Paying for results is in vogue.
The concept is fairly straightforward: The parties
- Define the result up front
- Agree a baseline
- Specify the expectation and
- Specify payment of the outcome in the contract.
Customers; Want to see more value and accountability for the money they spend. Providers: Want the flexibility to deliver outcomes in the best, most innovative, and most efficient way possible without being micromanaged by the customer.
What could be simpler right! Wrong.
PbR can turn into a costly, risky exercise that delivers unpredictable results and saps resources when not handled correctly. With customers not getting the outcomes they expected and providers feeling under-rewarded for their efforts, especially when the belief is the results are being delivered.
When PbR doesn’t Work
This is by no means an exhaustive list;
Badly designed contracts or contracts explained poorly can leave open the possibility of companies (both providers and customer) gaming the system. There are plenty of ways to do this: Going soft or hard on the results in order to gain or delay payments; Redefining the outputs to make it easier or more difficult to achieve results; Adding or removing outputs to mitigate risk; or cherry picking only the best outcomes without adjusting expectations.
Delivering a result takes time and a lack of explanation (from the provider’s side) or a lack of appreciation (from the customer’s side) means that the relationship quickly becomes frustrating. Often tied to expectations when results that they did not or have not been able to achieve in the past are not then delivered by the provider straightaway. A problem in itself patience often leads to straining or questioning the ability to deliver by the provider before the delivery process is complete.
Strains from patience (above) sometime manifest into the customer not believing it is possible for the provider to deliver the results despite credibility, form and faith having been demonstrated during the sales process which can, at times, lead to impact on measurement credibility and rarely on attempted distortions of the agreed outputs or agreements which ultimately leads to (if agreed) a reset of the delivery mechanisms requiring more patience which is already under strain.
Often, measuring the results involves a substantial amount of data collection and analysis, and the measurements can be disputed. Disagreements often focus on whether the results have been achieved. Rarely disagreements can be along the lines of how much of the result was due to the organization under contract or to random external factors. In an ideal world all things would remain equal apart from the new partnership and attribution, then, would be simplistic but commerce does not operate in an ideal world and if trust is strained or a third party is claiming benefits this can become significantly problematic.
- Financial Equity
Finally, some companies operating under PbR struggle to finance their activities without payment while they work on delivering the results, limiting their ability to innovate and ensure results are delivered so fairness comes into play and fairness unfortunately is subjective.
Making PbR Work
Here at Adrac we’ve found that PbR contracts function best when:
- The parties define, define, define
The delivery type — without ambiguity and agree to practical approaches
The minimum investment
The contract term and more
- The output of the provider in delivering the result can be verified independently — for example, through independent, always online (but reliable) reporting platforms.
- We are given sufficient capital to take on the challenge
- The customer has a good understanding of the proposition
- Enough time is given to develop innovative solutions to achieve results
- There’s trust between the parties and the outcome is not “political.” Too much subjectivity and sensitivity scuppers the scheme
- There are management tools and incentives in place to encourage a focus on results and the end goals
- All parties and participants are invested in the success of the relationship
- Over performance is welcomed and congratulated
- The contract is simple and clear, clear, clear
- Both parties invest in open, honest, regular feedback
We have developed our proposition over a decade and our delivery team are skilled at achieving the agreed results, only taking on board campaigns and accounts we know we can deliver and over perform against BUT with the, arguably, one of the best delivery team in the world (testified by Google Premier Partner Status) the relationship fails if all parties don’t ensure there is
- A clear understanding of the proposition
- Trust between all parties &
- Realistic output targets