Many agencies like to boast on their websites and in their pitch decks that they “partner” with their clients. It’s bullshit of course. What they mean is they aspire to have their clients treat them like partners instead of vendors. I get it. It’s good to have a goal. But putting it on the website doesn’t make it true.
True business partnership has at its core shared financial risk. So if you really want to partner with your clients you must put skin in the game. Your incentives need to be aligned, with compensation rising and falling with the results you help to produce. In the absence of such shared risk, claims of partnership are simply a desire to earn a higher station with the client. Everyone knows this.
You Don’t Want to Partner With All Your Clients
When it does happen, a client/agency partnership can be a beautiful thing, but many times it shouldn’t happen at all. You don’t go into business with just anybody. You partner only with people you trust. On that basis alone (and there are many more to consider, as well) how many of your current clients would you really want to partner with?
And how about the clients you pitched to, lost, and who left you with a bad taste in your mouth? How many of them would you want as business partners? Were you even able to have a meaningful conversation with the people with whom you proposed to partner? Surely you don’t think procurement or middle management are your partners? They simply don’t have the authority to make such decisions. And on your side, neither do your own people. Decisions to enter into a business partnership are made at the highest levels of the organizations—at the ownership level of an independent marketing firm or any other entrepreneurial organization, and at the executive level of a client organization where ownership and management are separated.
A Normal Distribution of Client Types
In a healthy client roster you will have a mix of client types. On the left-hand tail you will have a small number of transactional price-buyers to whom you are effectively selling excess capacity, and once-good clients on their way out.
In the middle you will find the bulk of your clients, made mostly of value buyers who, though they might be price sensitive, understand they need to invest in your services to generate value in the marketplace.
And out on the right-hand tail you might possibly have a coveted partner. Maybe even three.
Once you get the hang of this performance pay thing, you may decide to be more selective about your clients with the goal of one day having all of your clients be partners. But that’s a path few firms will choose and fewer still will be able to master. Most will choose instead to spread the risk across many engagement types with the bulk of their engagements being in the low risk, low reward category.
The Rise of Performance Pay Lip Service
Every few years there’s a spike in clients’ use of the term “performance pay.” Well before I knew anything about the intricacies of value-based pricing, I knew that when a client brings up performance pay in the sale they usually have a narrow, one-sided idea of it—one in which the agency is penalized for poor performance without the ability to earn a sizeable reward in return for putting compensation at risk.
Such a one-sided deal usually comes from procurement or other professional buyers. While you can’t really blame someone for trying to minimize their downside without sharing in the upside, such a suggestion should immediately disqualify them from the category of potential future partner.
Questions To Ask About Performance Pay
Punitive, reward-deficient deals aside, I’m a big fan of performance pay as an occasional way to shape a compensation plan. Here are some questions to ask the next time you consider partnering with a client and putting compensation at risk:
- Are you talking to executives in the organization—people charged with future value creation who have the authority to enter into partnerships?
- Do you trust these individuals?
- Do you trust the organization to live up to commitments made by these executives should they leave mid-engagement?
- Does the organization have a culture of partnership and disclosure? Are you confident that finance, procurement or some other individual or department won’t attempt to manipulate the numbers or actively work against you to rob you of incentives properly earned?
- Does the upside correlate with the downside? There’s no golden ratio here but every dollar put at risk should have the potential to earn multiples back.
- How much compensation are you willing to put at risk? A good client will in certain situations recognize that it’s in their interest to reward you for outcomes even without putting compensation at risk, thus creating the incentives for you to stay involved even after the agreed-upon deliverables have been met. But per the point above, the more you give up the more you should receive when the target outcomes are achieved.
- When the possible payout is measured against time, is someone in the client organization going to push back on compensation that might translate into an hourly rate in the high hundreds or even thousands?
And of course, you have to ask questions about your own role:
- Are you confident in your ability to affect the outcomes?
- Can you solve the attribution problem, with both parties agreeing that your input is material to hitting the outcomes, or are there simply too many other variables at play?
- Can you afford to take a financial risk with this client at this time, or are you better off just trading time or deliverables for cash?
The Transformative Effects of True Partnership
Just like other forms of true partnership, when you get it right it’s truly win-win. It requires two trusting parties and a delicate balancing of the risk and reward—a balance that is not universal or templatable but rather takes into consideration many unique factors of each party.
In such a partnership, the client has an agency that is laser-focused on outcomes and is not padding time or rotely going through yet another templated deliverable. The agency should be operating at this place of adventure, with the excitement of oversized reward balanced by enough downside risk to keep their attention but without threatening their existence. When it all comes together it’s a beautiful thing.
As an industry, we need to let go of this need to claim partnership with our clients and embrace the fact that some of these relationships are purely transactional. At the same time, however, we should keep an eye open for those wonderful but rare opportunities for true partnership.