In the last few years we’ve had a handful of clients ask us to adopt a performance based payment model. Usually these are start-up companies who are cash strapped and looking for an alternative to paying our service fees. I’m intrigued by the idea of performance based web work however I’ve yet to find a model which I believe is both fair and incentive driven.

I’m still trying to find the right solution. I’m not sure what works best, but I have a pretty good idea of which models I think will tank. Here are a few situations which we’ve been confronted with.

Ecommerce Web Site
The client was offering us a small percentage of overall sales along with a partial reduction in our regular hourly rate. The client was hoping that we would be incentivized by the offer they made us. There are several problems with this model for both sides.

1. What about offline sales, phone calls, emails or faxed orders? We can track the online sales but we have no visibility into the offline orders.
2. How competitive is the product / offering? We have no control over the price of the product or which products are in-stock. We could dedicate plenty of effort building a great system but if the client’s products are overpriced or lack selection then sales revenue won’t materialize.
3. How much is the client willing to pay for marketing? Our agency can do the SEO / SEM work but ultimately SEM and online advertising incur real costs, and not just man-hours.
4. What is the level of marketing they are willing to pay for and who has final say in terms of strategy and creative?
5. Our team could sit back and collect commissions for the client’s sale efforts. That wouldn’t be right, but under this sort of arrangement it could happen. Or vice-versa where the client could get away with doing nothing but filling orders.
6. What is the cap on the number of hours we would commit to each month? If we are spending 80 hours each month and sales commissions only equal $2,200 then our effective rate would be $27.50 / hr. If we agreed on a base hourly rate plus commission then perhaps hours wouldn’t be as important.

Lead Generation Website
In this scenario a client approached us to reduce our rate in favor of a lead generation forumula which incentivized us for creating “qualified leads” in Salesforce.com. To complicate the scenario we would be working with the client and other third parties including an SEO firm, Content Writer, and a PR Agency. The arrangement gave us 4 tiers by which our monthly charges were either reduced or increased based on performance.

We had an existing retainer in place which discounted our hourly rate by 20% for the commitment from the client for a fixed minimum of hours dedicated per month. This proposed program would start us at a reduced rate which is 40% less then what we typically charge. From that, if we perform well enough, we could make 20% back, bringing us to our current retainer rate. On the other hand, if the performance dropped, our hourly rate could go down to 50% of our regular rates. In my mind that is not an incentive, it’s a carrot and stick.

The proposed formula work like this:
Qualified Salesforce.com Leads / Total Unique Visitors = % Conversion

Here are the problems with this formula and the overall scenario.

1. What if the budget for SEM goes up and the third party SEM company starts driving 15% more traffic, but the traffic isn’t qualified? It will dilute the conversion percentage.
2. What is a Qualified Lead? In Salesforce.com we can drive leads but the aspect of qualifying them is arbitrary. Ultimately, that aspect comes down to trust but it sure would be nice to remove arbitrary valuation.
3. The SEO & PR companies are going to have the highest influence of the company’s natural rankings. If these two players hurt or hinder traffic then we suffer as a result.

We counter offered the client a true incentive program which kept our retainer rate at a discount of 20% while suggesting the incentive to reach full rates if we exceeded expectations. If we knocked expectations out of the ballpark, then we would be rewarded with a 10% increase to our regular rates, making work in this client particularly attractive. Unfortunately that suggestion was not accepted.

Does anyone else have similar stories to share? In browsing the web I found these.

GraphicPush: Commission Based Payment for Web Design

Manifest: The First Step in Creating Passive Income

I have to compliment all of the great companies that have gone green lately. I think it’s a huge concern for many environmentally-conscious people, and it shows great awareness that companies are dedicating resources to this cause. Most notably, Walmart has pushed a huge marketing campaign showing their “greenness.”

