March 18, 2025 • 12 mins
In this episode of the Vera Shafiq podcast, Vera explores the concept of performance-based agency models within the franchising world. She discusses whether franchise brands can effectively compensate marketing agencies based on the tangible results they deliver.
Vera discusses the appeal of this model for greater accountability, budget-friendliness, and simplicity in communication with franchise owners. She also highlights the perspectives of agencies, covering data transparency concerns, baseline costs, and variables beyond their control.
Practical steps to implement this model, including defining KPIs, ensuring data integrity, and establishing a hybrid fee structure, are examined along with the pros and cons of adopting a performance-based model.
Vera concludes with insights into how this approach can align interests between franchisors, franchisees, and agencies when managed correctly.
00:00 Introduction to Performance-Based Agency Models
00:56 Understanding Performance-Based Compensation
02:48 Agency Perspectives on Performance-Based Models
04:54 Implementing a Performance-Based Model
09:07 Pros and Cons of Performance-Based Models
10:49 Conclusion and Final Thoughts
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Vera Shafiq (00:12):
Hello and welcome back to the Vera Shafiq podcast,
real and relevant discussions onall things business, marketing
and technology in franchising.
I'm your host, Vera Shafiq, andtoday we're going to talk about
performance-based agency model,and does a performance-based
model actually work?
In other words, can franchisebrands effectively employ a
(00:35):
compensation structure wheretheir marketing agency only gets
paid?
Or it gets paid more when theydeliver real measurable results.
We'll talk about thepracticality of this approach,
the perspectives from agenciesthemselves, and the pros and
cons of going down this path.
Let's dive in.
(00:56):
So a performance-based agencyarrangement is exactly what it
sounds like, the franchisor orsometimes even the franchisee at
the local level.
Compensates an externalmarketing agency based on
specific results or KPIs.
It could be cost per lead, costper acquisition, sales volume,
(01:16):
revenue share, or any otherwell-defined metric.
The appeal is pretty obvious.
Why pay a monthly retainer or abig management fee when you can
ensure that you only pay for theoutcomes?
In the franchise world, thisidea is attractive for several
reasons.
So number one would be greateraccountability.
(01:37):
You want your agencies to haveskin in the game, right?
If they don't deliver, theydon't get paid the big bucks,
and that can really sharpen anagency's focus on your top
priorities.
Secondly.
A performance based model can bebudget friendly.
Franchise brands, especiallyemerging ones, often operate on
(01:58):
tighter marketing budgets.
And so paying for results canfeel safer than that flat
retainer fee might feel.
And the flat retainer fee maynot even generate an ROI,
depending on what theperformance looks like.
And then thirdly.
There's a simplicity with aperformance based model when you
communicate with your franchiseowners.
(02:19):
So when you go to yourfranchisees and say, we are only
paying the agency for actualresults generated, it can
actually help justify marketingfund expenditures.
Franchise owners hear thatmessage and feel more
comfortable investing, but doesit really work as seamlessly as
it sounds?
(02:41):
Let's take a look at therealities of this model,
starting with how agenciesthemselves view it.
Most agencies, especially thosethat specialize in franchise
marketing, understand the uniquechallenges of multi-location
marketing.
On paper, it sounds great forthem to say, yes, we'll put skin
in the game.
(03:01):
But in practice, agencies oftenhave quite a few concerns about
this performance-based model.
The first one is datatransparency and control.
To be paid on performance, theagency must track leads, sales
or revenue, and that means thatthey need reliable data sources
and full clarity on what'shappening at the store or the
(03:23):
local level.
So if franchisees are slow toupdate lead statuses or close
deals off the books, it cancreate data gaps.
And agencies can be very wary ofsituations where they're
responsible for results, thatthey can't fully track or
control.
Secondly, there's the baselinecosts and overhead.
(03:47):
Performance-based billing alonemay not cover an agency's core
operating costs, especiallyearly on.
Many agencies will want at leasta partial retainer or a minimum
base fee to ensure that theydon't operate at a loss while
campaigns ramp up.
And then there's the topic ofagency expertise versus
variables out of their control.
(04:08):
So even the best marketingcannot fix deep operational
issues at a franchise location,such as poor in-store customer
experience, or unmotivated staffAgencies can drive leads or foot
traffic, but if the localfranchisee doesn't convert them,
the results based model can makethe agency look bad or
(04:29):
underpaid.
So in short, while agencies canbe open to performance based
models, most will push for ahybrid arrangement, some kind of
retainer or percentage fee, plusperformance incentives once
goals are met.
All right.
Now let's talk about how you'dactually get a performance based
(04:49):
model off the ground in apractical franchise focused way.
Firstly, you wanna define clearmeasurable KPIs, right?
Sounds like a no brainer, butyou really need to agree on the
right metrics with your agency.
