[EntrePR]

I'm evaluating the idea of expanding my consulting business to officially include various marketing services. My question to you is: How much would you pay a third party for various increases in revenue, as a percentage of that revenue or in absolute terms?

So, what would a 10% increase in gross revenue be worth? 25% 50%? 100%?

Assumptions:

1. Sufficient data exists to be able to accurately measure the increase in revenue directly resulting from the marketing efforts.

2. Payment would be made after the desired result was achieved, and only if the result was achieved.

3. Payment would be made as soon as the results were achieved.

[kbud124]

you do realize that the amount that a business would pay is different in every business...high margin businesses would be willing to pay more as a % since they will be making more on each sale whereas a lower margin business would pay less...personally, id be willing to pay about 10% of the increase in sales at regular prices

[Sam Barona]

I would be willing to pay 25% of NET profit generated by the campaign; after all, if your advice pertains to growing my top line but with negligible impact on my bottom line, then there is no value for me.

Sam

[The Stealthy One]

I would be willing to pay a full 50% of profits generated by marketing efforts....just not sure I have a way to quantify results, atm. Your offer is tantalizing, however. I like the idea of not paying unless something actually happens. I have sent you a pm about Page Ranking for two of my sites - however, after seeing this thread, I think I'd like to expand our talks to my whole company. Anyways, I'll be waiting for your reply...

[kbud124]

I don't basing it on Net profits is a great idea..here are my reasons: first off, why should one give a person so much upside? Its your business and you are taking the risk; secondly, how do you quantify "profits" for businesses with a certain amount of overhead...if you arent covering overhead (as is the case with many startups), then the incremental revenue will not result in any profits and the marketing agency would not be paid for work even though they increased revenues and helped cover overhead...basing it on revenues works out like a commission, you should be able to calculate how much you can give up and still make a good profit..thats just my opinion

[NeeJam]

ENTERPR if you can get an increase of 10% on sales revenue then you should be looking at 35%-50% of the net profits.

[EntrePR]

Originally Posted by kbud124

you do realize that the amount that a business would pay is different in every business...high margin businesses would be willing to pay more as a % since they will be making more on each sale whereas a lower margin business would pay less...personally, id be willing to pay about 10% of the increase in sales at regular prices

kbud124: This is a very good point. Aside from the great variety of average net profit from business to business, there is also the situation where the business is running at a net loss (on paper anyway). Not exactly something I would like a percentage of.

I'm leaning towards this position: In a startup, break even or loss situation, a percentage of the increase in sales would seem to be the only logical solution. I tend to lean towards a larger percentage for a short period of time rather than a smaller percentage for a long period of time. The business owner would of course need to factor in what those initial sales were worth in terms of repeat business and word of mouth. Even if they only break even on the increase after paying me, they would still look at a substantial increase in business and profits in the long run.

On the other hand, there are business (white papers anyone?) that are almost pure profit. If your margins were above 75% on your product, It would be reasonable to look at a percentage of the increase in net as reasonable.

Of course, in the high margin businesses, it almost doesn't matter which method you choose, the number should come out pretty close to the same.

Originally Posted by Sam Barona

I would be willing to pay 25% of NET profit generated by the campaign; after all, if your advice pertains to growing my top line but with negligible impact on my bottom line, then there is no value for me.

Sam

If your top line is growing but there is no effect on your bottom line, I think increased sales are the least of your worries.

Originally Posted by The Stealthy One

I have sent you a pm about Page Ranking for two of my sites - however, after seeing this thread, I think I'd like to expand our talks to my whole company. Anyways, I'll be waiting for your reply...

Daniel,

Feel free to include whomever you like. I have no problem sharing the discussion.

To the other responses, thank you for the feedback so far and keep em coming.

Cheers.

Ben

[spyro]

Originally Posted by Sam Barona

I would be willing to pay 25% of NET profit generated by the campaign.
Sam

Then sentence portrays my feelings on the subject very well.

[Sam Barona]

EntrePR, to simplify, my comments pertain to the impact of your contribution to my profits; not the current state of my accounts.

My companies enjoy different margins, which depend on their current maturity as well as their industry norms.

One of them, however, enjoys gross profits of just above 40%, whilst net is just below 10. This is due to the long-term marketing investment currently being implemented. Thus, I am more concerned with bottom line improvements, than, say increasing my top line by sacrificing my already modest bottom line.

Also, this particular company does not enjoy much repeat business, due to the nature of the business, so there is little value in the logeivity of client relationships, rather, what is of far more importance is growing market share rapidly and brand recognition that will facilitate expansion into other vertical markets.

I am interested in finding out what can you do, that my team isnt currently doing, that will reduce my topline costs, whilst increasing my bottom line.

We run a very tight and aggressive ship here, so it would have to be rather special, and not some vanilla Page Ranking campaing that will simply reflect on my top line.

I look forward to your comments

Sam

[EntrePR]

Sam,

I think we might have come at the question from slightly different angles. When you say that you are more concerned with bottom line improvements than increasing your top line by sacrificing your bottom line, I believe you are taking the position that like your current long term marketing investment, you would expect the increase in top line to have a direct and significant increase in your marketing budget. I could see this as not being desirable since you would have increases in infrastructure to deal with as well as potentially impacting reserve funds and operating capital.

When forming the original question, I had in mind what I consider the typical forum business model...high margin, low overhead and infrastructure.

If I were evaluating the business model you mentioned and it already had a significant marketing program in place, then the first place I would analyze to look for potential increase in bottom line would be that very marketing program. After reading your posts, I believe your claim about running a tight and aggressive ship. I also believe that while there might be a fraction of a percent hidden here and there, the single biggest cost saver would likely be shifting the marketing campaign to a more aggressive and cost effective approach.

As far as vanilla Page Ranking is concerned, I have little patience for it. I feel that vanilla PR should be reserved for large companies with more advertising budget than brains. In order to be truly effective at publicity, you have to come at it sideways. If your company can handle controversy while maintaining integrity, then by all means use it. Also, as I mentioned several times in other threads...be the expert. Be the foremost expert if you can. Very few people have the balls to stand up and say "I'm the best", but to those few go the spoils.

Now, aside from all that, It still might be worthwhile to look at your supply chain, company structure, customer service, sales closing rates, etc to look for incremental improvements. A few percent here and there can really add up.

[Sam Barona]

I agree, I am always on the look out for places/processes where I can squeeze an extra 1/2%; whether is in closing ratios, impressions, ROI on campaigns, etc.

I used to be a marketing consultant for large multi-nationals, so I am familiar with the tools used to fine tune ROIs on existing activities. I was under the impression that you had some revolutionary marketing tool that would perform better than the usual suspects. If you do, then I would love to hear more about it.

I am, as always, on the look out for better ways of achieving marketing ROI; despite my years in the business and my knowledge, I never allow myself to think that I have all the answers, nor that all my views are definitive.

Marketing ROIs change from industry to industry, from company to company and from campaign to campaign (as you know) so, in such an ever changing environment it would be foolich to think other wise.

I agree with your views on the (Bordering on arrogance) approach. It was a tactic we used in one of the consultancies I worked for to great effect. Young professionals going into the offices of MDs of large mutli nationals telling them that what they were doing was absolute Shite certainly got their attention and helped us secure contracts.

I also agree that vanilla Page Ranking is more for those who have the resources to invest into brand equity and sustain their PR advisors until they deliver something more effective. I am curious about what it is you have to offer.

Sam