to fit within their budget. I would meet with them, identify what makes them unique, who is going to value what they offer, and how to turn those ideal prospects into clients. I would then draft a custom suggested marketing plan that outlines how we would approach their marketing and what the associated costs would be. The plan would work within their budget. If they only have a few hundred dollars a month they can afford to put into marketing, we focus on Guerrilla tactics and very carefully timed promotions and sales. If they have a little more we expand their website and look at ppc's and more print advertising, etc.

Only once we discuss the proposed marketing plan and associated costs does the business decide if they want to hire me. No risk, no contracts, only growth. I really genuinely want to help a lot of these small businesses and if I can make a little extra doing it great.

I have years of experience as a graphic designer and website developer, am a recording engineer and have done several promo videos, and know the town pretty well.

What do you all think about the idea, it is a little different than how most marketing companies approach things, and I would certainly be charging less, but it is also a pretty untapped market.

Thanks for any feedback.

Patrysha
09-30-2010, 08:48 PM
It is quite an untapped market, but it is not quite a new idea...it's been a field that's been growing rapidly for the last two or three years. It can be very lucrative and rewarding. With my experience in similar endeavours over the past 7 years or so, I wouldn't want to take them all the way through the development of a marketing plan without commitment and investment...way too many ways to get burned and burned out. Your mileage may vary and you may have a unique twist on it so that it does end up differently, but you'd have to really research and test your systems to make sure they do give you the result you expect.

Spider
09-30-2010, 09:38 PM
...Only once we discuss the proposed marketing plan and associated costs does the business decide if they want to hire me. No risk, no contracts, only growth....I like to think that people are honest yet they must do what best serves their needs. Having proposed a plan and discussed it, I'm afraid your prospective clients will feel, at this stage, they now know what needs to be done and don't need to hire you. Of course, they may know what needs to be done but not know how to do it. They will believe they do, will not hire you, will attempt to do it alone, will screw it up, and blame you for the mess and consider you didn't know what you were talking about in the first place.

Somehow, you have to stop this cycle of events before it works against you. You need to get hired and paid before you reveal your proposal. Or, - and I have done this successfully - arrange to be paid per new client created by your plan. Pay per peformance - the client can't lose and you get exactly what you are worth.

It's a great arrangement.

boogle
09-30-2010, 10:01 PM
Thanks, I guess getting into the plan before the commitment is what I am considering a bit more unique. You have a really valid point with the risk of getting burned/burned out. It is quiet possible I might be about to quickly find out why its not being done...

I asked about 5 or 10 local business owners I know who do not invest any time or money into marketing and the universal response was "our business is not big enough". As I said, more of my marketing experience is self taught and primarily through running or consulting for other non-profits. I found that every non-profit was skeptical of investing anything into marketing until they realized what was actually going to be going on. It was not until they saw the plan that they were sold.

While I agree developing a fully planned out marketing plan is unnecessary, I feel like showing them exactly what I would to do help is a strong selling point. From your experience, giving the obstacles from small business owners being especially skeptical of marketing, how would you get around developing at least a marketing summary and still winning them over.

boogle
09-30-2010, 10:07 PM
Or, - and I have done this successfully - arrange to be paid per new client created by your plan. Pay per peformance - the client can't lose and you get exactly what you are worth.

It's a great arrangement.

How do you arrange that setup, do you base it on sales prior to you being hired, or do you try to have a more sophisticated way of tracking clients.

Spider
09-30-2010, 10:36 PM
You could use past performance as a base and accept payment for increases in sales.

You could accept responsibility for all the client's advertising and promotion and get paid for every new client.

You could get paid for every new contact but not returning past clients, or you may include returning clients if your work is clearly instrumental in getting them to return.

If your client is going to continue their previous advertising and hire you for specific additional advertising, you will need to be able to differentiate between "their" new clients and "your" new clients, so you only get paid for what you generate.

The details of the agreement will be determined by the details of the project.


I think there is much to be said for the idea that today's clients need to know how you will do what you propose and being prepared to let some of them attempt it - and screw it up - on their own. As long as you get enough clients who gain confidence from your explanation and hire you to do the work because they don't have the time or inclination to do it themselves. It's pretty obvious with something that requires a recognizable talent - a hand-painted mural, for example. It's a bit more difficult where the skill is not so obvious - like advertising and promotion.

More difficult, maybe, but that just means you have to find a way to convince enough people that you have a talent for what you do that cannot be done by just anyone who thinks they know what to do. In time, the screw-ups by others compared to your own successes, could be your best proof of your talent.

Blessed
10-01-2010, 08:24 AM
I think it sounds like a great idea - although I'm with Patrysha - I wouldn't want to do the full extent of building the whole marketing plan without a way to receive any payment at all.

Since you have some of the skills necessary to pull off the marketing plan - the web design, graphic design etc... part of the payment could come in you charging to do those things for your clients. I.e. they are going to print and distribute coupons at the local Thanksgiving parade - so you design the coupon & charge them for that; print the coupon & upcharge that a little; the cost of both of those items is covered by their budget so you get paid a bit and the client is paying for something they would be purchasing anyway.

Your first few clients will be the most difficult to figure out how to charge and what to charge and what they are willing to pay - but, if you can start seeing success from your marketing plan with Business A, that owner will tell his friend who owns Business B about the great work you've done and then Business B will contact you and be less reluctant to pay you than maybe Business A was.

I feel like I'm talking in circles this morning :) so anyway - I work with a lot of small businesses. Yes - there are several who are reluctant to spend money on marketing, but there are always a few who know they need to do better marketing but don't know how to go about doing it and would gladly pay someone to help them out. If you can find who those people are in your community you will have found the cornerstone for your new marketing firm.

greenoak
10-01-2010, 08:38 AM
i have a brick and mortar....and would love it
if someone came in with a concrete offer to unify my paper presentation......tags, sign blanks, brochures, sacks, gift certificates,cards, etc etc....and a price....i think that would be great..right now our tags dont look like our brochures and our signs are all over the place in style..its bad...
...show a whole package and what it cost and what i would get...show a real tag, a real sack etc.....and tell me what would happen when i needed more......you cant just say,,im good i can do anything....
but it couldnt look like the guy who was selling dog fence it would l have to look like me...the store would have to like your work...you would have to see the store and it would have to be kind of custom...
maybe you would have to be hooked up with a printer or sack guy....then when i run out of some of the things you would sell them to me again.......
and if i/the store liked it you would be called for the christmas flyer the spring flyler etc etc....
i think some stores might be interested in getting rid of this job....and having a good unified paper approach....
we do all this inhouse....and its a big job....... if i found someone who was reasonable and GOT our direction it would be wonderful to give him all kinds of business....especially future ads etc....
good luck..i think giving the stores some real idea of the cost for something specific would be a good start....
and then there is computer help...and omgosh...they need it bad..
in that case how about showing them a simple brochure site that you actually did.....and telling them what you would charge...not a selling site..but just an attractive local site that makes a store look good and gives the basic info..plus setting up their facebook..... a start anyway...
i think stores need all kinds of services and have a hard time getting servers to say what they charge..... be specific on that and you would be ahead..show something specific with limits and a price..... and maybe get some takers.....
OR offer to take charge of some short term thing...like their anniversary party or their christmas openhouse... their christmas marketing work....if you have an idea on that.... its a huge job... its pretty late for christmas now.....
we are pretty big and spending several hundred a month on marketing would be a lot... we already have billboards soaking up ad money.... our ad budget is pretty big but that sounds like a lot...
also how about presenting a group ad with a cerrtain focus to the businesses? ...girls day out, whats in the neighborhood etc....that might work too...
well good luck!!! there is a need out there...

ann

Patrysha
10-01-2010, 10:18 AM
Thanks, I guess getting into the plan before the commitment is what I am considering a bit more unique. You have a really valid point with the risk of getting burned/burned out. It is quiet possible I might be about to quickly find out why its not being done...

I know it's a perennial topic on the small shop PR list...with scenarios similar to what Frederick mentioned. Or they choose to apply bits and pieces without knowing which ones are important and why...or they get started with something and then drop it...or because they've recieved your help, guidance and assistance for so long for free...they figure everything you do should be free and balk at your pricing...

Be very careful if you go with pay on performance plans. I know that at the Offline Biz forum (where it's mostly about providing online marketing services to offline business owners) there are several articles on positioning, posturing and payment. In a nutshell, if we are to be seen as experts we have to come from a direction that owners will respect to get the business. When we don't charge for our time, it's hard for others to see the value or take it seriously. I can teach the same concepts to someone for free as I deliver in a presentation that I charge for...the ones who hear/see the paid presentation will be more likely to follow through on what they learned (though most will still ignore much of it) than the ones who attended the free one, partly because they invested it and partly because the perception is that "there is no such thing as a free lunch" and that makes free things suspect, questioned and doubted.



I asked about 5 or 10 local business owners I know who do not invest any time or money into marketing and the universal response was "our business is not big enough". As I said, more of my marketing experience is self taught and primarily through running or consulting for other non-profits. I found that every non-profit was skeptical of investing anything into marketing until they realized what was actually going to be going on. It was not until they saw the plan that they were sold.

Yeah, I was mostly self taught too...though I have had great mentors and taken courses and so on. The thing is that most of the people who are not spending money, will continue not to spend money. Whether it's their self-limiting beliefs that are holding them back or they're just tight with money...it tends to be really hard to pull a person from no investment to some investment every dollar is like pulling teeth. The best prospects are people who are spending some money, but who might need help in making that investment successful (with a concrete plan, better ads, etc). You want to target the ones that you don't have to convince of the value first...the ones who know the value but are having a dickens of a time figuring it all out themselves and implementing it.


While I agree developing a fully planned out marketing plan is unnecessary, I feel like showing them exactly what I would to do help is a strong selling point. From your experience, giving the obstacles from small business owners being especially skeptical of marketing, how would you get around developing at least a marketing summary and still winning them over.

You can do that...showing them exactly what you can do to help them with case studies, your portfolio, stories and examples of things or even share thoughts of things you might do if hired. I've found only a small percentage of small business owners are actually skeptical of marketing...they know it works, but the don't know how and they've been burned in the past...people made grand promises and failed to deliver and they are hesitant to trust again. A proposal might be the trick that does convert them, but it's a time consuming and draining effort when less exhausting options work well...It's hard to scale customized proposals into a system that would make it an easy and quick process.

