Marketing is essential for a small business that is looking to grow. But, small businesses are faced with a problem: advertising professionals are expensive, and business owners are often on a tight budget already.
Working with advertising agencies is ruled out. Their pricing strategies state that there’s often a minimum spend, which often makes it completely unaffordable. However, what happens if any money you spent would be guaranteed to bring in a return on your investment?
It does sound a little too dream-like. But, this is the pricing model that agencies are starting to use when working with businesses, particularly small ones. Instead of paying for a percentage of the marketing cost as well as a retainer annually, the agency gets paid only if their efforts have brought you some revenue. If this is done correctly, sharing revenue can steer performance-based marketing in your company.
Traditional Models
Most agencies use a pricing model that has been set up for decades. Their fee is charged as a percent of the cost. If a business spent $5,000 on marketing, the agency could charge you, say, 15% of that, making the actual price you pay $5,750. As well as this, content creation is usually at an extra cost. This means you are likely to pay more than $6,000 in the end.
Another pricing model works on retainers. A client has a set price of perhaps $10,000 a month, and they receive an advertising service that’s been pre-agreed for their price. These expenses are therefore fixed but are still independent of the performance of the campaign itself.
How is Revenue Sharing Distinct?
The last sentence above is precisely why these traditional models of pricing don’t work for small businesses. Most business can’t afford to pay thousands for marketing every month if they don’t know if it’s going to help grow the business.
This is where revenue sharing comes in. You don’t just pay the agency money regardless; you agree a portion of the revenue should it come. Therefore, the marketing agency has a vested interest in the campaign being successful instead of throwing out adverts that might not work. Your strategy is more likely to reach tangible success in this case.
The Increase in Performance Advertising
The sharing of revenue with an agency can be described in a similar way as to the complete change in digital advertising in recent years. Specifically, there has been an increase in pay-per-click advertising (PPC), which shows how important performance and measurability has become for even the smallest of businesses.
Only a couple of years ago, digital adverts were mostly paid in the impression that they made. Every time an advert was shown, you were charged. With PPC ads, this isn’t the case anymore. Now, ads are only costly if they’re clicked on.
Making Resources More Streamline
Business owners do not have any resources to through everything at advertising and marketing. They are also unlikely to be able to take every aspect of their business, such as marketing, on their own. This makes it hard to outsource when such revenue is needed.
With revenue sharing, you work with an agency on strategies and tactics to help the business grow. At the month’s end, revenue is calculated, and a share is transferred to the agency, without any budget planning.
Agencies have a significant stake in following ads through to the end. The more success they generate, the increased likelihood that they will earn more money themselves. This benefits everyone.
In the long-term, sharing revenue will have a considerable impact. Being consistent is the key. All tactics need to work to the end goal with the very same methods. The agency needs to be both adaptable and innovative. However, the strategy of revenue sharing is not a guaranteed win-win for business growth. But, it is an altogether more accountable method of partnering with an agency to help that growth by increasing the stakes.