Are you paying for leads,qualified leads, sales
conversions, or just overallincreases in revenue?
(05:12):
For a performance based model towork, you have to get incredibly
granular and define it allupfront.
Then you'll often need abaseline period of historical
data to understand your normallead volume or sales.
This helps you figure out howthe agency's efforts are moving
the needle above the norm.
(05:34):
For the performance based modelto work, you'll also want to
establish data integrity andreporting.
And part of that will be yourtech stack integration.
So you'll need a robust system,a CRM or call tracking or
e-commerce platform that tracksevery lead from first click to
final sale.
The agency must have full accessso that performance is
(05:54):
transparent because if you'regonna be judging the agency on
something like revenue.
Or sales.
It's obvious that technologyneeds to be there in order to
measure that so that an agencycan actually deliver on their
promise, right?
Then you're gonna need aconsistent reporting cadence, so
(06:14):
weekly or monthly sync ups tomake sure that the numbers are
accurate and that any anomalies,like mislabeling of leads or
missed calls are flaggedquickly.
Okay?
And so then you'll want tocreate a hybrid fee structure,
because that's typically whatagencies are gonna wanna do.
And that would be either a baseretainer plus a performance
(06:36):
bonus, or a percentage basedfee, plus a performance bonus.
This is the most commonapproach, and let's say you pay
the agency a smaller monthlyretainer to cover core services
like campaign setup,optimization reporting, and then
on top of that, a performancebonus if they exceed a certain
lead volume or conversion rate.
(06:59):
Another variation could be atiered payment where payment
tiers could kick in once certainthresholds are passed.
For example, the agency earns a10% bonus if lead volume is 10%
above baseline, a 20% bonus iflead volume is 20% above
baseline, et cetera, et cetera.
And then you'll wanna accountfor franchisee variation.
(07:22):
So not every franchise territoryis the same.
You've got your urban versusyour rural.
Your competition levels,demographics differ across
different locations.
They all matter, and so we wannamake sure that the performance
goals or baselines reflect thereality of each local market.
(07:44):
Then again, with the franchiseevariation, you'll want clear
communication with franchiseowners so that they can
understand exactly how theagency is incentivized, how
leads are tracked.
What their role is in convertingleads or reporting back,
finally, you'll want to create alegal or contractual type of
(08:05):
clarity.
So you'll need to define whatcounts as performance.
Spell out how you'll define andvalidate each performance metric
in the contract.
Do phone leads count only ifthey meet a certain criteria are
repeat customers included orexcluded, things of that nature.
And then termination clauses.
So if the agency fails to meetperformance targets for multiple
(08:28):
periods, or if the franchisorfails to fulfill some part of
the data requirements, how caneither party exit the agreement
without too much friction?
And then finally, as part oflegal and contractual clarity,
confidentiality, and data use.
So franchise systems often havesensitive local performance
data.
So make sure your contractcovers how that data can or
(08:49):
cannot be used outside of yourbrand.
So with these steps in place,you really increase the odds of
a performance based approachrunning smoothly, but that
doesn't mean it's foolproof.
So let's examine some of thepros and cons of that
performance based model.
Let's look at the pros.
So with a performance basedmodel, you have an alignment of
(09:13):
interests.
The agency only makes real moneyif they generate results.
The brand and the agency areworking towards the same goals.
There's a reduced financialrisk.
So instead of sinking a hugeretainer each month, you pay
according to ROI, helping youmanage costs more Predictably,
and I think this is probably themost important, is you get
(09:34):
easier buy-in from franchisees.
Franchise owners appreciate theidea that the agency just can't
take the money and run It oftenmakes them more open to
participating in the localmarketing program.
Okay, so what are the cons of aperformance based model?
(09:55):
If a location doesn't convert orfollow up with leads, the agency
may not meet performancebenchmarks and tension can then
arise.
If the campaign does reallywell, the performance fees might
cost you more than a traditionalflat rate, especially for high
value leads and.
Honestly, you need bulletprooftracking systems.
(10:15):
So I think this is really thebiggest hindrance to
successfully implementingperformance based model is if
you don't have those trackingsystems, then you're not gonna
be able to measure trueperformance.
So a single missed data feed canbreak the entire performance
model and lead to disputes.
For a franchisor, the idealmight be a best of both world
(10:38):
scenario, a stable retainer orpercentage management fee, plus
performance bonuses protected bycarefully defined data tracking.
So does a performance-basedagency model actually work?
The short answer is it can ifyou have the right tracking
mechanisms.
(10:58):
A clear contract, local buy-infrom franchisees and an agency
that embraces theaccountability.
It does demand upfront effort toset up data transparency and
define the right KPIs and ensurethat local franchisees
consistently do their part,particularly when it comes to
lead follow-up.
But when managed properly, itcreates powerful alignment
(11:20):
between a franchisor,franchisees, and the agency.