Spider
10-01-2010, 10:55 AM
If you have money to invest, a great way to overcome the reluctance is to offer to invest your own money in your client's marketing. I did this very successfully, not so long ago. It says, without a doubt, that you know what you are doing because you are not asking the client to risk their money on your ideas, you are prepared to risk your own money on your ideas.

You have to be very careful with your contract and CYA well, but it is a great way to close the deal. Who could resist an offer that says, If we fail I lose my money and you don't lose anythjing - if we succeed we both win.

cbscreative
10-01-2010, 11:43 AM
You want to target the ones that you don't have to convince of the value first...the ones who know the value but are having a dickens of a time figuring it all out themselves and implementing it.

I'll add a major second to that! Many of those local businesses may be suffering from self-inflicted wounds, and your best efforts might not save them. It's noble to want to help, but the help must be wanted. The people you asked responded in such a way that you will only burn yourself out trying to help them.

The good news is, if you can't help your local market (I would start there before writing them off), your experience will still serve others and you can be successful. You mentioned graphics and web with marketing experience. You'll find a few of us here on this forum who share the same skill set, and those skills work great together. Your idea will work regardless of whether you can gain local clients or not. There is far more need than there is supply.

Since I've not responded to your threads yet until now, and I don't see an intro thread of yours yet, let me also say welcome. You'll find this forum to be a great resource as you take the plunge into business.

boogle
10-01-2010, 01:02 PM
Thanks for the welcome, I just ran over and posted an intro thread. I really appreciate all the input. It sounds like a good balance is in order. I am going to offer some type of marketing summary to hopefully inspire people with new ways of thinking about marketing, with out giving it away or laboring too much before locking a client in. I agree that I am not going to get anywhere unless the prospect wants to go somewhere, and hopefully this approach can grab some good clients and even win over a few on the fence.

I will probably work off a monthly fee as opposed to a pay per client option. I may back track on that later, but I like the straight forwardness of a=b when it comes to pricing. I am working hard to make sure that I can offer a strategy that fits in almost any budget. A lot can be done by just knowing who you are targeting, having the right message, and streamlining your materials. That is pretty much my fee, and then however much more they can put into materials, ads, what ever is called for grows from there.

greenoak
10-01-2010, 02:20 PM
and dont forget you are in a huge field with lots and lots of people and instant experts, all trying to sell to us..especially on line...we get pretty jaded...
it must be easy world to get into .
..actually being in the same town with your target people should be really good...you have a chance of educating yourself on their needs...and trying to be a great fit...
thats why i think showing some actual examples of your work, for an imaginary client maybe , would show the stores what you could do...and some real prices would be nice too....
we are for anything that works...

Spider
10-01-2010, 02:29 PM
Don't drop the pay-for-performation option too quickly. You will find most small businesses prefer it. It's risky taking someone's word that they can produce - much easier to agree to pay for performance. Because, if you screw up under fee-based remuneration, there's nothing a business owner can do - screw up on a pay-for-performance remuneration and, at least, if you don't perform they don't have to pay.

And, you can earn a lot more on pay-for-performance than you can a fee. It's like comparing a salaried salesperson with a commissioned salesperson. The commissioned salesperson can earn a whole lot more, if they are good, and the business owner is a lot more willing to pay the higher amount when he is protected on the downside.

cbscreative
10-02-2010, 09:45 PM
Frederick, how's your success rate at getting clients to follow the majority of your coaching recommendations?

The reason I ask is because the pay by performance model would have that as the primary sticking point. If the client fails to follow all the guidelines being proposed, there will be less performance to get paid from. When the client has less invested, there is less motivation (it's human nature). You as a coach maybe provide that motivation, but a marketer might find that more difficult unless they also serve as a coach.

Under a performance pay agreement, you would need to have some kind of mechanism to offset the human nature factor. When the client has their own money invested, they are more likely to take more initiative.

I'll guarantee every person here who has done marketing has been approached with the "you'll make money when I do" deal, but any person not willing to pay with their money isn't likely to pay with the other commitments required for success either. I can see where this could work for a coach, but not every marketer wants to be playing the role of a coach.

Spider
10-03-2010, 04:26 PM
Steve, I couldn't follow your reasoning? Are you making a difference between pay-FOR-performation and pay-BY-performation?

If I understood you correctly, pay-BY-performation involved the marketer telling the owner what to do, relying on the owner doing it and the marketer being paid on the results. If that is what you had in mind, I can certainly see the flaw you described. At the point of non-performance by the owner resulting in poor results, I would just accept what small payments derived and not do any further work until there was some guarantee that the owner would do what he was supposed to. (In fact, that guarantee should be written into the agreement at the beginning.)

However, when I spoke of pay-FOR-performation, I had in mind the marketer being paid for the marketers performance, not the client's performance. As in - the marketer selling the ad-space, including ad. creation, or arranging a promotion, and being paid $x for every new customer generated. Ie. performance by the marketer.

Patrysha
10-03-2010, 05:24 PM
But then (if it is merely an agreement ad creation/space) the work of the marketer does can only be depended upon as far as getting the customer to the client.

How, if there is not a buy-in and commitment of some type from the business owner, can there be any assurance for the marketer that the business owner is going to close the sales? Without a commitment and understanding of the internal factors, the business owner may blow the sales through lack of attention to things like display, cleanliness, staff training and so on.

boogle
10-03-2010, 06:55 PM
Not to mention I am still having a pretty hard time understanding how some businesses would even identify how many customers I brought in. For a business who's sales are not static year-round, basing my work against previous months would not work. Maybe on the same month from a previous year, but even then there are a lot of factors that affect sales year to year, and that assumes the business has been open for at least a year (many of my clients may not). For most businesses there is no real way to keep a client log of every customer that comes through your doors. If you are working for a drive through coffee shop they are going to have no way of knowing what customers I brought in.

I also do not think you could make it just a flat percentage of sales, because I could effectively do nothing and still take home that percentage of their already existing customers. Once again I really appreciate all the input and Spider, I in no way am ruling the idea out, I just need your help to understand how to get past these obstacles.

Patrysha
10-03-2010, 08:10 PM
I've done one deal on a percentage of increased business over the previous year...but that was with a close friend where we had a whole mutual trust thing going on...

Spider
10-03-2010, 08:45 PM
But then (if it is merely an agreement ad creation/space) the work of the marketer does can only be depended upon as far as getting the customer to the client...That is true and a PFP (pay for performance) commission of $x per lead might be more appropriate. That is what the marketer does - provide real walk-in-the-door leads that the owner must then sell.

Nothwithstanding that ....
...How, if there is not a buy-in and commitment of some type from the business owner, can there be any assurance for the marketer that the business owner is going to close the sales? Without a commitment and understanding of the internal factors, the business owner may blow the sales through lack of attention to things like display, cleanliness, staff training and so on.You cannot be assured that the owner will close the sale, and that does mean the marketer is relying, at least in part, on the skill of the owner, but - and I think this is important - the owner is surely going to be doing his best. The owner is surely not going to be purposely killing the sale in order to save paying the marketer because it will cost the owner the sale. (Item for sale $100, commission $30. Destroyed sale saves paying the $30 but costs the owner $70 to do it. Doesn't make sense.)

Furthermore, if the owner is likely to lose sales due to poor display, cleanliness, staff training, etc. these can be dteremined beforehand prompting you not to set up this kind of deal with this kind of owner.

Spider
10-03-2010, 09:25 PM
Not to mention I am still having a pretty hard time understanding how some businesses would even identify how many customers I brought in...Some may not be able to and a different arrangement would need to be set up. But some will be able to.



...For a business who's sales are not static year-round, basing my work against previous months would not work. Maybe on the same month from a previous year, but even then there are a lot of factors that affect sales year to year, and that assumes the business has been open for at least a year (many of my clients may not).....There are many ways that what I suggest would not work. Success in business is never achieved by finding ways that won't work. Success comes from finding ways that WILL work. Why don't you focus on that - How many ways can you find that will work? And how many businesses are there in your territory that could accommodate those methods?



... For most businesses there is no real way to keep a client log of every customer that comes through your doors. If you are working for a drive through coffee shop they are going to have no way of knowing what customers I brought in...I am not going to continue this conversation if you are adamant on finding ways that will not work. Let's try to find ways that will work. Like, for example, "Clip this ad and bring it in for a free bun with your coffee." Everyone who claims the free bun is someone you brought in. "No cover charge before 7pm." "Ask the cashier for your free gift." "Tell one of our staff this magic password..."


... I also do not think you could make it just a flat percentage of sales, because I could effectively do nothing and still take home that percentage of their already existing customers. Once again I really appreciate all the input and Spider, I in no way am ruling the idea out, I just need your help to understand how to get past these obstacles.There are businesses that have a roster of their existing customers - gymnasiums, beauty parlors, pet grooming salons, veterinarians, opticians, dentists, auto-maintence shops, cleaners, anywhere people go on a regular basis. There are also many businesses that do not have regular customers so that every customer is, effectively, new and attracted by advertising - shoe repairers, clothing stores, TV and electronic repair shops, furniture stores, restaurants, and so on.

You get past obstacles by being creative, by asking better questions, by thinking "How can we do this?" instead of "Why won't this work?"

Harold Mansfield
10-04-2010, 10:25 AM
I think we have had this conversation before and I am of the opinion that pay per performance is a bad idea and a terrible way for a start up to stay in business. There are too many variables that could backfire not withstanding the ability of the business owner.

Considering the services that you are offering, design, graphics, web design, marketing, AND advertising..your cost per client...even a small client could easily be thousands. I wholeheartedly disagree that you should take your resources and invest in this model, basically financing the job in hopes of getting paid later, rather than taking that investment and using it for your own advertising and equipment.

Merely teaching people is one thing and doesn't generally take the man hours, software, hardware, technical skills, and expense (should you need things like additional photos, scripts and licenses) to finish the project. These things all cost money to do.

I agree with Patrysha, if they don't see the value in what you do up front, you will get burned. Maybe not every time, but enough times to not make it worth being in business in the first place.
I argue that its also human nature to devalue a service once it has been performed at no cost, and you will get many people that want to renegotiable terms or plain out rip you off...no matter what is in contract. What are you going to do, sue everybody? Have you ever seen the surprise on someones face when they get their bar tab? Doesn't seem as valuable once they have already drank the drinks.

