How to Calculate Performance-Based Pricing as a Freelance Marketer
Learn how to structure a Performance-Based deal as a Digital Marketer.
In today's video, I'm going to be going over how to execute a performance-based model relationship with your client. The best way to set up those financial elements, how long to do deals for, and how to get the most out of the entire relationship.
What's up everyone, Rich UX here from richandniche.com. The number one place to become a freelance digital marketer. Today, we've got a very powerful video. We're be opening my whiteboard and walking you through developing a performance-based model relationship with your client. Look, we've talked about performance-based models, a lot in the past few videos, and I've told you that the reason to potentially use it is because it's easier to close clients.
You take the risk away from the client. Which increases the value for them, but it forces you to be great at what you do. Now, some of you might be scared to do that. You just want to be paid to be mediocre, but I'm telling you in the long run to have the pressure of a performance based, model's going to make you a better, stronger service provider.
And you're going to make a lot more money in the long run, and you're going to have a better set of clients and everyone's going to be happier in the end of things.
So, let's jump into the whiteboard. I'm going to walk you through some of the elements and some of the numbers, percentages, timelines, make sure you're ready for this video.
It's going to be a banger. Let's jump in now. Every client has leads. every client has customers. Every client has revenue. Every client has profits.
Okay. So, we can really work with leads. We can work with customers and we can work with revenue.
What we can't do is work with profits. We don't want to get involved in profits.
We want to get involved in one of these three. Because the problem with profits is as a business owner, I can live without profits, right?
My business can grow and you'll get nothing, but I'll benefit from having a bigger business, more customers I could say, hey I'm going to take all of my profits and reinvest them into digital advertising and there's going to be nothing left for you.
So don't work with profits. Okay guys, I want you to think about the first. Now, let me just erase this here.
The next thing I want to talk about is the three methods trying to erase this here. Okay. There we go. So, three methods to track your performance, right? How do you work with a client and how does everyone in the relationship know what you did?
Okay. So, there’s three ways we could think about it. One. is total percentage of sales. Okay. And in this case, you might be looking at one to 5% of all sales. Now there's a problem with this. The problem is if the company's already making a hundred thousand dollars a. If you take the higher end of that, you're going to be paid $5,000 a month and maybe you didn't even do anything.
So, I think that this model has some flaws and I don't think you should use the total percentage sales. I think what makes more sense is to benchmark. the previous months or month. Okay. So, I'd say two to four months ask them show me some data or we can spend some time to track it and I'll take a percentage of new sales.
Okay. And in this case, I think it makes more sense to take five to 15%. Depending on exactly what you're going to execute. Now this is more complex, but this is going to be useful, especially if your client has a variable offer, set different price points, upsells. Because when you look at number three, three is the easiest one it's a per client or per lead or per appointment.
Commission. So maybe you're going to get paid like $50 a lead, or maybe you're going to get paid $200 for every appointment booked, maybe more. And I think this one is really easy and this is a bit more complex. but the bottom one, the third one, it's better. If your client has customers where their customer value is fixed, every customer is worth the same.
Therefore, a lead is worth the same. Therefore, an appointment is worth the same. If some appointments are worth more than others you want to be incentivized to get them the best kinds of leads so that you get the highest. When you work in performance-based models, everyone is incentivized to do the right thing.
You're incentivized to get the right kinds of leads and clients you're incentivized to do more work. You're incentivized to go faster. The client is incentivized to help you in any way possible because they're going to be getting exactly what they want. If you're on a retainer or a package, there's no incentive to do your best work.
There's no incentive to get the work done. There's no incentive to adding that extra effort. So, I think that's one of the big reasons that performance-based models are going to be big in the long run. All right. So, we have those three methods that you can work with. I think the two and number three is what you're really talking about benchmark and performance or per conversion, and you could decide what conversion matters.
Now. Leads are obviously going to pay less than appoint. Appointments for people to have phone calls with clients are very valuable. That's what really people want. You can fill up an entire email list with pretty poor leads. Wouldn't be worth as much to the clients. So, everyone's best interest is that you work as far down the funnel as you can.
Just think of it this way. How much value is there getting a. On a post or video, not that much, how much value is there in getting a new subscriber on YouTube or a new follower on Instagram? It's not worth that much that, but then now we go, how much to get an email lead, how much to get a phone lead.
Okay. A little bit more, but to get a real human being on a booked appointment, it's obviously going to be the most valuable thing. Separated from the actual sale itself, but unless you are doing the call to close the deal, you're not really responsible for that sales conversion rate. So, your metric probably shouldn't be based on those sales, you should be probably based on the appointments.
I know lots of businesses who would be so happy if you could just feed them booked appointments and they'll be happy to pay you 2, 3, 4, $500 per call. And as we get later on in this video, you'll. You just want to work with bigger and bigger clients because they value that even more so because they sell a higher service.
So, I think the big question, as you walk away with the benchmark model not so much the commission-based model, but if I chose to use the benchmark percentage of revenue model, let's say you get 10% of all new sales you generate. How long do you get paid for? Like you did all this work.
