Why You Should Never Do A Revenue Share With Your Marketing Agency

By November 11, 2015E-Commerce Marketing

It’s a common request that I get from companies we are looking to work with and it is completely understandable. It seems to align your interests.  You are both looking to drive an increase in revenue, which means more money for both of you—it is totally logical.

I have spent a lot of time looking at agencies with this model, and they seem to underperform for their clients time and time again.  I am here to explain three very specific reasons why it is not as mutually beneficial as it seems on the surface to do a revenue share with your marketing agency.

Milking Revenue

Let’s say your marketing firm is short sited (it is sad, but most are).  Most decent digital marketers have many tricks up their sleeve to drive quick revenue and even attribute it to them.  Here are a few:

  1. Run sales language to promote direct sales, which may tarnish the brand in the process.
  2. Heavy discounts will drive quick revenue but hurt margins and long-term viability.
  3. Direct branded keywords through attribution, and take credit for people that were already organically looking for you.
  4. Run affiliate and use tactics like pop-ups on checkouts to divert people already planning on converting through their funnel.

Lack of Risk

If I am incentivized by revenue, I am most likely going to do simple and basic things that guarantee my return.  Anything that has even a moderate risk doesn’t make sense if I don’t have downside protection.

Not Shared Upside

Let’s be honest, the upside of a company is not just current revenue, it is also the value of the business.  In situations where it makes sense and someone wants me to share in their risk, then I want to share in the entire reward, which means ownership and equity, not a revenue or profit share for some term. That is the only way to actually align interests.

To sum it up, be very wary of falling into short-sighted solutions.

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