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Eric Siu explains why agencies should charge based on results instead of monthly retainers. A friend's agency does $80M yearly with $30M profit on 30 employees, showing how performance pricing can be far more profitable than fixed fees.
Eric Siu explains why agencies should charge based on results instead of monthly retainers. A friend's agency does $80M yearly with $30M profit on 30 employees, showing how performance pricing can be far more profitable than fixed fees.
One agency might charge $2,000 a month or 15% of ad spend, whichever is higher, if they're managing like paid media, right? Then another agency's going to say, hey, you know what? You don't need to pay me anything until I perform. And let's just agree on an amount that you'll pay me per customer that I drive to you and we'll go from there. So which offer's better? Obviously the second one, because all the risk falls on the agency and the agency's only getting paid on performance. When an agency's getting paid on performance, they're also going to make a lot more money. So I have one friend's agency, they do about $80 million a year. $30 million of it is profit and they only have 30 employees. $80 million divided by 30, that's $2.6 million revenue per employee versus like a standard agency, maybe your revenue per employee is $100,000, $200,000, $300,000 or so. So that's the difference I would say.
