We're in a digital-first era of retail, where traditionally successful brick-and-mortar stores face obstacles to being able to compete effectively online. From online competitors with low overhead and global reach to manufacturers who compete for the same clients as you do, to just not having enough time to learn one more thing. After all, you have a business to run, and whether you’re moving your retail brand marketing into digital advertising with paid ads, on search engines including using content marketing for SEO, native advertising on social media platforms to paid marketing on social, targeted email funnels, affiliate partners and/or influencers, and whatever new thing is around the corner, all of these usually takes a huge investment in time and money. So who wouldn’t want some help?

The Dilemma for Traditional Marketing Agency Models Serving Small Businesses

Although there are many great marketing companies out there, the good ones are vastly outnumbered by the bad ones. If you've been at this for a while then you know what I'm talking about: the pitch is compelling, but the results tend to fall short of amazing.

"If these marketing agencies are as good as they say they are, they'd charge a percentage on sales on their advertising campaigns instead of a percentage on ad budget." -Ann Madore, Jump! The Baby Store

Regardless of the sales results their marketing efforts produce, the retail advertiser pays their agency setup fees, plus monthly fees, plus a 15% to 20% percentage of the ad budget. That doesn't seem fair, does it? Retailers take all risks in their stores, then they hire an expert and accept all the risk on their campaign performance as well.

Online marketing agencies rely on this antiquated model because of the following:

• it is the industry standard;
• its revenue is predictable;
• there are few alternatives to retail advertisers like yourself;
• agencies can show reports about positive consumer perceptions through engagement;
• most retailers won't track the actual sales results or the cost per sale from a particular channel, so professional looking monthly reports are enough for to feel like progress is being made.

So here's the dilemma that agencies face: in the traditional model you pay marketing service providers regardless of sales generated, while they have a financial disincentive to improving their performance.

I recently worked with a client who had a bad experience with an agency. Whenever they complained about sales, the agency's response was to have them increase their budget. This pattern continued until they were spending $12,000/month. Did that work? No.

If all the risk falls on the retailer, and the digital marketing agency benefits from being less efficient, then the agency and the retailer have conflicting interests.

What if agencies offered a Performance Marketing Strategy Instead?

Performance marketing refers to aligning the financial incentives of retailers and marketers. Your agency's earnings are directly tied to your key metrics.

How Performance Marketing Creates Success Through Aligned Objectives

Tracking and aligning retailers and agencies on performance marketing objectives is a game changer for the following reasons…

• Performance marketing shifts the financial risk from the retailer to the digital marketing agency: Any healthy relationship shares risk and reward equally. With digital performance marketing, everyone wins when consumers complete a sale, everyone loses when performance is weak.
• Crystal clear reporting is needed to measure performance marketing: Retailers are often overwhelmed with complex data. Simplify by asking two key questions: (1) How much did our performance campaigns spend? (2) How much revenue did our performance campaigns generate?
• Agencies earning performance marketing revenue shift towards successful performance marketing channels: When agency revenue is tied to your sales, it doesn't matter if say, native advertising from affiliate marketing is their thing, they will abandon affiliate partners if other types of performance marketing channels are earning more.  
• Performance marketing reduces outsourced program management for your online marketing: Ever wonder how a full-service agency handles everything from trade-show booth design to direct response advertising, to brand strategy, to web design to SEO? They outsource. When it comes to performance marketing campaign management, it's risky for an agency to outsource at a cost per hour.
• Performance marketing fosters strategic partnership between retailers and agencies: Having a partner who is aligned with your success not only benefits the retailer but also creates a distinctly different experience for the marketer. It's a much more relaxed atmosphere, with tasks focused on driving sales. I'm able to fully utilize my strengths without the added responsibilities that come with managing a full-service agency client.
• Performance marketing is highly responsive: In 2022, Google's transition from Smart Shopping to Performance Max campaigns caused a major disruption in budget allocation. Campaigns started spending aggressively and traditional marketing agencies failed to address this issue. Clients experienced a surge in advertising costs while conversion rates plummeted. Traditional agencies profits surged while their clients suffered two months of overspending on underperforming ads. A performance-based marketing agency would have identified and resolved this issue within a week or two since they would have been impacted financially alongside their clients.

So what Exactly Is Performance Marketing?

An agency offering a performance marketing plan is much like a commission sales person who is paid for each sale they make.

Performance marketing works because it offers a different approach to advertising. It shifts the focus of the marketer to achieve new results. It's lightweight, agile, and involves shared risk. Marketers bet on their abilities to outperform the status quo by identifying top performance marketing channels, streamlining processes, eliminating wasted budget, reducing the cost per sale, and constantly testing and improving their efforts.

What performance marketing work does not include is a lot of the staples of hiring a traditional agency.

Just as a commissioned salesperson would decline non-sales-related administrative tasks typically assigned to salaried employees, a performance-based marketing company isn't interested in many of the things you might expect from a traditional agency.

What the advertiser pays for: billable time vs. revenue share

If a retailer needs a full-service agency for brand development, strategy, calls, meetings, and campaign pitches, an old-school Mad Men style advertising company is the perfect fit.

But if you have a old school brand marketing agency you love, you can also work with a performance marketing advertiser to maximize your cost per sale. These two approaches are complementary rather than competitive.