A trend is emerging where those responsible for marketing are compensated based on value and not hours
On April 20th Coca-Cola said it would adopt a “value-based” compensation system for its marketing professionals. Rather than paying for hours worked, Coke will pay for results achieved.
Global ad spending is expected to decline by nearly 7% in 2009, according to ZenithOptimedia, and by around 9% in America. Billable hours have been the standard way of doing things since the 1970s.
Its new model guarantees to cover marketing costs, plus a bonus of up to 30%. The bonus depends on a number of metrics, including the marketing firm's overall performance, and the sales and market share of the products being advertised. Coke insists that its aim is to inspire creativity and efficiency.
Some accounting, consulting and law firms are also scrapping the billable hour, often at the request of their clients. Ron Baker, author of “Pricing on Purpose”, a book on pricing strategies, thinks service agencies need to grasp that they sell ideas, not time, and that ideas should be generously compensated. Imagine, he says, if J.K. Rowling had been paid by the hour to write about Harry Potter.
At Saffron Multimedia, we have been adopting a hybrid pricing volume for several years, as we have always felt for some time that there should be some degree of accountability by the marketing firm to deliver results. However, these results are sometimes largely dependent upon client cooperation. For example, bringing users to a website is just one of two major issues in on-line marketing. The second is to convert the mouse click into revenue and this conversion is reliant upon our clients' own quality of service or product.
Through some thoughtful interpretation of detailed analytics, we can invariably identify which parts of a website customers are gravitating and unlock areas where they may be stalling. The approach to this technique is incremental, where a select series of changes are implemented and the results from these efforts evaluated.
This gives our clients confidence in moving forward with a marketing plan that has been "success-tested" and then enables us to take a sensible share of the financial risk in attaining our clients' marketing goals with a higher level of certainty.