Magnus Marketing Blog

Another true story of stupid from the front lines:

This week I called an interesting start-up company that looked like it had a need for some biz dev help. Can't resist an opportunity. I talked to the VP of Sales. In the discussion, he was interested and needed the help, but would only work with me if I agreed to a "pay for performance" like one of the major tech appointment setting firms. He said he would provide the list. He also said, I would never, I repeat, never see any commissions because the sales cycle is sooo darn long. I have a feeling this guy hasn't closed a deal yet. Of course, I told him absolutely not, I don't work on pay for performance (pure appointment compensation) nor straight commission. Later, I thought, how ridiculous - this company has an innovative technology in a severe economy...all this would result in was calling and calling - they had no marketing engine built to "warm the market" and support sales. I doubt highly that the "competitor" he mentioned would have taken this company on. I would bet they and he don't know much about the market, who really buys, and what messaging works.

Pay for performance only works for known and in demand products, trust me. I can't understand why any company would work on pay for performance - payment only for an appointment. Most companies don't compensate employees on pure commission for meetings set. One of the big boys, claims a 55% meeting-to-sales ratio - that leaves 45% that don't...hate to be the company that is in the 45% area. OK, so, out of 100 meetings - 55 become sales of some amount right? 45 don't. 45 X 600 = $27K. The company is making an average of 27K per 100 appointments (assuming an average of $600 per appointment). You can pay me the same $27K, and I will give you fully qualified appointments, follow up with everyone touched, tell you all the reasons why people won't buy, write marketing support pieces, do more research, and figure out other ways of caputuring the 45 who didn't commit to a sale. This model is actually great, like this week, I set up 7 appointments - of the 7, 1 is high probability, 5 are not going to result in anyting, and 1 is a maybe. I know 5 aren't going to result in any sales. Under the PFP model, I charge $600, I just made 7 X 600 or $4,200 and I know my client isn't seeing any revenue back immediately. The 2 meetings that could turn into something, well may not happen until next year and the sales guy needs to follow up - which he won't because he will work on only immediate needs - they will drop out. Hey, look - I made $4,200 under PFP, my client - zero.

And, as someone mentioned, how do you think they get appointments? They tap into a well worn, tracked database, call up Mr. CIO - say, "Hi Bob, remember me? I used to work at TTS, Inc, I am now with TTY, Inc - new product - I think it would fit - how's about a look?" Meeting set. Will Bob buy? Who knows...who cares. $600 pay up, thanks.

Does anyone really sit down and figure stuff like this out? Most initial meetings are informational, not sales oriented and only start what could be a long sales cycle - particularly for complex high tech sales. Start ups are the ones that need the most market intelligence and support, too. Pay for performance as many have noted, can lead to the focus on "the appointment", not quality, not support, not critical information. I have seen the results of this in the past: In one case the company targeted threatened legal action if one more call came in - the caller was aggressively calling every five minutes, in another case the rep went to the "appointment" only to be informed that the "prospect" committed just to get the caller to stop calling - they never were going to meet the guy. Add up the reputational costs, travel costs, failed pipeline costs, and morale costs to your salesperson...was it worth the appointment?

Too many stories about PFP, which I think desperado companies will resort to. It usually is the desperados or the ones who really don't get their market and know how to sell or market that resort to that. They leave it up to "someone else" to do all the work and end up paying. Then, they can blame the company when things don't work out. Nice scenario, isn't it.