That's it for today.
As always, thanks for listening.
I hope this episode gave yousome clarity on whether or not
performance-based agency feescould be a fit for your
franchise brand.
If you found this insightful,please subscribe, share the
show, and leave a review.
(11:40):
I'd love to hear about yourexperiences, whether you've
tried performance-basedmarketing or are considering it.
Until next time, keepinnovating, keep track of those
metrics, and stay focused onmaking marketing work for your
brand, your franchisees, andyour customers.
I'm Vera Shafiq, signing off.
Hello and welcome back to the Vera Shafiq podcast,
real and relevant discussions onall things business, marketing
and technology in franchising.
I'm your host, Vera Shafiq, andtoday we're going to talk about
performance-based agency model,and does a performance-based
model actually work?
In other words, can franchisebrands effectively employ a
(00:35):
compensation structure wheretheir marketing agency only gets
paid?
Or it gets paid more when theydeliver real measurable results.
We'll talk about thepracticality of this approach,
the perspectives from agenciesthemselves, and the pros and
cons of going down this path.
Let's dive in.
(00:56):
So a performance-based agencyarrangement is exactly what it
sounds like, the franchisor orsometimes even the franchisee at
the local level.
Compensates an externalmarketing agency based on
specific results or KPIs.
It could be cost per lead, costper acquisition, sales volume,
(01:16):
revenue share, or any otherwell-defined metric.
The appeal is pretty obvious.
Why pay a monthly retainer or abig management fee when you can
ensure that you only pay for theoutcomes?
In the franchise world, thisidea is attractive for several
reasons.
So number one would be greateraccountability.
(01:37):
You want your agencies to haveskin in the game, right?
If they don't deliver, theydon't get paid the big bucks,
and that can really sharpen anagency's focus on your top
priorities.
Secondly.
A performance based model can bebudget friendly.
Franchise brands, especiallyemerging ones, often operate on
(01:58):
tighter marketing budgets.
And so paying for results canfeel safer than that flat
retainer fee might feel.
And the flat retainer fee maynot even generate an ROI,
depending on what theperformance looks like.
And then thirdly.
There's a simplicity with aperformance based model when you
communicate with your franchiseowners.
(02:19):
So when you go to yourfranchisees and say, we are only
paying the agency for actualresults generated, it can
actually help justify marketingfund expenditures.
Franchise owners hear thatmessage and feel more
comfortable investing, but doesit really work as seamlessly as
it sounds?
(02:41):
Let's take a look at therealities of this model,
starting with how agenciesthemselves view it.
Most agencies, especially thosethat specialize in franchise
marketing, understand the uniquechallenges of multi-location
marketing.
On paper, it sounds great forthem to say, yes, we'll put skin
in the game.
(03:01):
But in practice, agencies oftenhave quite a few concerns about
this performance-based model.
The first one is datatransparency and control.
To be paid on performance, theagency must track leads, sales
or revenue, and that means thatthey need reliable data sources
and full clarity on what'shappening at the store or the
(03:23):
local level.
So if franchisees are slow toupdate lead statuses or close
deals off the books, it cancreate data gaps.
And agencies can be very wary ofsituations where they're
responsible for results, thatthey can't fully track or
control.
Secondly, there's the baselinecosts and overhead.
(03:47):
Performance-based billing alonemay not cover an agency's core
operating costs, especiallyearly on.
Many agencies will want at leasta partial retainer or a minimum
base fee to ensure that theydon't operate at a loss while
campaigns ramp up.
And then there's the topic ofagency expertise versus
variables out of their control.
(04:08):
So even the best marketingcannot fix deep operational
issues at a franchise location,such as poor in-store customer
experience, or unmotivated staffAgencies can drive leads or foot
traffic, but if the localfranchisee doesn't convert them,
the results based model can makethe agency look bad or
(04:29):
underpaid.
So in short, while agencies canbe open to performance based
models, most will push for ahybrid arrangement, some kind of
retainer or percentage fee, plusperformance incentives once
goals are met.
All right.
Now let's talk about how you'dactually get a performance based
(04:49):
model off the ground in apractical franchise focused way.
Firstly, you wanna define clearmeasurable KPIs, right?
Sounds like a no brainer, butyou really need to agree on the
right metrics with your agency.
Are you paying for leads,qualified leads, sales
conversions, or just overallincreases in revenue?
(05:12):
For a performance based model towork, you have to get incredibly
granular and define it allupfront.
Then you'll often need abaseline period of historical
data to understand your normallead volume or sales.
This helps you figure out howthe agency's efforts are moving
the needle above the norm.
(05:34):
For the performance based modelto work, you'll also want to
establish data integrity andreporting.
And part of that will be yourtech stack integration.
So you'll need a robust system,a CRM or call tracking or
e-commerce platform that tracksevery lead from first click to
final sale.