This business model may work with a long term contract for a larger company with a good credit rating, but I don't see this as a good business model when dealing with small businesses that may be struggling in the first place. IMO, there is no way to effectively know about an increase in business. It requires the honesty of the business person and I don't subscribe to the notion that people are inherently honest when it comes to money. Just the opposite.

The comparison of a commissioned salesman doesn't apply to me because a commissioned salesman gets paid when the product is sold, not whether or not it is successful. And a salesman works for a company that has the resources to collect. As a small business, you don't need to waste that kind of time and energy hunting down payment and accurate records to prove that what you have done is responsible for an increase in business.

I do see pay per performance work in the club scene. Promoters traditionally get paid per performance...how many people they can bring in, but they are also on site, perform their own accounting, and get paid at the time or end of the event.

I don't see too many businesses today operating on a "pay later" basis unless credit is given. This may have been an effective tool 10-20 years ago, but in todays climate you will get burned. There are enough people out there with money that will allow you to operate normally. You don't have to give it away to prove yourself. You just need to do a good job.

I turn down people regularly that don't want to pay anything up front because they will make your life hell and make you jump through hoops to get paid, usually ending up with you performing more work than agreed upon because they think they have you by the balls.

Once the work is done, the materials have been designed, the ads run and the website is up, you are too vulnerable and the risk too high. You will spend all of your time in court.
No way, I wouldn't do it and you don't have to, to be successful.

Spider
10-04-2010, 11:10 AM
If something isn't being done, or isn't being done the way you are considering, there can only be two reasons--

1. It hasn't been tried before, or
2. It has been tried and no-one has found a way to do it profitably - yet.

When Southwest Airlines started up, they offered a cheap, no frills flight. No other airline had tried that, and SW went on to huge success.

When Woolworth began their everything-on-display counters, no-one had been able to do that profitably before, but W did and became a huge success.

Before Ray Kroc, hamburger stands were privately-owned individual businesses. Kroc took the McDonald's brothers hamburger stand and turned it into the mega-business we know today.

I started a plumbing company, loaded up on overheads before we hired any plumbers, refused all maintenance and repair work (the sort of work startup plumbers generally start with) and went after mega-installation work only. Plumbing, as a trade, is as old as the hills, but no-one - to my knowledge - had ever approached it like that. We were very successful.

None of these examples was a new type of business - the first is never the ultimate winner. The ultimate winners are those who take what has been done before and improve upon it.

Harold Mansfield
10-04-2010, 11:21 AM
I totally agree with you. It takes ingenuity and certain amount of risk to rise above all others. But just because an idea is presented, doesn't mean that there is a workable solution and not every business , especially a small one with not much working capitol, can implement that solution in the beginning....it usually takes money to make money.
You have to make it before you can spend it.

cbscreative
10-04-2010, 11:53 AM
I think we have had this conversation before

I was thinking the same thing early on.

Frederick, your point of being different will not be argued with, and if there was a way to utilize the model you suggest successfully, there could be a fortune to be made. Many newbies to our industry have tried different variations of the idea, and quickly either wise up or go under. Harold's point that people don't value something that they have little or no investment in is a major obstacle to what you are suggesting unless you can successfully provide motivation some other way (yes, I expect you to use this point somehow which is why I included it).

I would also say a major Amen to the fact that there is so much opportunity without resorting to such a model, that the motivation for me to try it does not exist. In fact, while the idea may attract some, usually the wrong kind of client, it actually repels buyers that know there is value in the service. It's the exact same principle where people try to give away puppies and no one wants them, but if they sell them, the puppies find better homes quickly.

You might be right that there is a way to make it work, but without a good reason to try, or because of the extreme risk of attracting bad clients, that's a moot point.

Harold Mansfield
10-04-2010, 03:00 PM
I will say that I have flirted with the idea of "financing" new businesses with a website and hosting, but on a monthly fee. Instead of say $2k with $1k up front, maybe charge $200 a month with an option to buy the site at the end of a year, but, getting people to pay monthly on time is harder than getting an initial deposit and should the business fold within a year, I am left with no assets that can be liquidated to recoup losses.
Once a website is designed for someone it is on no use to anyone else and even if you include the domain, most times that is also personal to the business.

I do know of one or 2 domains that are leased, but even in that instance you still retain the domain should the client not pay and have control over what website is hosted on that domain.

If you offer people free service with the option of paying later based on performance, you will get tons of takers. Many people will take the chance, but it's not their own risk, it's yours. It's the whole principle behind "No payments until 2012". Too many people will take that deal and figure out how to pay later. That's the kind of risk that crashed the economy in the first place and I think that it has proven in spades not to work.

Spider
10-04-2010, 04:45 PM
...It's the whole principle behind "No payments until 2012". Too many people will take that deal and figure out how to pay later. That's the kind of risk that crashed the economy in the first place and I think that it has proven in spades not to work.Actually, you offer proof that it WILL work - HAS worked - too well. A lot of people sold a lot of houses. They still have their money (if they didn't squander it later on something else.)

Harold Mansfield
10-04-2010, 04:51 PM
Actually, you offer proof that it WILL work - HAS worked - too well. A lot of people sold a lot of houses. They still have their money (if they didn't squander it later on something else.)

But for most people the concept of "we'll figure out how to pay for it later" backfired and left a lot of lenders holding the bag. If you finance the project, you become the lender. Of course what ever products and licenses you buy to finance that project is money in pocket for some, but you still get left holding the bag.

Spider
10-04-2010, 05:20 PM
Harold, you can go on all you want and you will certainly find reasons that make it not work. As I have tried to get across above - business success comes not from finding ways something doesn't work, it comes from finding ways that work. As long as you keep looking for one you will never find the other.

Harold Mansfield
10-04-2010, 06:08 PM
Harold, you can go on all you want and you will certainly find reasons that make it not work. As I have tried to get across above - business success comes not from finding ways something doesn't work, it comes from finding ways that work. As long as you keep looking for one you will never find the other.

That's just the point. I don't see a reason to make it work. It relies too heavily on others doing the right thing which will get you burned. If there were a way to do it to guarantee payment after the fact (such as when a plumber puts a lien on a property), then I would be more tuned to the possibilities, but, trusting people to pay after the work has been done is not a business model that I am interested in investigating.

Just because I don't like it or don't believe in it has no bearing on my ability to be successful in many other ways. There are 100's ways to do business. I just don't like this one.

You look at it as if I have a closed mind. I look at it practically and know that based on experience it is too great of a risk that could force me out of business.
Not only that, it's not even a necessary risk..it's just an idea. They are a dime a dozen and not everyone is going to like them.

Patrysha
10-04-2010, 06:13 PM
But why would you keep searching for another when there is proven profit and less stress and worry in what exists?

boogle
10-04-2010, 07:14 PM
I think it is a bit of an oversimplification to put things in either "works" or "doesn't work" categories. It is not that charging on commission will not work, its that it is not the best way to work. Until the idea can overcome the obstacles presented in several of the positions in this thread, it does not make since to take an unnecessary risk.

cbscreative
10-04-2010, 09:48 PM
You might be right that there is a way to make it work, but without a good reason to try, or because of the extreme risk of attracting bad clients, that's a moot point.


I don't see a reason to make it work.


But why would you keep searching for another when there is proven profit and less stress and worry in what exists?


Until the idea can overcome the obstacles presented in several of the positions in this thread, it does not make since to take an unnecessary risk.

Frederick, you've made it clear you like to get people thinking outside their normal parameters, but there are times when there is nothing to be gained by that. This is one of them. You can accuse us of making reasons it won't work, but really, we lack a reason to make it work.

Spider
10-05-2010, 12:02 AM
%

I take that as an invitation to offer a reason to make it work, Steve. Okay. Challenge accepted.

Allowing (for the sake of convenience) that everyone you quote prefers to work for a flat fee - "This is what I do, this is how much I charge."

There is a certain amount of work available and sufficient work for these four people. Let us suppose (for argument's sake) that this sufficient amount of work in the style required is only half of the available market. That is to say, 50% of the businesses that would like to have what these four offer cannot or will not afford it. Thus, four businesses share 50% of the market. The other 50% goes unserved.

I come along, wishing to get into this field, and see four people serving 50% of the market. I have a choice. I can either compete in the the easy segment and try to win 20% of the 50%, thus squeezing the other four from 25% each to 20% each, or I can go into the other 50% and take over that entire segment - 20% or 50%? I choose the 50% that is not being served.

Bigger market, less competition, great opportunity to win, big -time!

--- Shoe company A sends salesman to Africa - he cables back: No business here! No-one wears shoes!
--- Shoe company B sends salesman to Africa - he cables back: Double shipment - great opportunity! No-one wears shoes here!

After some investigation, I realize that the 50% of the market that is being satisfied are able to pay as the four suppliers demand - cash up front, payment for work done, etc. The other 50% go without, because they cannot or will not meet those terms. But I find out, they are willing to pay on performance. They will not pay $1,000 for a website that may or may not produce 10 new clients a month at $100 average sale, but they are prepared to pay $20 for every sale I bring them, which they pay for out of the $100 they get from the sale.

In the first case they could lose $1,000 if the website doesn't bring them any business; in the second case, they cannot lose - no sale, no payment. I sign up as many out of the sub-50% as the four do out of the prime 50%. The four earn a total of $8,000 - 2 businesses each. I sign up 8 businesses, too, on a $20 per sale basis.

If the four are to stay in business, what they produce and charge $1,000 for must make their clients money, or they will soon not be in business. At $100 average sale with a 33% markup, their work must produce $24,000 in total for their 8 clients to break even = $3,000 sales for each client. If my 8 clients sell $3,000 each at $100 per sale, they each have 30 customers and they pay me $20 per sale = $600 per client x 8 clients = $2,400 per month, and every month thereafter.

Your four get a one-time fee of $1,000 x 2 clients = $2,000 each. I get $2,400 per month, every month, as long as it makes a profit for my clients.

In this case, you can have your up-front, flat fee for half the market - with my blessing.