While, I commend companies for doing this environmentally-friendly push, I think they are going about it the wrong way. Most companies seem to be doing this as the next trendy, cool thing to do. They are using this opportunity to be leaders in this category, and if they truly feel that this is the right thing to do, then bravo! However, if they really think it’s the right thing to do for the industry, why aren’t they encouraging everyone in the industry to do the same, instead of using it to prove their own brand’s worth? Consumers are smarter and more cynical than we give them credit for. Personally, I think the average consumer can see right through this.

Attention Brand Marketers: Don’t use this “green” opportunity as a brand differentiator! It may seem like the thing to do now, but if this really is the way of the future, within months every company will be pushing for green and showing off their capabilities. Don’t rely on a one-time fad to be your companies brand benefit. I beg you to look inside your company and find the true differentiating benefit and really focus on that in your advertising campaigns. The green effort is an amazing thing to do, and great to talk about in your marketing. Keep doing it! But, don’t rely on that to get you more business. It’s obvious you found a trend to latch onto and a big following for it. Try to stay a step ahead of the fad and don’t just look to find the next trendy thing. Your company was made for a reason. Obviously there was a need for your product, service, or whatever it is you offer. Once you show consumers why you exist, and reasons to believe that inherit benefit you can offer them, I have no doubt your company will succeed.

Harking back to my last post about educating on the topics near and dear to interactive agencies, I’ve arrived at another topic; hits are not visitors. These metrics are incredibly useful when evaluating a site for marketing purposes, hardware requirements, coding methods and load times.

So first, let’s define the difference.
A “Hit” is a successful request to your web server from a visitor’s browser for any type of file, including an image, HTML page, MP3 file etc… A single Web page can account for several hits. A simple page might include a logo image, CSS file, HTML code, 6 image based navigation items with 6 more images for rollover effects. The net hits for such a simplistic page would be 15.

By contrast, a “Visitor” or “Session” is a series of clicks by a particular user on your site. If I load the same simple web page in the previous example it would be considered 1 visit. Sessions / Visitors to your site are all given a unique anonymous IDs which track the user throughout the site. The “session state” is used by the Web site to remember things like login information and shopping cart contents.

For comparison purposes let’s look at an example of the differences between hits and visitors using one of our clients for the month of March 2008.

Total Hits: 792,487
Total Visitors: 26,104

So yes, it is important to note the difference in the two measures.

A special note though; Google Analytics won’t track Hits because it uses JavaScript to check visitor behavior and for this reason Google isn’t aware of every hit back to the Web server.

I know that I’m not the only person that has those days where all your ideas just plain suck. Usually my favorite brainstorming technique for my not-so-creative days is to do rapid brainstorming. The key to this type of brainstorming is to set a goal of 100 ideas in 10 minutes and write down literally everything you can think of. Even if your mind starts to drift and you think about a dog that is outside your window, write it down. This way you free your mind from the normal line of thinking; If you write an idea about a dog, it may lead to a great idea – normally you would discount this thought all together.

One of the reasons this technique is my favorite when my brain is feeling “blah” is that it purges out all of those crappy ideas that keep circulating in my head. Typically if I set a goal of 100 ideas and time is winding down, I scrape to come up with new things I haven’t thought of. This way I’m breaking out of my normal train of thought which is key when thinking creatively.

One of my new favorite blogs is by Netscape Founder Marc Andreessen. As I was reading a few post today I stumbled on his post called “Left unchecked, this could become problematic” in which Marc highlights the decline in revenue for print, online and classified advertising, suggesting this could be a problem in the years to come.

I’m not sure I agree with Marc on this issue. I’m encouraged by the decrease in traditional advertising because it suggests to me a few things:

1. People are tired of the old media advertising ways. We are skipping commercials, blocking ads and using Craigslist for our classifieds.
2. Smart companies are avoiding traditional advertising and looking for creative ways to reach their audience, consumer and markets.

Perhaps rather then worrying about the decline in advertising we should be looking at it as a shift in thinking. Maybe we’ve reached a tipping point and this downturn in the traditional ways is the mark of something new, better and different. I think the book “Punk Marketing” does an excellent job at discussing the future of advertising and Marc’s recent article is just another indicator that the shift is underway.