So a good friend, Hugo Guzman, wrote a really great piece today “How to figure out how much you should pay for SEO services?” I consider Hugo to be wise, wily, and trusted in all things SEO and SEM. That is to say, you can trust his advice because it will rarely ever lead you astray.
The same is true of his last post. With a few exceptions. Per estimated possible achieved conversions is a smart, efficient, and fair model for both sides. Chances are, with this model, an agency or individual would earn more than if they simply estimated hours and deliverables.
Exception One: Client Knowledge
This exception is the client. It’s the biggest exception and wild card of all. While Hugo states in the post that a client would earn $100 profit from a single widget, we’re under the assumption the client produced that number for them. Here’s the problem with that single assumption: most clients have no idea what their profit from a web lead is. I know, it’s hard to believe. And you probably think I’m full of crap. Experience has taught me that only a small percentage know (could be bothered after nearly a decade or more of search marketing) to find out what their margins are from web leads.
What they do know is how much that widget/product costs to produce. What they do know is the margins they make selling that widget/product at retail price. Hence the term “loss leader”. This, however, is not the same as CPA (cost per acquisition). If the $100 they stated is the margin based on the cost/retail equation, then this is simply incorrect. Marketing has a cost, and all too often, clients and companies do not include this as part of the CPA equation.
Exception Two: What is a True Conversion?
For this, I have to step out of the B2C/B2B e-commerce world where conversions are tracked and measured online. If that’s all of your clients, then consider yourself fortunate to have that data at your fingertips. If you’re like most of us, you deal in conversions through contact forms, sign-ups, and requests for quote. SEOs and SEMs do and should consider this a legitimate conversion, but to your client it isn’t. Not included in the CPA equation to achieve true ROI from website “conversion”
The conversion for your client is the physical sale/contract farther down the funnel. As SEOs we get clients 80% of the way to a sale; deliver targeted, interested, and consumer-ready leads to their doorstep. All the client has to do is knock that last 20% out of the park. Nonetheless, that last 20% isn’t even revenue yet. It’s still accumulating costs until it closes the full 100%.
Exception Three: Corporate Sales Channel Organization
This is beyond your control. I understand that and deal with it daily; I feel your pain. And yet, most companies sales channels are an absolute mess. Most have no idea what’s up or down, if it’s this or that. Here’s the problem: without accurately tracking the leads life-cycle, the client honing their own sales channel into an efficient machine, there is no possibility of true ROI to ever be attained. And, if you’re honest with yourself a moment, you know that your clients aren’t the only ones that suffer from this. Your company does too.
Exception Four: Market Fickleness
Even though Hugo was taking an entire year’s worth of data, accounting for seasonality, it does not account for market fickleness. 2008 being a perfect example. Taking all of 2007’s data would have produced a number that would have been unachievable in 2008 and subsequent two years due to a complete global economic meltdown. In this case, how does the pay-per-performance model shield the client?
Why Most Still Use Hours/Deliverables Method
If nothing else, the three exceptions above should sufficiently cover why many might still want to use the “traditional” method for SEO pricing. Let’s be honest, many SEOs are either clueless about different pricing models, or simply follow steadfast tradition because “that’s the way it’s always been done”.
Hugo did bring up a very good point that by using pay-per-performance model (of sorts), you can actively price-out and have to turn away potential clients. Additionally, using the per-per-performance model, seems to be geared to fairness and reward for both participants, but one must remember the consumers and markets are volatile and never a “sure thing”.
With a hours/deliverables model, there is a very likely possibility someone (you or the client) will get the sharp end of the stick. Either it takes you more hours than estimated to deliver what was promised (LOSS | Client: Gain) or it takes you less time to accomplish the work (GAIN | Client: Loss). Nonetheless, pricing out a client still has roughly chance depending on hourly service rates. Secondly, hours/deliverables model is rarely affected by market/consumers, only in the most dire of times. And, even then, corporations believe that search marketing is a right bit cheaper than a traditional campaign.
Finally, clients are accustomed to a hours/deliverables method. New systems are puzzling and raise suspicion, even properly demonstrated and explained. You have to earn trust right from the get-go.