(Obviously, I have simplified this, but I hope you get the idea. I also hope I got my math right - it is a bit late!)

billbenson
10-05-2010, 01:28 AM
It strikes me that the objections to Spiders theory are one man shows (or women) and pretty much intend to stay that way. They also stay pretty much booked. If you were just starting out or had a type of business that you would like to expand beyond the one man show it might be a viable business model to consider.

Harold Mansfield
10-05-2010, 02:20 AM
Spider, I'd have to say that if you want to tackle a segment of the market in that fashion, not only do I fully support you, but I welcome you into the industry. On the outside looking in (as you are) it sounds great on paper...but I know from experience that you are going to get burned and attract BS clients, and you are going to continuously back yourself into a corner that you cannot get out of by promising that a website alone will bring in customers and trust your client to be honest about it and not lie to you to avoid paying.

You do have some kind of unnatural trust that everything is A-O.K and everyone is honest. The rest of us are realist and know what people are capable of and have heard every excuse in the book, therefore I see no reason to reinvent the system that was created solely BECAUSE you can't trust people to pay later.

The entire reason that we all do it the way we do is because we have already learned that the way you are proposing doesn't work. We already know that we can't bill people later and expect to get paid.
Once I know something doesn't work, I see no reason to keep investigating it. Especially something that depends on the honesty of other people.
It's a waste of time.

boogle
10-05-2010, 09:29 AM
So with either model, flat rates or pay per performance, would you include a contract obligating them to a monthly rate or percentage for a certain amount of time, or do they just pay each month they want to use you and then stop when they feel like they can take it over themselves?

Blessed
10-05-2010, 10:26 AM
I think the problem is in the type of business that we who object to the pay-for-performance method are doing. Is it feasible? Sure - anything is feasible, but unless I have access to the unaltered, internal sales records of the company past & present I'm not going to work on that method because my experience is that if I try to work that way I won't get paid. Some of it is simply people trying to take advantage of my skills without having to pay for those skills, but some of it is people who don't keep good track of their sales - who can't tell me - with supported facts and actual figures - how this month is compared to the same month last year. Measuring all of those things is a marketing task - but we usually don't have access to that information.

Another argument against pay-for-performance for marketing type work done by an independently contracted firm or individual is the simple facts of how many times a message has to be heard/seen/read before a potential client makes the leap to do business with you. I drive by the brand new children's consignment store in town 10 times, see their grand opening sign for a week, get an email/direct mail piece in the mail, see an ad in the newspaper, Google them to check out their website if they have one and then finally after all this exposure I take a Saturday to run a few errands and decide to drop in to check out the store. Why did it take so long to get me into the store - when I'm obviously in the demographic, the store is on the right side of town for me and I drive past it often? Because it takes repeated exposure to draw in most customers.

Another argument against pay-for-performance with marketing work is the lifespan of marketing pieces. Say I organize a grand-opening weekend, we print fliers, we have ads in the local media - print and radio/tv, we build a website, we have a special offer.... I guarantee you that if we get 1000 customers to come to the grand opening weekend, at best half of them would make a purchase that day and at least half of those would never step foot into the store again - of the other half probably at least half of them would visit later and become a customer, then there are at least another couple hundred out there who will show up in the store and become customers within the next 6 months even if they only saw the grand opening weekend marketing materials - I've seen women carry around a flier or a coupon for a store event for months - and eventually they go visit the store even if the coupon isn't good anymore - the day the coupon was good for simply wasn't a good time for them and eventually their schedules worked out to where they could show up. So if I worked for pay-for-performance for that event how would I be paid? For the 1000 customers I brought in, the 500 that made a purchase? Do I earn a percentage of what is sold that day or a flat rate for everyone who walks in the door? What about those who come in later because of the work I did for the Grand Opening but weren't able to come that day for some reason?

Are there ways to make pay-for-performance work? Yes - but I don't see it being practical in this field. We're dealing primarily with skills, knowledge, talents - not with physical things and other easily measurable items.

Blessed
10-05-2010, 10:31 AM
So with either model, flat rates or pay per performance, would you include a contract obligating them to a monthly rate or percentage for a certain amount of time, or do they just pay each month they want to use you and then stop when they feel like they can take it over themselves?

What I have done until this point is I do the work, bill the client, get the check. I've been burned enough by new clients now that I require a deposit from anyone I haven't worked for before up front. If we have an ongoing relationship I just bill at the end of the job. Usually I quote the job based on the estimated hours it should take me to complete it. I've got flat rates for things like business cards, stationary, etc... now - but those flat rates are based on my hourly rate and my personal experience of how long a job will take. However - I also only work with print materials and event organization/coordination at this point - I'm learning web design, when I start into that I imagine I'll need to start thinking about contracts and monthly rates and etc...

It sounds like you and I target similar markets, feel free to PM me if you want to talk more specifically about what my experience has been over the past few years in working with local small businesses.

Spider
10-05-2010, 10:49 AM
...It's a waste of time.I'm glad there are business people like you, Harold. You see, you pave the way. You establish, and your happy clients demonstrate to the market, that this is a ligitimate business, in whatever fashion you get paid. You are happy, your clients are happy. Life is good. This allows entreprenurial types like me to come along, dig around in your offcastings and find the real gold.

Spider
10-05-2010, 11:02 AM
So with either model, flat rates or pay per performance, would you include a contract obligating them to a monthly rate or percentage for a certain amount of time, or do they just pay each month they want to use you and then stop when they feel like they can take it over themselves?That would depend on the type of work, upfront costs and the deal as negotiated between the parties. Some time ago, I did a pay-by-performance project on exactly the basis I outlined above. Because I had some considerable upfront costs (space advertising, local magazine, long lead time), we included in the contract an "Early cancellation" clause that included compensation for losses an early cancellation would cause.

Also, understand, that a contract must be finite - that is, there must be a stated end date or a means within the contract that an end date can be determined. A contract that goes on forever is not legally binding. My contract, in the case mentioned, was for two years with conditions agreed for earlier cancellation by either party.

Spider
10-05-2010, 11:17 AM
...Are there ways to make pay-for-performance work? Yes - but I don't see it being practical in this field...You can make it practical by the terms of an agreement. I have demonstrated that it can be done. It doesn't matter that you choose not to do it, that's fine, Jenn. The good bit is, you get to choose the segment of the market in which you like to work, leaving the big money for people who are prepared to risk more to gain more.

Harold Mansfield
10-05-2010, 12:23 PM
I don't understand why you are determined to infer that we don't know what we are talking about or are closed minded because we disagree with you. How ever you have done this in the past (past being the operative word) doesn't mean that you can apply it across the board to every type of business in every industry.

If you think there is a market in billing people later or pay per performance in marketing and web design, then I say go for it. You are determined not to heed the advice of people who are actually working in the industry and have tried versions of this method in the past with disastrous results so it seems not much more can be said. You think you know what we do better than we do.

I think being open to possibilities is a great trait to have, but being different just for the sake of being different and no other practical reason is a waste of my time and a risk that could destroy the company.

No matter how many scenarios you come up with, the bottom line is, this type of deal requires the honesty of the client. It doesn't matter what is in the contract, the bigger picture is the constant potential expense and inconvenience of having to constantly enforce the agreement in court. I for one am not going to do business in a way that is going to require me to possibly spend $500 to collect $1000 50 percent of the time.

We aren't talking about million dollar jobs here, so the expense of collection, and enforcement is not justifiable, especially when I am have clients all over the world.
This may work if you are dealing with a local client, but how am I supposed to enforce a pay later contract with a person or company in Iceland, The Bahamas or Ireland ? or even New York for that matter? Why would I leave my self open to even have to when it's not necessary ?

If you give this type of advice to one of your small business clients in this industry, you will bankrupt them.

You need to tailor your advice to specific types of businesses and not try and apply everything to every business.

What may have worked for a large plumbing company with local clients 20 years ago, is not necessarily going to work for a small marketing company with clients worldwide today and you don't seem to realize that. It's not all the same.

You are speaking in concepts and ideas and we are all speaking in reality and actualities.

MommyL
10-05-2010, 12:37 PM
Speaking from the stand point of a brand new small business myself, I think this sounds like a wonderful opportunity. To me is shows that someone else is taking an interest and wants me to succeed. It does sound like a win/win situation on both sides.

Blessed
10-05-2010, 01:08 PM
Hi Heather -

Since I'm old and jaded in the marketing business here :) tell me how it sounds like a win/win to you for both sides.

If I'm remembering correctly you are in the business with Design & Details - offering virtual assistant and marketing services. As a customer and as a marketer how does it translate into a win from both perspectives - client and customer?

Blessed
10-05-2010, 01:14 PM
You can make it practical by the terms of an agreement. I have demonstrated that it can be done. It doesn't matter that you choose not to do it, that's fine, Jenn. The good bit is, you get to choose the segment of the market in which you like to work, leaving the big money for people who are prepared to risk more to gain more.

I'm really not trying to get into a who is close-minded and locked into doing business in a small way mentality vs. who is open-minded and willing to jump off a cliff and make a million dollars argument.

I simply pointed out the pitfalls to the pay-per-results model I see for the individual providing the marketing services, from the perspective of one who provides marketing services, is ready to expand her business and is looking at ways to do that, including possibly changing the current business model. As billbenson pointed out - most of us who object to your arguments at this point are one-man shops. I know Steve with CBS Creative is about to make a jump away from that (if I understand the hints he's dropped recently correctly). So far I haven't read an argument in favor of pay-per-results that I don't see big holes in for the individual providing their marketing expertise and skills.

Blessed
10-05-2010, 01:17 PM
That would depend on the type of work, upfront costs and the deal as negotiated between the parties. Some time ago, I did a pay-by-performance project on exactly the basis I outlined above. Because I had some considerable upfront costs (space advertising, local magazine, long lead time), we included in the contract an "Early cancellation" clause that included compensation for losses an early cancellation would cause.

Also, understand, that a contract must be finite - that is, there must be a stated end date or a means within the contract that an end date can be determined. A contract that goes on forever is not legally binding. My contract, in the case mentioned, was for two years with conditions agreed for earlier cancellation by either party.

There are a couple of key points here - an early cancellation clause that includes compensation for those up-front expenses and an extended campaign - short-term would never work fairly for the person providing the marketing services, unless the pay-for-performance fee was high.

Harold Mansfield
10-05-2010, 01:23 PM
Speaking from the stand point of a brand new small business myself, I think this sounds like a wonderful opportunity. To me is shows that someone else is taking an interest and wants me to succeed. It does sound like a win/win situation on both sides.

