So you're thinking of hiring an agency to do some outreach for you. As you're exploring your options the question comes to mind,

 

'If an agency is confident in their abilities, shouldn't they be willing to work on a success based fee only?'

 

This is a fair and reasonable question, and like most good questions, the answer to it is a little bit more complex than just a yes or no, so let's break this down.

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Usually, when someone is talking about a success based model with lead generation they mean that rather than them paying for the service, they want to pay for the results the service brings, and they will pay an amount proportional to the amount of meetings they get.

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There could be other KPIs that someone wants to measure their success based fees on, but in the context of lead generation it's usually meetings booked.

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The problems are (a) there is far more value being delivered from outreach then just the meetings that are booked immediately upon sending out the messages; and (b) the majority of that value is delayed.

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Think of this... In any one market there's only a small percentage of the pool that is in the buying pocket right now. There's a far bigger percentage though that is going to be in the buying pocket in the next 3 - 24 months.

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A lot of founders and sales professionals think of outreach as just about capturing these targets ready to buy now. While that's important, yes, outreach is also about capturing the portion of the market that's going to be in the buying pocket in the near future. Good outreach does this.

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If you can capture the future buyers, then your outreach compounds and you generate more and more meetings each month due to people booking in month 3 or 6 or 24 that were contacted in month 1.

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When you only capture the ready to buy portion of the market, then the number of meetings you generate each month will remain the same and you'll rely solely on timing to get your clients.

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If an agency is only paid for the meetings they generate in the immediate, they have no incentive to pursue the longer term follow ups.

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Alright, what else? What other value is delivered from outreach besides immediate and distant meetings?

In addition to the meetings good outreach generates the following:

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Messaging Feedback - This is really underrated. When you're reaching out to your ideal customer profile and speaking to them about their pain points, you learn what language works and what doesn't. You can then use this to tweak your website, social media content, videos, and all other marketing materials. This can be more valuable for newer offers and markets but still has value in any business.

Market Feedback - Again, underrated. When you're reaching out to prospects you're going to learn more about what competitors they're currently using. How do they perceive your solution. What new trends are happening in the industry. Etc. For example, let's say there are 10,000 possible accounts that could do business with you in North America. Your Total Addressable Market TAM. How valuable would it be to have 5 - 10% of that completely mapped out in terms of when their renewals were happening, what software they were currently using, what some of their specific pain points were, etc. This takes a lot of time and good outreach does these things.

 

Just like collecting long-term follow ups, if an agency is paid only for the meetings they're generating, they have no incentive to collect and relay this valuable information.

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The last result that it brings besides meetings is exposure. You could argue this is the same thing as bookings that come later, but it's a little deeper than that. Good outreach is going to put your company's name on the recipients mind, whether they respond or not.

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Sometimes it takes weeks or months of someone being reached out to before they respond and so all the outreach up to that point played a role in that booking. There will be outreach that lands in someone's inbox, they don't respond, but they tell someone else about it a month later and that person books on the website.

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Exposure is exposure.

 

If you were going to buy a billboard that sat in a busy downtown walkway with traffic that consisted solely of your most ideal potential customers, do you think you'd pay for that billboard by the meetings it generated? Probably not, and good outreach is 100x more effective than a billboard.

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Now, some offerings, especially newer ones, require testing before the winning combination of copy and targeting is put together in a way that generates positive ROI.

 

This means split testing various words, phrases, CTAs, and personas being targeted to determine what works best. Again, just because someone is an expert in outbound, doesn't mean they can immediately know which words a specific audience is going to resonate with in a given market in relationship to a given offering.

 

This takes time. The more time you invest in split testing and learning what words/phrases are working best to your audience in cold email, the better your results will be. There are a likely a dozen significant variables that go into how long it takes a specific business to dial in their messaging, and some businesses might be able to nail it right away, but the majority will start out achieving much poorer results than they will be generating after 3 - 6 months and more so after a year.

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Any progress made on the journey from figuring things out to having your targeting/messaging/sequencing strategies dialed in is valuable, but it doesn't always translate to meetings.

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In other cases some businesses might have built a product without validating its need in the market and thus hiring the agency to do outreach for something that isn't desirable in the first place. While it would be nice to think that everyone who approaches an agency has product market fit, this just isn't the case and it's not realistic for the agency to be able to make the assessment accurately every time.

 

So then, is a success based fee always bad?

 

Well... In most cases it is, because it's rare someone will be able to account for all these disadvantages, but it's technically not impossible.

 

For example, a success based fee could work in a situation where the following criteria are met:

• The company hired the agency has case studies and happy customers; in other words, product market fit; and they've already executed on outreach before to validate the channel

• The price per meeting accounts for all the value being delivered and not just the meetings that are being booked in the immediate

• The customer has set clear expectations with the agency on all the value being delivered in addition to the meetings and the agency agrees to deliver these things

 

Now just because something is possible, doesn't mean it's the best option. I personally think that paying someone 100% based on meetings generated is not a good model, at least not at first. I also don't think it's realistic to quantify and accurately record all the other means of value aside from the bookings generated so that a purely performance based model can happen.

 

So what is the best option you might ask?

 

I would say, no need to invent anything new, just look to the sales person in most companies today and what do they get paid?

 

A base fee + commission.

 

The base fee covers the mandatory responsibilities of their job that don't directly account for the sales, or meetings, being booked immediately. Like the reporting on marketing and messaging feedback, recording longer term follow ups that the rep might not ever get paid commission on, etc.

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Keep in mind too, when a sales rep is working for a company they're being supplied with the tools to do the job. Licensing to SEPs, email searching/verification, list building resources, and more. This all costs money and no organization would expect an SDR to pay for that themselves.

 

Then there's the success or performance fee, and this commission is what incentivizes the rep or SDR/BDR to hit quotas and be aggressive.

 

There's a reason this is the standard in the sales world. It's because it works. So that's what I would say is the best model.

 

How you split that up, to me, depends on what end of the spectrum you're on.

 

If your business is brand new and it's never generated meetings with cold contacts before, then it's likely there's some experiments that need to be conducted to dial in your messaging so that a per meeting fee is realistic. So maybe the the base fee / commission split is heavier on the base fee side.

 

As the outreach channel is tuned in and meetings are able to be generated consistently, it could move the other way and lean heavier on the success based fees. Again, not rocket science and pretty much what's happening in most sales orgs now.

 

This is for the agency or SDR and the client or employer to agree on what's fair.

 

And that's it. That's my logic on what I think is fair and incentivizes an agency or SDR the most.