Do you only get the next 30 days? Do you get forever? Why not? Forever. Your work might last forever. Should you get, as long as the work is in play? I don't think it's forever. Okay. We're talking about business here. We have to be reasonable. I think what makes sense is probably if you do a single intervention.
Okay. So, one project equals probably six months of rev share. Okay. Six months of rev share after single intervention. So, I do some work for you. And then I get my commission or revenue base pay for six months, could be three months, could be 4, 5, 6 months could be eight months, but eight months is really stretching it.
You did something in January and you're still taking the commission in August. I think the business might be a little bit, eh are they did their work really drive this. What if I did something new, right? What if I changed my traffic source? What if I added a new traffic source? What if I dumped a bunch of money into?
That's where it can get tricky. One of the things you might want to ask your client is before we start doing this, should I know about any other big projects you're planning to do, or have you plateaued with your marketing budget and you need someone to try and help you take it to the next level?
Because if they say, yeah, we're going to start AdWords, Google AdWords next month. We're going to be working with influencers two months from now in four months from now, we're going to launch a new product. It's going to be a lot harder to do that. Benchmarked revenue sort of element. So, you have to be a little careful.
You have to make sure you sign a good deal. Both parties have to know what they're getting into, but instead of six months why not think about forming a partnership that's much longer, let's say 12 months. Plus, maybe you agree to 12 months to start and will reevaluate in 12 months. How things are going.
Remember even they're signing a 12-month deal, they don't have to pay you unless you do a good job, unless you bring new sales above the benchmark, unless you get booked appointments, it's just a partnership. No one, the agreement states you get paid off new sales above the be, but what I would recommend you do is do the main work from month, one main work.
So, let's say you're going to do maybe landing page, email, sequence, and sales page. Plus, copywriting pretty substantial work, right? If you were to be paid for this by a package, you might charge 5, 10, 15, 20 $5,000 for all this. This is not cheap. Okay. But how many clients are you going to close? Just like that and say, hey, I'm going to make a funnel for you. 25 K. It like how many people are going to say yes to that.
They're going to be like, what is the risk that this doesn't even work? How do we know what you're going to create is going to work? That's the big problem. That's the whole problem we're trying to get around with this whole idea is that people won't say yes to your offer, unless the value is clear and the value will be clearer when the risk is highly reduced.
So, this is important to understand all this. Now let's look at some numbers here. What I would recommend with that partnership, like I said, you have month one. I shouldn't have deleted that, but oh, month, one equals first intervention. Okay. We'll call it funnel. Okay. But maybe on month, four month, seven and month 10. So basically every. You're going to do some sort of optimization split test on your work. You can use Google optimize for that. And let's just do that every three months and you're going to make more money. They're going to make more money because optimization always makes more. Very rarely does optimization led to a reduction, especially when it's based off a data driven test.
All right. So why don't you agree on a 12 months deal for sort of interventions, one main three optimizations, and now you have a partnership. You're their marketing partner. You're their growth partner. You build these sales systems while they handle closing the deals and operating and delivering you generate the main source of leads coming through, or a better source or an alternate source. Maybe you're a new channel for them, right?
Maybe you also run Facebook ads into this with their pre-specified budget. Maybe you run Google ads. Maybe they run those. And they feed it into your funnel system. So, I think this is going to be one of the preferred models. Let's just take a look at some of the numbers on calculating how much you'd make.
Let's say client makes 25,000 a month in revenue. Okay. You're on a 10% rev share. So, this is the benchmark. And you going to get them to, let's say 40,000, maybe it takes three months to get to that. So that's going to equal 1500 a month for you, right? 15,000 growth times, 10%. That's going to be 1500 a month for you.
What does that equal? That equals 18,000. per year, basically, approximately maybe it doesn't pick up right away. First month is a little quiet. But remember we said that funnel might cost five to $25,000, but how many more deals are you able to close? Because you went for a performance-based model. If you are choosing the right clients, this transformation is not that hard.
If they're already making revenue. adding more revenue. Isn't that crazy when you do some good marketing, right? So don't be afraid to take on these projects and here's the good news. If you get them to 55,000 now, suddenly you're making 36,000 a year from this one client. Now you've outperformed the package pay.
And further, you already built the system. Now you're just doing optimization. Now. You're just running Google optimized, AB split tests. Now you're just improving the copy, updating the VSL, whatever it might be. And this number can keep growing. Remember you set your initial benchmark when you came into the partnership.
Now here's where you're at, right? And of course, after 12 months, you might need to reassess. You might have to say, hey, we have a new benchmark now. And that's the thing. These clients won't last forever.
But again, the main focus is to say, how do I close more deals? That's what it is, if you want to stick with packages and you like your packages, great.
Make it simple, make your life easy. But what you're going to observe over time is clients don't want to take the risk. And so, the real answer to all this. Is not to work with 25 K clients. Okay. It's to work with 250 K clients, take them from 250 K to 320 K. That's going to be 70 K a month. Okay. And that equals $7,000 a month for you?