Yes it's a wonderful opportunity for you because you don't have to pay for services up front and still get them done, BUT, would you do business this way if you had clients spread across the country and around the world?
If so, how would you enforce it?

billbenson
10-05-2010, 02:33 PM
Eborg, if you had a staff of 10 web designers, I suspect you could come up with a viable model similar to Fredericks. You stay booked right now time wise so you wouldn't want to change any more that a one person dental office that stays booked needs a 50 page web site. However, if your business model had employees who you wanted to keep busy at various skill levels, I submit it would be worth looking at it. Of course you will have some non payments and problems. That is just factored into the business model. Everybody keeps responding to this as one man shows which may not be practical or work in their particular industry.

Spider
10-05-2010, 02:35 PM
I don't understand why you are determined to infer that we don't know what we are talking about or are closed minded because we disagree with you...There is no such inference from me, only what you choose to see.

I have said - and implied - several times that you get to choose which part of the available market you wish to serve. I acknowledge that your way is fine way of doing business. I have not said your way won't work or that my way is better - I am saying my way is different, less safe than your way but potentially more profitable. You, dear Harold, are the one saying that pay-for-performance is a bad idea and a terrible way to start a business, and that my suggestions don't work. As to who is closed minded, I have not said that any method here has been proven in spades not to work, nor that I don't see any reason to make something work. Guess who did!

Spider
10-05-2010, 02:42 PM
Speaking from the stand point of a brand new small business myself, I think this sounds like a wonderful opportunity. To me is shows that someone else is taking an interest and wants me to succeed. It does sound like a win/win situation on both sides.Heather, I'll second Jenn and ask to know how you see the win/win in your interpretation of my suggestions. I don't deny that there are risks - anything that offers big money contains risks. The trick - the win - comes in minimizing those risks and winning more times than you lose.

We really have not gone in to that side of things, yet.

Spider
10-05-2010, 02:55 PM
...So far I haven't read an argument in favor of pay-per-results that I don't see big holes in for the individual providing their marketing expertise and skills.Of course - there are always big holes in generalized concepts, Jenn. The easy holes to fill are filled first - the low-hanging fruit. But, there is always a lot more fruit on the tree that is out of reach. It is possible to fall from a high branch and get injured, and not much chance of injury picking the low fruit. But there is less low fruit and more competition for it.

Harold Mansfield
10-05-2010, 03:00 PM
There is no such inference from me, only what you choose to see.

I have said - and implied - several times that you get to choose which part of the available market you wish to serve. I acknowledge that your way is fine way of doing business. I have not said your way won't work or that my way is better - I am saying my way is different, less safe than your way but potentially more profitable. You, dear Harold, are the one saying that pay-for-performance is a bad idea and a terrible way to start a business, and that my suggestions don't work. As to who is closed minded, I have not said that any method here has been proven in spades not to work, nor that I don't see any reason to make something work. Guess who did!

Yes, I am saying emphatically that for a one man show or a small business just starting out that this is a terrible way to do business and offers too much risk when every dollar counts.

If you can answer how a new, small business is supposed to enforce a contract with a client in another state or even in another country, I'd be willing to consider the possibilities, but the way I see it, you don't have any options for enforcing a contract with someone in another country...if it is even enforceable at all. So what good is whatever the language is in the contract if you have no way of enforcing it?

I don't see the reason to adapt this model when the possibilities of disaster are so high, the possible costs are so extreme and it is not even remotely necessary in order to grow a successful business.
If I ignore worst case scenario in lieu daydream possibilities, I am not doing my job.

It is very possible to run your business this way if you choose, but it is not practical or safe and you will get burned.
If you can afford to get burned and expect it, then go for it. Doesn't sound very efficient to me just for the sake of doing something different. I don't want all of the fruit on the tree. Just because it is there doesn't mean it's worth picking.

People who say they want something when you offer to give it away, are not the same as people who will pay for what they want.

It's why the post office doesn't do C.O.D anymore or why you can't start a bar tab without a credit card.
You cannot predict or trust the honesty of people to do the right thing once you have already given them the product and I see no reason to take the risk against all sane reasoning, when experience has already taught me the outcome.

cbscreative
10-05-2010, 05:36 PM
Jenn, you're right about the hints I've been dropping about changing my business, and there's an element of Frederick's logic I adopted over a year ago that has been going well enough that I'm implementing it further. But there is still the gaping hole your illustration does a great job of illustrating. Actual performance is difficult to measure. A postcard for example will typically get pinned to a corkboard or put on the fridge with a magnet and yield response months after being sent out. These kinds of variables make a true PFP like Frederick is outlining very difficult to manage, therefore removing the motivation to use it.

However, overall performance can be seen. If you are doing a marketing program for a client, wouldn't you expect their sales to be better over time? If it's working, there will be evidence even if you're not tracking all the details that are pretty much impossible to measure with complete accuracy. If this is the case, then why would a client choose to kill a cash cow? You can structure a compensation where you still get paid well while using the performance as a motivator for the client to continue. I wouldn't recommend this model for newbies, but once you have the ability to weed out bad clients, you can make it work.

Even though I have experimented successfully with alternative models, I will quickly point out that the pitfalls expressed by others here are very real. For a newbie, it could be a mine field. I'll be very careful in saying Frederick has some good points, which he does, because Harold is also right about people not being inherently good when it comes to money. I explore more options because it's true that I am looking to expand way beyond my current boundaries, just like bill pointed out.

MommyL
10-05-2010, 05:49 PM
I can definitely see both points of view here. It seems to me that the OP was looking for a way to give out a "free sample" of his service, which is a tried and true technique for getting new clients, especially for those who are unsure about spending money on a marketing consultant. Of course, the trick is not to give away so much that the client has no need to hire you. It's a fine line!

Spider
10-05-2010, 06:13 PM
Thank you, Steve - I take your post as vindication. Nevertheless, I would be just as cautious as you in when to recommend this model. I would explain how it has worked for me, as I have here, and let people decide for themselves whether they could make it work in their business. And if they so decided and wanted me to coach them in it, I would do that. But insist that this, or any other business model, is the only way to go, is something I would never do, and I am glad to see that you are not doing that, either.

greenoak
10-05-2010, 06:48 PM
back to perfomance....heres A BAD EXAMPLE...I WASNT IMPRESSED AT ALL..... WE JUST HAD OUR BIG TV RUN of ads ...THE REP CALLED AND ASKED HOW OUR YARDSALE WAS...I SAID GREAT,,,,AND SHE SAID, see I TOLD YOU SO....there were so many issues that made the sale what it was....the 20th one, all great, the stuff, all our internet and email efforts, etc etc etc...i thought her comment was pretty weak...

it is really hard to guage what comes from where.... and its so subjective...so i wouldnt want to work or pay on performance...
we judged our tv ad as worth it ...because so many people mentioned it when they came in the store...its not a strict science the way we do it anyway...
ann

Harold Mansfield
10-05-2010, 09:39 PM
It seems to me that the OP was looking for a way to give out a "free sample" of his service, which is a tried and true technique for getting new clients, especially for those who are unsure about spending money on a marketing consultant. Of course, the trick is not to give away so much that the client has no need to hire you. It's a fine line!

Most times a consultation combined with a portfolio of past clients, examples, and/or references can do the trick. But how do you show all of that stuff when you are just starting out and don't have it?
You work for less if you have to or even free, to build some kind of work history and put some finished jobs under your belt to show future clients...then you are on your way and you can start getting firmer on the pricing.

Another way to show expertise and provide information to potential clients and those on the fence is posting frequent blog posts and articles on your website, and anywhere else where potential clients may look for information.

Blessed
10-05-2010, 11:37 PM
...But there is still the gaping hole your illustration does a great job of illustrating. Actual performance is difficult to measure. A postcard for example will typically get pinned to a corkboard or put on the fridge with a magnet and yield response months after being sent out. These kinds of variables make a true PFP like Frederick is outlining very difficult to manage, therefore removing the motivation to use it.

This is what I'm trying to get at - I think there is a way to make PFP work - but in a limited fashion, not with it being 100% of your compensation for the work you've done.


However, overall performance can be seen. If you are doing a marketing program for a client, wouldn't you expect their sales to be better over time? If it's working, there will be evidence even if you're not tracking all the details that are pretty much impossible to measure with complete accuracy. If this is the case, then why would a client choose to kill a cash cow? You can structure a compensation where you still get paid well while using the performance as a motivator for the client to continue. I wouldn't recommend this model for newbies, but once you have the ability to weed out bad clients, you can make it work.

Yes - I would expect those sales to improve over time and I'm sure the client wouldn't kill a cash cow. The problem I've had is getting clients to stick with the plan long enough to see the results start coming in. Sure, I have a few that do - but for the most part clients are expecting instant results and aren't willing to commit to a measurable span of time or money necessary. The longer I'm in business the better I'm getting at selling the need for an extended marketing campaign - rather than a one weekend extravaganza, or a flier or ad that will solve every need.

I agree that it's a questionable concept for newbies.


Even though I have experimented successfully with alternative models, I will quickly point out that the pitfalls expressed by others here are very real. For a newbie, it could be a mine field. I'll be very careful in saying Frederick has some good points, which he does, because Harold is also right about people not being inherently good when it comes to money. I explore more options because it's true that I am looking to expand way beyond my current boundaries, just like bill pointed out.

Those pitfalls are real - I'm at the point where I'll take a few chances, but I'm still very hesitant to take on a full PFP business model. I see good points in both Frederick's and Harold's arguments and I see the validity in Bill's point too.

Spider
10-06-2010, 12:58 PM
So far, we have only been looking at risk from the vendors' point of view. What about looking at it from the merchants' POV?

Vendor approaches merchant in the hope of convincing merchant to have or update their website. (Or, merchant approaches vendor.) Merchant is expected to pay money on the hope that vendor will provide what is expected. That's a big risk. It's just as big a risk as creating a website and hoping to get paid after it's done.

Same applies if the product is not a website but an advertising campaign or a promotional event. By insisting on being paid up front, you haven't eliminated the risk, you have only shifted the risk to someone else. And you cannot control the effect if it's someone else's risk. By keeping the risk in your own sphere you can control it.

