Television’s CPA Model

By: Doug Fox, Senior Director of Business Development, Mercury Media Boston

Pay-for-performance agency compensation is a hot topic these days, but what most agencies offer is a very one-sided performance equation.  If their work underperforms, the agency is paid what it is normally paid, but if the agencies’ work outperforms, they’re paid even more through a bonus.  Sounds like a sweet deal – as long as you aren’t a client.

And what is the client’s recourse?  They can always switch agencies.  The fear of losing a client is a great motivator to ensure the clients’ best interests are undertaken, right? Unfortunately, no.  As Peter Gibbons theorizes in Office Space, “That will only make you work just hard enough not to get fired.”  This is hardly the foundation of agency-client success.   But maybe there is a better way.  Isn’t there a television agency out there that will share the risk with their clients and only charge them based on the number of customers its advertising delivers?  The holding company agencies certainly will not, because there is too much profit and security tied up in their old business model.  But we will.

Mercury Media is the only agency offering large-scale CPA FOR TV advertising in North America.  So instead of paying for your broadcast media based on CPM’s or GRP’s, we will provide it to you based on a guaranteed CPL (cost per lead) or CPS (cost per sale). These are not PI’s.  We buy proven, top performing, paid media on behalf of our clients and we share the risk with them.

How are we able to do this? As a direct response agency, we have a 20-year response database in our short form business that we can leverage, enabling us to predict success and scalability, and guarantee performance, within certain markets and audiences, including the insurance, senior, travel & hospitality, personal care, beauty, financial services, education, medical and retail markets, among others.  All it takes is a short paid test that typically lasts two to three weeks.

Although unique to television advertising, this model is hardly a novel marketing concept.  Online marketers, specifically online lead aggregators, have been doing this for years – investing in and optimizing media that has been proven to perform in certain categories and then charging clients solely based on performance.

Today, the agreement between traditional television advertisers and their agencies isn’t far from that of the Mad Men days: “Don’t stop firing until you see the whites of their pockets.”  Client establishes television budget.  Agency buys media. Agency and client agree on commission percentage.  Let the buying begin.

In contrast, some of the larger DRTV agencies might compensate their buyers based on their ability to optimize a buy.  This ensures that your media is being purchased as cheaply as possible, but does it guarantee the performance that you care so much about?  These agencies might target your allowable, but ultimately, the agency is still paid based on a percentage of how much it spends.  Where is the alignment of goals?  In this arrangement, if the agency thought it could accomplish the same amount of impact with half the budget, would it dare share that fact with its client?

In our CPA FOR TV model, we are as vested as the client is in the success of our efforts – perhaps even more vested.  As we are guaranteeing performance, we’ll only recommend an increased spend if we’re absolutely sure we can make an impact.   If we fall short on our guarantee, it hits our bottom line, but if we win, we all win.

Let me leave you with one last guarantee:  Once clients start paying for results instead of media, they’ll never go back.

Did you feel that?

A chill just went up the spine of the traditional agency model.

Doug Fox is Senior Director of Business Development for Mercury Media. Fox brings more than fifteen years of marketing and business development experience, having led brand development and demand generation engagements with a range of brands spanning consumer products, fashion, financial services and technology.

Contact him at dfox@mercurymedia.com

Tags: CPA for TV, Direct Marketing, direct response, DRTV, Mad Men, Mercury Media