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Rev-Share Comp Models Considered Harmful

While I appreciate DM News’ coverage of my SES talk, Ms. Abramovich missed my main point. She wrote:

Alan Rimm-Kaufman, founder and president of the Rimm-Kaufman Group, Charlottesville, VA, said that the best search engine marketing agency fee structure is pay per performance.

As “pay per performance” is usually a synonym for “revenue share”, no, I did not say that.

My session was titled “The Best SEM Agency Fee Structure is Capped Percentage Of Ad-Spend”. Even clearer, my 7th slide was titled “Bashing Revenue Share”.

Ms. Abramovich’s headline — “Poor results? Terminate client-vendor relationship in 15 days” — grabs attention, but wasn’t my main point. A contract shouldn’t be terminated for a single poor week. A short out means if things are not acceptable for the client for sufficiently long, the client has the option to make a quick change. As a former retailer, I know fast outs are important and fair.

Here’s an overview of my talk

  • Search is young: agency payment structures haven’t converaged to the best model yet.
  • Payment structures (not only rates) matter. When we review data from a competitor for a prospective client, we can typically detect the other agency’s fee structure from the term list and performance data. Comp structures drive how agencies approach search.
  • We think % of adspend is better than % of revenue (pay for performance) for several reasons:
    • Sales on client’s brand name. Sales from search on a retailer’s brand terms are often highly significant. I gave one real client example where 48% of the sales came from 5 terms — variations of their brand name — which accounted for 4% of the cost and 0.03% of the active term list.
    • Information sharing. If an agency is compensated like an affiliate, they operate like an affilate, not like a marketing partner.

Here are the presentation slides.

My colleague George Michie has written thoughtfully on all this at some length: SEM Pricing Models (Part 1, Part 2, and Part 3).

I respect Ms. Abramovich’s search reporting for DM News, and thank her for coming to the session. How search marketing agencies should be paid is an important debate for our young industry. Ongoing discussion of all aspects of the client-agency relationship is healthy all around.

dm news trackback link

SearchEngineRoundTable’s coverage of the session

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  • Alan Rimm-Kaufman
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