There's another problem, too -- if you shift the risk, you magnify it. If the vendor keeps the risk, the risk is only whether you get paid. If you shift the risk to the merchant, the risk is two-fold -- whether the work will be done, and whether it will be effective when it is done.

As long as the risk remains, in one court or the other, only a certain fraction of projects will ever be started. If you find a way to equitably share the risk, or truly eliminate the risk, there is every reason to see the project through.

To the benefit of both parties.

Harold Mansfield
10-06-2010, 01:37 PM
Right now the risk is shared. As a client you only pay a portion of the cost up front, yet you get 100 percent of the work done before you have to pay for it all..ensuring that it is done to your specifications.
Things cost money to develop and produce. No one is going to finance your project for you. It's your project. I'm not going to spend my money to produce your project while you sit back with nothing invested yet still demand certain specifications. Where in that scenario am I working for you?

Either you want the work done, or you don't.

cbscreative
10-06-2010, 02:21 PM
I was not advocating a full PFP either. Just the measurement alone is a clerical nightmare I have no desire to get involved in.

Blessed
10-06-2010, 02:21 PM
Vendor approaches merchant in the hope of convincing merchant to have or update their website. (Or, merchant approaches vendor.) Merchant is expected to pay money on the hope that vendor will provide what is expected. That's a big risk. It's just as big a risk as creating a website and hoping to get paid after it's done.

But, what is expected? - a website, or customers as a direct result of the website - the key point is direct result. Research has proven over and over and over again that most business comes because of repeated exposure to the merchant's message - not a simple stop by the website.
If, as a vendor, I promise a functioning website and I deliver a functioning website I should be paid for that website. - under that business model most of us subscribe to the a deposit or half up-front, the balance when the work is completed to the merchant's expectations model. Which works well - we still take a risk that we won't see full compensation for our work and the merchant has invested enough in the project that they aren't likely to back out mid-stream.
If as a vendor I promise a website that will deliver customers to your doorstep simply because the customer visited your website for some reason I should be paid for the customers - that would be a PFP type business model. The merchant carries no risk in this scenario and as a vendor I carry the full risk - risk that a customer will come because they saw a flier, drove by the storefront and then visited the website - so my website had a play in them finally shopping but when the merchant asks why they stopped by the store they simply say "I saw the storefront" - never mentioning the website, so I'm not compensated for that visit, even though I played a role in that visit.


Same applies if the product is not a website but an advertising campaign or a promotional event. By insisting on being paid up front, you haven't eliminated the risk, you have only shifted the risk to someone else. And you cannot control the effect if it's someone else's risk. By keeping the risk in your own sphere you can control it.

Except that I can't control the risk - so I run an ad campaign or a promotional event - a customer comes into the store because of my work but the merchant doesn't have any vested interest in making sure everything comes out well because they aren't out much money if it doesn't - so the store is dirty, or the merchandise isn't displayed per my specifications, or the sales clerks are rude to customers or... the list of added risks to me become a bit staggering. When I mitigate that risk a bit by requiring a deposit - be it $100 or half up front and the balance at the end of the event - like I do and I think most of the rest of us here do, the merchant seems to take a better interest in doing their part to make my work benefit them.



There's another problem, too -- if you shift the risk, you magnify it. If the vendor keeps the risk, the risk is only whether you get paid. If you shift the risk to the merchant, the risk is two-fold -- whether the work will be done, and whether it will be effective when it is done.

As long as the risk remains, in one court or the other, only a certain fraction of projects will ever be started. If you find a way to equitably share the risk, or truly eliminate the risk, there is every reason to see the project through.

To the benefit of both parties.

The key is to share the risk equitably - I argue that requiring a deposit up front with the balance on completion of the work shares that risk equitably. I can do an outstanding job with a marketing campaign, but if the merchant doesn't follow through with making the shopping experience an enjoyable one for their customers it will look like my marketing campaign fell flat, when the fault wasn't at my doorstep, but at that of the merchant. The primary reason I feel that PFP in it's purest form is not a viable business model for this field is because of all the variables that go into making a store successful - marketing is a big piece of it, but there is so much more that the vendor providing the marketing has absolutely no control over.

Now... if you want to convince me that I should be willing to take a smaller fee for my work with the added incentive of a PFP type commission - I'd do that in a heartbeat for the right clients - I have some that I do that type of arrangement with now, but they are people who understand that marketing is essential - but isn't the only ingredient to success. Good business people with experience who realize that success is a big picture thing - not something that hinges on one TV ad, or one marketing campaign. I would never do a PFP type arrangement with a few people I've encountered in my work who thought that marketing was an oil lamp they could rub to get the success genie to pop out and hand them their 3 wishes.

billbenson
10-06-2010, 02:35 PM
Just as a side note, since this thread is continuing on a web development sort of theme. From the client side, this is a reason to have your site developed in some known CMS such as Wordpress and have it developed on your site, not locally on the designers computer. If at any time you have a falling out with the designer for whatever reason, you can change the password on your site and fire the designer. You can easily find another designer who knows Wordpress or other common CMS's. If its done in custom code, a new designer will have a lot of work to do to figure out how your site was designed before starting new development. They may even have to start over. It's good to stick with standards like Wordpress in a lot of cases.

Not a dig at web designers here. Just since we are talking about protecting ourselves, people using web designers / developers should be aware of some of the things they can do to protect themselves as well. It also applies to Harold and VG who develop in Wordpress. They are more easily fireable, so they probably need to have a structure that protects them more as far as payment systems.

Harold Mansfield
10-06-2010, 03:23 PM
Good point Bill. Once I have a site set up and designed to their specifications on their domain, they can easily lock me out and tell me to go jump or take them to court..which they know I am not likely to do, especially if they are in England, or Costa Rica.

Spider
10-06-2010, 08:40 PM
Right now the risk is shared. As a client you only pay a portion of the cost up front, yet you get 100 percent of the work done before you have to pay for it all..ensuring that it is done to your specifications...I'm glad this has been brought into the mix. So far there has been no mention of part payment before any work is done and continuing the work so that work is completed before full payment is received. That is risk-sharing and I fully support that. (When I say I support it, I mean it will reduce sales resistance and increase sales likelihood. All the time, I'm looking to increase sales.)



...Either you want the work done, or you don't.This is an attitude that can be adopted only when the merchant approaches the vendor. In that case, asking for payment or part payment before any work is done also stands a chance of success. But when the vendor approaches the merchant - IOW, in a selling situation - such an approach is likely to meet greater resistance. And when you have greater sales resistance, you will have fewer sales.

cbscreative
10-06-2010, 09:24 PM
I'm glad this has been brought into the mix. So far there has been no mention of part payment before any work is done and continuing the work so that work is completed before full payment is received.

Hmm. It's interesting that we weren't clear on that—us bad. In the 50/50 (or 1/3, 1/3, 1/3) model that most of us use, that's how it works. The final payment is not made until after the "goods" are delivered.

Spider
10-06-2010, 09:30 PM
I was not advocating a full PFP either. Just the measurement alone is a clerical nightmare I have no desire to get involved in.It was mentioned earlier (perhaps by you, Steve) that while measurement can be difficult, approximate measurement can be easy and also adequate. Over-simplifying to explain---

I offer to do an advertsing campaign for $1,000. I anticipate 1,000 people will come. The ticket price for the event is $10. That means an anticipated $10,000 gate.

If I agree with the merchant to be paid at $2 per entrant I'd make $2,000, instead of $1,000, if my anticipation is accurate - it could be more, it might be less. But the merchant doesn't want to pay me for people who come that he invites, on the argument that my advertising didn't bring those people. But, we cannot know how many of the merchant's invitees will come. So, we assume that the merchant will have 100 people there and that I won't be paid for 100 attendees. If my anticipation is correct, I will earn $1,800, rather than $1,000. Even if none of the merchant's people come and all attendees are the result of my advertising, I still make considerably more than if I did it on a straight fee.

Spider
10-06-2010, 10:35 PM
...so my website had a play in them finally shopping but when the merchant asks why they stopped by the store they simply say "I saw the storefront" - never mentioning the website, so I'm not compensated for that visit, even though I played a role in that visit.Then you didn't set up your PFP compensation criteria adequately. Your lack of compensation, in this example, is not the fault of the model, the model wasn't applied properly.



...When I mitigate that risk a bit by requiring a deposit - be it $100 or half up front and the balance at the end of the event - like I do and I think most of the rest of us here do, the merchant seems to take a better interest in doing their part to make my work benefit them.I didn't realize you had operated under a PFP model to make that comparison, Jenn. I thought you said you insist on payment before doing any work, like everyone else. If you *have* operated under PFPs and this has actually happened to you, I suggest you chose the wrong clients to do this with. Again, it seems to me you are blaming the PFP model for something that is not the fault of the model.

Also, I cannot imagine a merchant purposely messing up a sale just so he wouldn't have to pay you a commission. If that has happened to you, then, again, you chose the wrong sort of business to team up with. And again, that is not something that can be held against the PFP model.



...I can do an outstanding job with a marketing campaign, but if the merchant doesn't follow through with making the shopping experience an enjoyable one for their customers it will look like my marketing campaign fell flat...If you regularly do business with merchants who do not make the shopping experience enjoyable for their customers, then I think you are wise to insist on payment up front. If I were your competition, though, Jenn, I would be thankful that you were taking care of such businesses, so I could focus on the businesses that made the shopping experience enjoyable. I'm sure I would be much more profitable and certainly much happier dealing with these businesses.



...The primary reason I feel that PFP in it's purest form is not a viable business model for this field is because of all the variables that go into making a store successful - marketing is a big piece of it, but there is so much more that the vendor providing the marketing has absolutely no control over.This is where the money is, I believe. If you offer PFP to those businesses that do all these other things correctly, as you see it, then you don't have to worry about having control over them. "These other things" are the sort of things that Nieman Marcus probably has down pat, right? There will be other stores who do this stuff correctly - focus on them. I'm not suggesting using PFP with businesses that seem to be on the point of failure.



...Now... if you want to convince me that I should be willing to take a smaller fee for my work with the added incentive of a PFP type commission...I'm not trying to convince you, or anyone else, to operate your business in this or any other fashion. I'm trying to give you - and them - some reasons to consider this model as another, perhaps more lucrative, method of selling your wares. All in order so you can expand your businesses. If you don't want to grow your business and what you have now will be sufficient for the rest of time, then don't bother with anything I am saying.