Simple. Right now, 7,000 for the year. What is that? That's going to be $84,000 one client. Okay. If you get good enough, there's no reason you can't work with a client that already makes 250,000 because they're not as scared to take you on because you are charging a performance-based fee. it's all upside for everyone.
Of course, you're going to have to work your way into this. You're not going to close a $250,000 a month client tomorrow. That means they're making 3 million a year. They already have some marketers on their team, but if you're sharp enough, if you have the right abilities, I don't see it as impossible.
I'm telling you the pathway to super success. Now I'm tell I'm showing you that it's going to be really hard for you to close deals. That say, hey, I want to charge you 84,000 a year.
Are they going to say yes to that? Maybe they will. If they're making 3 million, they might, but now they have alternatives, right? At that price point, they have a lot of different alternatives. They can work with an agency; they can hire two people in house. So, you need to prove to them as a freelancer and say, hey, I'm going to save you a lot of time and energy.
I'm going to do everything. You don't have to hire anyone. You don't have to take the chance working with an overpriced agency who doesn't care about you. I'm going to be your primary growth partner. I'm going to be your dedicated, digital marketing growth partner. And I'm going to handle all of your client lead.
Your marketing end and your sales team is going to have more leads to close. I'm going to take your revenue from 250 K a month, 300 a month. I'm going to get you that 16% bump, 18% bump just by opening this new funnel-based channel for you. Look, guys, I can't build your businesses for you. All I can do is give you the inspiration, the ideas, and the formulas to try and make it out there.
You've got to do the legwork. You've got to build the experience. You've got to make the deals. The great thing about the performance-based deal is you can start working with a friend and say, hey, let's start this deal. No fear. You start at the bottom. Your friend only makes two K a month. He's a brand-new online coach.
Get him 4k ask for a higher percentage, right? Like the lower. the client is in revenue equals higher percentage for you because you're helping them build their business off the ground. So maybe you ask for 25%, right? So, they're only at two K a month. They're only making 24,000 a year.
They're a small-time entrepreneur. But if you are going to take them to say 5k a month, because now they have a marketer, they didn't even have marketing before their website sucks. They don't even collect emails. Now they're going to 60 K a year with this new business of theirs. They're going to be excited you're going to take 25% of that three K.
So, what is that 1250, a month, right? That's not so bad. You get a few clients like that off the bat. You're a new digital marketer. Everyone's new in this scenario, but it works out right. They're newer to business. You're having to do more like work. You have to explain more things to them that you've learned from me or from other digital marketing programs.
You get a better deal. Hey go for 50%. Go for 50% of the deal. Now this is 2,500 a month, become a full-on partner revenue only. Because what's the what's important to understand here is if they go from 2000 to 5,000 a month. Yeah. They don't get to keep all that money.
They're going to have to give you a decent chunk of change, but they get to build their email. They get to have better marketing assets. They have to have more customers in the database that they can sell to. Later on, maybe the lifetime value is going to be longer than one year. Maybe you do a short-term contract.
Maybe you only do three to six months. You say, hey, look, I'm going to take you to two to five K a month, but you're not going to keep much of that. You're going to have to pay me 2,500 or actually it wouldn't be that it would be 1500, my mistake, 1500 a month. No big deal. 1500 a month, this is probably off to as well.
This is supposed to be probably 9 50, 8 50, something like that eight 50 a month, 1500 a month. This is the 25%. This is the 50% point B. You can convince them to take the deal on and say, hey, don't get too excited about the money now. Because you really need to invest in building these marketing assets and I can do a better job than you would do.
And I can free up your time. Look at this as a short-term investment, look at this as not having to pay out of your pocket, but that your customers pay for your marketing for the next six to 12 months. You're not going to make as much, but you're not going to have to do nearly as much on your own. I think that makes a lot of sense.
And I think that at some level smart, people are going to understand this, that they're going to be stuck at 2000 a month. And what good is that really going to do them in the long run? That's not escape velocity. That's not building a strong business. Like marketing has to play a role at some point in the game.
So remember you had three models, right? You had the raw sales, you had the benchmark increase in sales, and then you had the sort of per conversion based. all various options for different scenarios, utilize them when they make sense. But remember at the end, the secret is to work with the biggest possible clients so that even if they get incremental growth 1 million to 1.1 million and you're on 10%, that's 10 K a month for you.
It's possible. It's not impossible. Why? Because its performance based. You talk to a business owner, say, look, you're missing out on these elements of your digital marketing. I can see that you haven't done this. Let me be your partner in this project. I'm only going to ask for 10% of new sales I bring to you.
You can get rid of me after 12 months. I'm going to optimize my project three times this year. I'm going to report to you every quarter, no risk for you, pal. What do you say? Should we do a deal? Great. Let's do a deal together, guys. You give this video alike. If it helped you out subscribe. If this is your first time here and visit richandniche.com.
If you want to master the art and science of becoming a freelance digital marketer and getting yourself out into the marketplace, doing deals, making money, having independent income source from your nine to five. Getting that remote income, getting that future proof. that's what it's all about at Rich+Niche.
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Like website offers, sales skills, these sorts of things. If you want to ride on that team with me, go to richandniche.com. I'll see you there.