The agency must have full accessso that performance is
(05:54):
transparent because if you'regonna be judging the agency on
something like revenue.
Or sales.
It's obvious that technologyneeds to be there in order to
measure that so that an agencycan actually deliver on their
promise, right?
Then you're gonna need aconsistent reporting cadence, so
(06:14):
weekly or monthly sync ups tomake sure that the numbers are
accurate and that any anomalies,like mislabeling of leads or
missed calls are flaggedquickly.
Okay?
And so then you'll want tocreate a hybrid fee structure,
because that's typically whatagencies are gonna wanna do.
And that would be either a baseretainer plus a performance
(06:36):
bonus, or a percentage basedfee, plus a performance bonus.
This is the most commonapproach, and let's say you pay
the agency a smaller monthlyretainer to cover core services
like campaign setup,optimization reporting, and then
on top of that, a performancebonus if they exceed a certain
lead volume or conversion rate.
(06:59):
Another variation could be atiered payment where payment
tiers could kick in once certainthresholds are passed.
For example, the agency earns a10% bonus if lead volume is 10%
above baseline, a 20% bonus iflead volume is 20% above
baseline, et cetera, et cetera.
And then you'll wanna accountfor franchisee variation.
(07:22):
So not every franchise territoryis the same.
You've got your urban versusyour rural.
Your competition levels,demographics differ across
different locations.
They all matter, and so we wannamake sure that the performance
goals or baselines reflect thereality of each local market.
(07:44):
Then again, with the franchiseevariation, you'll want clear
communication with franchiseowners so that they can
understand exactly how theagency is incentivized, how
leads are tracked.
What their role is in convertingleads or reporting back,
finally, you'll want to create alegal or contractual type of
(08:05):
clarity.
So you'll need to define whatcounts as performance.
Spell out how you'll define andvalidate each performance metric
in the contract.
Do phone leads count only ifthey meet a certain criteria are
repeat customers included orexcluded, things of that nature.
And then termination clauses.
So if the agency fails to meetperformance targets for multiple
(08:28):
periods, or if the franchisorfails to fulfill some part of
the data requirements, how caneither party exit the agreement
without too much friction?
And then finally, as part oflegal and contractual clarity,
confidentiality, and data use.
So franchise systems often havesensitive local performance
data.
So make sure your contractcovers how that data can or
(08:49):
cannot be used outside of yourbrand.
So with these steps in place,you really increase the odds of
a performance based approachrunning smoothly, but that
doesn't mean it's foolproof.
So let's examine some of thepros and cons of that
performance based model.
Let's look at the pros.
So with a performance basedmodel, you have an alignment of
(09:13):
interests.
The agency only makes real moneyif they generate results.
The brand and the agency areworking towards the same goals.
There's a reduced financialrisk.
So instead of sinking a hugeretainer each month, you pay
according to ROI, helping youmanage costs more Predictably,
and I think this is probably themost important, is you get
(09:34):
easier buy-in from franchisees.
Franchise owners appreciate theidea that the agency just can't
take the money and run It oftenmakes them more open to
participating in the localmarketing program.
Okay, so what are the cons of aperformance based model?
(09:55):
If a location doesn't convert orfollow up with leads, the agency
may not meet performancebenchmarks and tension can then
arise.
If the campaign does reallywell, the performance fees might
cost you more than a traditionalflat rate, especially for high
value leads and.
Honestly, you need bulletprooftracking systems.
(10:15):
So I think this is really thebiggest hindrance to
successfully implementingperformance based model is if
you don't have those trackingsystems, then you're not gonna
be able to measure trueperformance.
So a single missed data feed canbreak the entire performance
model and lead to disputes.
For a franchisor, the idealmight be a best of both world
(10:38):
scenario, a stable retainer orpercentage management fee, plus
performance bonuses protected bycarefully defined data tracking.
So does a performance-basedagency model actually work?
The short answer is it can ifyou have the right tracking
mechanisms.
(10:58):
A clear contract, local buy-infrom franchisees and an agency
that embraces theaccountability.
It does demand upfront effort toset up data transparency and
define the right KPIs and ensurethat local franchisees
consistently do their part,particularly when it comes to
lead follow-up.
But when managed properly, itcreates powerful alignment
(11:20):
between a franchisor,franchisees, and the agency.
That's it for today.
As always, thanks for listening.
I hope this episode gave yousome clarity on whether or not
performance-based agency feescould be a fit for your
franchise brand.
If you found this insightful,please subscribe, share the
show, and leave a review.
(11:40):
I'd love to hear about yourexperiences, whether you've
tried performance-basedmarketing or are considering it.
Until next time, keepinnovating, keep track of those
metrics, and stay focused onmaking marketing work for your
brand, your franchisees, andyour customers.
I'm Vera Shafiq, signing off.
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