I am a business coach. Helping people expand their businesses is what I do, and this is what the OP was asking about.

Harold Mansfield
10-06-2010, 10:54 PM
This is an attitude that can be adopted only when the merchant approaches the vendor. In that case, asking for payment or part payment before any work is done also stands a chance of success. But when the vendor approaches the merchant - IOW, in a selling situation - such an approach is likely to meet greater resistance. And when you have greater sales resistance, you will have fewer sales.

Now this really is entirely different. I guess my opinion is only thinking from my side as a service provider and clients contacting me for service, but if you are contacting the client to pitch your services, or selling...then you really need to be flexible in your structure and cater it to each situation. I definitely agree with you on that one Frederick.

Blessed
10-07-2010, 08:23 AM
I didn't realize you had operated under a PFP model to make that comparison, Jenn. I thought you said you insist on payment before doing any work, like everyone else. If you *have* operated under PFPs and this has actually happened to you, I suggest you chose the wrong clients to do this with. Again, it seems to me you are blaming the PFP model for something that is not the fault of the model.

Actually - in the 3 years I've had Crazy Dog Creative I haven't had that happen to me - thankfully! But it did happen to me years ago when I was working for someone else on commission and they had sold an event package that I worked at the event for - it was awful and we didn't do any other events for that store.

And I don't require payment up front - I offer static work - design for printed pieces. With new clients I require a deposit - I've had too many no-pays, but for everyone else I get paid when the design is done. I am working to learn some new skills that will take me into being able to provide the web design I get asked about regularly - when I get into that I know I'll need to change business models, which is one reason this discussion has been so interesting to me.

Spider
10-07-2010, 08:54 AM
Now this really is entirely different. I guess my opinion is only thinking from my side as a service provider and clients contacting me for service, but if you are contacting the client to pitch your services, or selling...then you really need to be flexible in your structure and cater it to each situation. I definitely agree with you on that one Frederick.Yes, Harold, I have been trying to keep my comments as broad as possible to cover all eventualities. If you have a full work schedule by waiting for clients to contact you, and you are content with your income, you have no need to change what you do. The only reasons for changing the way you operate would be - to be more productive (get more done in less time) and more profitable (get paid more for the amount of time you spend.)

If your demand and workload are in balance (nobody waiting for you to be available and no slack time), being more productive is pointless unless you wish to earn the same and reduce working hours. And being more profitable is pointless if you are of a philanthropic frame of mind and wish to help people without charging them any more than you are charging them now. For everyone else, improvements in productivity and profitability are a natural part of being in business. I see those as the basis for growth and expansion - new and improved ways of earning money. Unfortunately, "new and improved" always involves an element of risk.

I am constantly reminded of the mantra - "if you keep doing what you've always done, you'll keep getting what you've always gotten!"

Harold Mansfield
10-07-2010, 09:51 AM
I am always changing and evolving and like I said before...I have already realized that in the long run, this system doesn't work. This isn't the first time that I have thought about it, just because it came up in a thread.

I have no desire to double my work load and change my policies to start risking non payment. More work would mean more people and possibly subbing out some new services to specialists...I can't pay them on possible future payments. They want to get paid for their work just like everyone else. They have expenses and production costs just like everyone else. I won't keep them working for or with me long if I have to keep saying "Whoops, sorry guys, we got burned on that one you don't get paid this month." It's an unnecessary risk and I don't need to or want to grow my business with clients that don't have any money, or won't cover their own expenses for their project. That's not the business that I want to run. God bless anyone that wants to expand by building that kind of clientele...they can have it. They can have ALL of the fruit on that side of the tree because I already know what it tastes like.

You seem to be saying if I can't consider this as a possibility, then I must be content with where I am and don't want to grow my business (which you have a tendency to do a lot)


If your demand and workload are in balance (nobody waiting for you to be available and no slack time), being more productive is pointless unless you wish to earn the same and reduce working hours. And being more profitable is pointless if you are of a philanthropic frame of mind and wish to help people without charging them any more than you are charging them now. For everyone else, improvements in productivity and profitability are a natural part of being in business. I see those as the basis for growth and expansion - new and improved ways of earning money. Unfortunately, "new and improved" always involves an element of risk.

and that is pretty ridiculous and self serving. I see how you do it..yes, it's a general statement, but it's in this thread where we are talking about something specific. It's kind of like a backhanded compliment..."That's a nice looking jacket..if you like wearing those kinds of things".

I agree that your structure should be flexible if you are on the sales end, but you are ignoring the obvious flaws in this system and insinuating that failure to consider it means stagnant growth potential.

You ever hear the term, "There's more than one way to skin a cat"? Well there are 100 ways to grow a business and they don't all hinge on this one theory and failure to agree with you doesn't mean the demise of all who cross your path.
I can grow my business just fine without having to change the way clients pay me for the work that they contract me to do for them. I'm very flexible, but I don't work on promises. I don't know too many people that do.

Yes, "New and improved" involves an element of risk but that doesn't mean being reckless or throwing the baby out with the bathwater. I'm not one to ignore the obvious just to prove a point.
I would never suggest this type of system to any new service provider, especially one that deals with clients from all over the country and the world. They will never have a chance to grow because they will

And to the OP, if you are working locally in an area that you know well, know the venders that you are soliciting and have a great relationship with them and the community...you can probably at least give it shot, although I recommend you tie down more exact terms other than trusting your clients to report actual numbers to you.

But if you are dealing with people that find you online and are in various locales, this type of compensation system will never work and people will take advantage of you. Distance makes people brave.

Spider
10-07-2010, 11:18 AM
...You seem to be saying if I can't consider this as a possibility, then I must be content with where I am and don't want to grow my business (which you have a tendency to do a lot)....This is of your making. I have not said anything like that, but if you wish to read what isn't written (which you have a tendency to do a lot) that is your prerogative.

You have made it clear, Harold, that you are not going to attempt PFP and that you believe it will not work, for you. I think it would be appropriate to point that out - that you believe it will not work for you. I have made it work for me, and so have other people. I think, on a forum such as this, where different people are in different stages of their business development, that all methods of business should be open for free discussion and exploration and not have anyone keep insisting that it won't work - period - when it clearly has worked.

If you have tried it and weren't able to make it work for you, I'm sorry. That doesn't mean it won't work for anybody. If you are not prepared to learn how make it work, that is your choice, but no reason for anyone else to not try to make it work. I think you have some very good reasons for not wishing to venture into this method again, and I do not decry you for refusing it. I do not think that should stop anyone else from learning about it and trying. Nobody is forcing anyone to do anything.

As long as someone keeps standing up and saying, "This won't work," when I know it can, then I will keep standing up and saying, "Yes, it can."

Harold Mansfield
10-07-2010, 11:36 AM
But we aren't talking about just any business, we are talking about this business. The one that the OP is in, which is similar to, or exactly like what many of us do, have been doing and have experience with this type of payment structure..and this is our opinion of it based on our experience with it.

This isn't a general thread. We haven't moved. I thought we were discussing a specific business.

I can think of a few business models where not only will this work, but it is common.

SEO: Although there is still some money up front, many SEO companies accept compensation based on results.
PPC Management: Although you likely still have to pay to run the ads that you have approved. Many companies that manage PPC campaigns accept compensation based on traffic results.
Horse Jockeys: Although some expenses are met, they get paid if the horse wins.
Real Estate Agents: Only get paid if they sell a house, not for showing it.

But we aren't talking about those, we are taking about a marketing, graphic and web design company.

There are a ton of examples where this is a standard way of doing business. Web, and Graphic design is not one of them. Neither is advertising. And they are this way for a reason. People will screw you once you have done the work and they have the finished product in their hand. We have already learned this. No need to keep repeating the same mistake and hoping for a different outcome...isn't that the definition of Insanity?

billbenson
10-07-2010, 02:54 PM
But we aren't talking about those, we are taking about a marketing, graphic and web design company.

There are a ton of examples where this is a standard way of doing business. Web, and Graphic design is not one of them. Neither is advertising. And they are this way for a reason. People will screw you once you have done the work and they have the finished product in their hand. We have already learned this. No need to keep repeating the same mistake and hoping for a different outcome...isn't that the definition of Insanity?

This also says to me it is because of your customer base. Suppose you were doing contract work for major corporations or at least larger ones. They all pay net 30 or more, but they pay. You complete the work and invoice them and they pay. I really doubt web design is any different with these companies. You may break a project up into milestones where you invoice which could be weekly; but I strongly suspect terms will still be net 30.

I'll give you an example. Anheuser-Busch is a strong solid company. They only do net 120 terms. Take it or leave it. It certainly wouldn't surprise me if they outsource web design work. The design work for them would likely be nice larger projects. They may outsource work and probably do to one man shows. They have bought from me. They will pay.

Your blanket statement "But we aren't talking about those, we are taking about a marketing, graphic and web design company" won't work unless you are paid in advance is just plain inaccurate. While Anheuser-Busch is unlikely to use WordPress so this doesn't directly affect you, it may affect the OP and the statement is inaccurate. This also applies to much smaller companies than Anheuser-Busch and I suspect wordpress may be applicable in some of those.

Harold Mansfield
10-07-2010, 03:17 PM
Again, we are talking about the OP, being a new business and the type of business that he has. I didn't say it wouldn't work, I just pointed out that it is not the standard way of doing business for small businesses.
AB is a large company, they don't have the same credibility issues as a small travel agency somewhere in Saskatchewan.

There is always going to be an exception to the rule and if you land AB, then I say trust the payment structure that they have laid out because you know where to find them...I mean just use basic common sense, but I still don't recommend that a new start up adapt this model as a way of attracting business because I think overall, when dealing with other small businesses, it's flawed.

billbenson
10-07-2010, 04:29 PM
You are right, this thread has become confusing relative to the original posters question. However, I don't recall reading where the strategy is to be applied to any particular customer base or industry including small business. It was presented as a strategy and many of the posts above criticize it saying it won't work, but they are simply talking about their business as it exists today. It is not valid to say it is flawed even when applying it to small business.

Remember that these posts have lurkers. While you may be responding to the original poster or responding to your particular situation, a post that comes across as "it won't work in the web design industry" should be clarified as I don't think thats what you actually mean.

Harold Mansfield
10-07-2010, 04:43 PM
What I am saying is of course when dealing with a large entity such as AB, you can adjust to their payment process with most likely little risk. I would do the same for any one of 50 casinos in my city. I'm pretty sure they are going to pay. But you can't possibly have that same assurance when dealing with a smaller company or individual in another state or country.
Large corporations aren't likely to want to pay be based on performance of the website either. The are going to pay me to build it to their specifications, most likely to fit into their existing marketing plan.

Like I said, you have to use common sense. But I don't think a pay per performance model is the right call for a design company because it really doesn't apply. The risk of getting burned is too high.
If Caesars Palace called me today and said build us a blog and bill us at the end of the month, of course I'd do it, but if some guy from New York called and asked for the same deal, I'd say no.

Overall, I wouldn't adapt a pay later format as the way to attract more clientele. I may do it for a trustworthy organization, but it wouldn't be a common way of doing business. Common sense always prevails.
If giving it away up front is the only way to grow and get customers, then something is wrong with the product or the presentation.
Plenty of companies are able to grow without having to do this.

Spider
10-09-2010, 05:02 PM
Okay - now that we have taken a breather from all that, I'd like to raise another matter under the same head. It appears as if many feel that pay-for-performance is a lesser way of getting paid for one's work - that getting a fee is the "proper" way of being paid and PFP is only for people who are not good enough to earn a fee. Start ups, with no record, no portfolio, no experience, are 'forced' to accept pay for performance, until they are able to hold their head up and get paid "like a real business." Existing businesses who cannot get enough fee work are 'forced' to accept PFP to grow and expand their business.

Let's take the ultimate in advertising - infomercials. Would anyone here prefer to make and sell an infomercial for George Foreman's electric grille for $10,000 or anti-up the cost themselves and get paid $10 for every grill sold?

I wonder if anyone might think that it is the top-performing entrepreneur with the confidence in their own skill that opts for PFP. I wonder if anyone would (I won't, but someone could) put forward the argument that a person who refuses the opportunity to be paid on performance does not have confidence in their own skill. Why risk earning $100,000 when you could get a guaranteed $10,000 for the same amount of work?

Opinions?

Harold Mansfield
10-09-2010, 05:16 PM
Okay - now that we have taken a breather from all that, I'd like to raise another matter under the same head. It appears as if many feel that pay-for-performance is a lesser way of getting paid for one's work - that getting a fee is the "proper" way of being paid and PFP is only for people who are not good enough to earn a fee. Start ups, with no record, no portfolio, no experience, are 'forced' to accept pay for performance, until they are able to hold their head up and get paid "like a real business." Existing businesses who cannot get enough fee work are 'forced' to accept PFP to grow and expand their business.
Personally, I wasn't speaking for every type of business, just this one.



Let's take the ultimate in advertising - infomercials. Would anyone here prefer to make and sell an infomercial for George Foreman's electric grille for $10,000 or anti-up the cost themselves and get paid $10 for every grill sold?

I wonder if anyone might think that it is the top-performing entrepreneur with the confidence in their own skill that opts for PFP. I wonder if anyone would (I won't, but someone could) put forward the argument that a person who refuses the opportunity to be paid on performance does not have confidence in their own skill. Why risk earning $100,000 when you could get a guaranteed $10,000 for the same amount of work?

Opinions?
Actually that is the way it's done with infomercials and there are many infomercial companies that do just that. Billy Mays is a prime example. Once he made a name for himself as a pitchman, his contracts included a portion of the sale revenue. Same as the Home Shopping Channel and As Seen On T.V.
For those types of businesses it seems like a perfectly acceptable way of doing things.

billbenson
10-09-2010, 05:23 PM
If you think about it, straight commission sales is PFP. Even with base plus commission, the base is usually well below an acceptable standard of living in most cases People go into sales because in general it pays more than other jobs in industry.

cbscreative
10-10-2010, 06:31 PM
Okay - now that we have taken a breather from all that, I'd like to raise another matter under the same head. It appears as if many feel that pay-for-performance is a lesser way of getting paid for one's work - that getting a fee is the "proper" way of being paid and PFP is only for people who are not good enough to earn a fee. Start ups, with no record, no portfolio, no experience, are 'forced' to accept pay for performance, until they are able to hold their head up and get paid "like a real business." Existing businesses who cannot get enough fee work are 'forced' to accept PFP to grow and expand their business.

Let's take the ultimate in advertising - infomercials. Would anyone here prefer to make and sell an infomercial for George Foreman's electric grille for $10,000 or anti-up the cost themselves and get paid $10 for every grill sold?

I wonder if anyone might think that it is the top-performing entrepreneur with the confidence in their own skill that opts for PFP. I wonder if anyone would (I won't, but someone could) put forward the argument that a person who refuses the opportunity to be paid on performance does not have confidence in their own skill. Why risk earning $100,000 when you could get a guaranteed $10,000 for the same amount of work?

Opinions?

Regardless of the sarcasm in your post, you're actually quite right. Who earns more, the ditch digger or the person who hires the ditch digger? It's the "performance" of the ditch digger that gets the job done, but the ditch digger earns meager wages.

Let's take a objective look at Microsoft. Their products do not actually perform any better than other competitive products. They are now losing market share due to missteps, but overall they built an empire without performance being a significant factor.

I'm not advocating either of these examples or condoning the system, but it is what it is. Nor am I trying to equate any of our business models to that, but I do think your point is quite funny in that sense. The reality is, you could build a business that way because it's been done many times over. What keeps Coca Cola in business? Does Chase provide the best performance as a banking service? Maybe we do need to get to their level after all.

Harold Mansfield
10-11-2010, 08:42 AM
In the example of the GF Grill, you are actually using a business that does promotion. That's what they do. They are a promotions company. But as a person who designs and creates marketing materials and websites, you are not a promoter...you are closer to the people that design and make the grill. As the grill manufacturer, you get paid when the product is produced and shipped...not when/if it sells. Even if you are outsourced to create the marketing materials for the grill...website, brochures, etc...you still get paid when the job is done. That's how our business works. It is doubtful that Apllica Consumer Products (the company that behind the grill) is going to strike a deal with a web designer for a portion of the profits, when they could just pay for the website up front.

Not only that, the grill was sold on TV, not exactly a good deal for a web designer if no one is buying it online.

Every possible business model is not applicable to every type business. You have to use common sense.

You also have to look at the resources that the companies involved have to enforce these types of agreements. There are usually a whole team of accountants and lawyers involved when setting up agreements like this for the type of companies that you are talking about, but in this thread, we are talking about small businesses and start ups who don't have the same resources, therefore it's not worth the expense or the risk considering that most small businesses don't have the lawyers and accountants to enforce such an agreement...or else they would be big businesses.

I don't know how many different ways that I can say it...I'm not saying it's a bad way of doing business for every type of business, but it's unrealistic and an unnecessary risk for new business (that is not in the business of promotions) with limited resources and not a smart or an effective way to grow because without the necessary resources to enforce such an agreement you are pretty much just giving away services and hoping that enough people will be honest enough to finally pay you. That's ludicrous.

You can come up with a 100 examples of businesses where this works and you'd be correct, but we aren't talking some hypothetical business...we are talking about a specific business in this thread, at the start up stage. Not George Foreman grills or the infomercial business.

Spider
10-11-2010, 09:16 AM
...Every possible business model is not applicable to every type business.I agree. The other side of that coin is also true -- No business has only one way of operating. As you pointed out earlier - there's more than one way to kill a cat.

I think my thought process in this thread has led me to a confirmation of my belief that one can make more money in one's present business by becoming more entrepreneurial - especially by trying to turn a straight fee into PFP, wherever possible. I accept your argument that, if one is asked to create a sales letter, let's say, by someone known not to pay their bills, one would rightly demand a one-time payment up-front. If Coca-Cola asked for a sales letter, I'd advise trying to get paid 1 cent of every Coke that letter sold.

OTOH, Coke, being a smart company, would realize that they would pay less by paying a straight fee, and would refuse the PFP proposal, unless it was obvious you'd do a better job with the PFP incentive.

Both systems work, one pays better than the other. And that is why the more entrepreneurial one is, the more money one can make. But one has to be good at what one does. Mediocre doesn't cut it in the entrepreneurial world.

Harold Mansfield
10-11-2010, 09:33 AM
I agree. The other side of that coin is also true -- No business has only one way of operating. As you pointed out earlier - there's more than one way to kill a cat.

I think my thought process in this thread has led me to a confirmation of my belief that one can make more money in one's present business by becoming more entrepreneurial - especially by trying to turn a straight fee into PFP, wherever possible. I accept your argument that, if one is asked to create a sales letter, let's say, by someone known not to pay their bills, one would rightly demand a one-time payment up-front. If Coca-Cola asked for a sales letter, I'd advise trying to get paid 1 cent of every Coke that letter sold.

OTOH, Coke, being a smart company, would realize that they would pay less by paying a straight fee, and would refuse the PFP proposal, unless it was obvious you'd do a better job with the PFP incentive.

Both systems work, one pays better than the other. And that is why the more entrepreneurial one is, the more money one can make. But one has to be good at what one does. Mediocre doesn't cut it in the entrepreneurial world.

No, Coke is not likely to strike that deal. But if you could get it and you have the resources to not just draw it up but to enforce it, then I say go for it. If you don't have those resources, I wouldn't do it just based on trust. I'd get my money when the job was done and move on.

Spider
10-11-2010, 10:26 AM
Good point about the enforcement, but there is another side to that, too. (There's always another side.)

If you have a good PFP contract - one that is based on mutual benefit - you don't need enforcement, because the receiver of your service would gain their benefit only when you were performing. They wouldn't stop paying because then you'd stop performing and they wouldn't get their benefit. It's not a question of trust, nor a matter of enforcement - both of those are only necessary when there is no mutual benefit.

As long as there is mutual benefit, both parties will continue as long as their individual benefit continues. Once the benefit of one party ceases, that is the time the agreement comes to an end. The tricky part is, the agreement might switch between enforcement, trust and mutual benefit throughout the contract period. Getting the right balance is what contract negotiation is all about.

It's certainly not as uncomplicated as work-for-a-fee, payment-upfront, but more risky and more lucrative when successful.