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"Session Intro: At one time the model was simple -- agencies got 15%. That's not the case with search engine optimization or paid search advertising. \nDigital media and measurable ROI spawned a school of new services and nearly as \nmany pricing models, such as retainers, billable hours, pay-for-performance, \nkeyword management fees, percentage of media spend. But with so many options on \nthe table, which pricing model works best?\n\nComprised of a panel of SEM firm \nexecutives, this session will present the various search engine marketing \npricing models in use today. Specifically, each panelist will discuss the pros \nand cons of a specific model -- from both the client and vendor perspective - \nincluding why they're effective and the important considerations associated with \neach.\n\nChris Elwell, President of Third Door Media \nis moderating this session and speakers include Ken Jurina, President of\nEpiar, George Michie, Principal of Search \nMarketing at Rimm-Kaufman Group and \nPaul Wilson, Chief Revenue Officer at \niProspect.\n\nKen is up first. He first defines what SEM is -- SEO + paid search + paid \ninclusion. He then cautions to beware of analytics hole meaning that you should \nprovide proof of your work. Otherwise you are simply tracking rankings and that \nalone which is not good enough. \n\nProfile who the client is. Are they smaller, mid-size or large. Smaller \ncompanies will buy in quicker but will have small budgets. Mid size companies \nprovide some level of stickiness. The large companies may not always have large \nbudgets. There are also many layers that place obstacles to getting stuff \nactually implemented.\n\nTypical industry pricing models include retainer based, pay for performance, fee \nfor service and hourly consultation. One pitfall on hourly is that you are \nprobably never getting the best reward. Ken's company uses the &amp;quot;fee-for-service&amp;quot; \nmodel most often. Campaigns include keyword research and analysis, on-page \noptimization, inbound link building and reporting/analytics on all these \nfactors.\n\nKen points out that not all client's needs are the same. Web site audits are a \nvery good way to get your &amp;quot;foot in the door.&amp;quot; Bottom line is that differing \nservices may be needed for specific client projects.\n\nSome disadvantages of the fee-for-service model include no residual payment for \nyears of good ROI. Also the constant education and reeducation process. Finally \nhaving to adjust deliverables over time. May be helpful breaking pricing into \nphases rather than a one price for all as it allows clients to &amp;quot;taste the \ngoods.&amp;quot; \n\nKen strongly suggests detailed proposals and solid contracts. They show \nseriousness and professionalism and lay out what is expected of each party. They \ndefine work without necessarily having to provide a guarantee.\n\nIn differentiating services, you have to be able to offer a value proposition. \nDefine what your competitive advantages are. Focus on organizational strengths. \nMost important is to guarantee an exceptional level of service.\n\nNext up is George. He first of all points out that they do paid search only -- \nno organic search marketing. They wrestled with pricing issues in the beginning. \nThe idea was to charge a fair price where the client feels like they are getting \nvalue. Of course there is also the goal of actually making a profit. They wanted \nto create incentives that would motivate client to &amp;quot;do the right thing.&amp;quot; Aslo \nimportant was to build a scalable model.\n\nWhen they started out, they expected to be the highest priced and highest \nquality service provider in the space but discovered they were actually very low \npriced. They actually have lost accounts because their pricing was too low. \n\nHe then talks a bit why they di not choose a &amp;quot;rev-share&amp;quot; pricing model. First of \nall there is too much easy money on brand trade search. He also didn't want to \ndicker with clients over credit allocation or in other words -- who is \nresponsible for what.\n\nThey also didn't like straight cost mark-up. On the low end, they did not make \nany money, they didn't get paid for wasteful spending, and for larger clients, \nfees become divorced from the cost of providing the service. He warns that if \nyour fee structure gets way out of line with the service that is provided, it \nmay encourage your clients to shop around. For example, client is spending a \nmillion a month and you are charging 15% or $150,000/mo.\n\nTheir solution was to charge a percentage of ad spend with a minimum monthly \nfee. Thy also have a maximum monthly fee. This keeps fees in line with service \nthat is provided. Their pricing is as such: 12.5% of ad spend, minimum monthly \nfee - $3,000/mo.; maximum monthly fee - $12,500/mo.\n\nBenefits of their model is clients are profitable for them, they are able to \nattract Marquis clients, clients who are &amp;quot;capped&amp;quot; are kept super happy (there is \nno incentive to waste money), and finally there is stability as no single client \ndetermines their bottom line.\n\nFinally, Paul is up to finish the presentation. Paul starts off asking how many \npeople watched the Indy 500 but shows a slide of NASCAR. WTH? Moving on, I \nbelieve he is trying to convey that pricing requires a team effort.\n\nHe talks about the pay for performance model. Bonus targets, incremental fees \nand percentages are all aspects of this type of pricing model. The pros of \nperformance pricing is that goals are aligned, and protects against bad \nperformance. Cons - constant monitoring, accurate tracking data, goals may \nchange, challenges measuring SEO and paid media, and finally over and under \nperformance.\n\nIn getting started, define conversion metric, define value of conversions, then \nfactor in all costs as service provider, and finally pressure test. In making a \nperformance model work, you need at least 12 months of historical data to look \nat. From that, establish baselines. You also have to build in a &amp;quot;what if&amp;quot; \nanalysis and adjust metrics accordingly. lace everything in contract form.\n\nThe main idea in performance pricing models is to create a relationship that is \na win win for both parties.\n\nQ&amp;amp;A:\n\nHere is a recap of &amp;quot;some&amp;quot; (not all) of the questions that were asked and \nanswered.\n  How do you customize pricing for performance based models (question for \n  Paul)?\n  \n  Look at historical data especially sales cycles. Maybe define benchmarks which \n  is meet, bonuses are paid.\n  \n  \n  What do you do with clients who cannot meet minimum pricing requirements? \n  Do you send them away?\n  \n  Ken answers that he investigates what client is doing overall for advertising \n  and many times can uncover waste that will allow them to shift funds to \n  search. He also has been flexible with allowing clients to make payments. If \n  nothing works, they then have a select group of consultants they can hand \n  projects off to. Paul may refer them to educational resources such as SEMPO. \n  Otherwise, hand them off to companies that have lower pricing structures.\n  \n  \n  Have you considered a tiered type model as opposed to a cap-style model \n  (question for George).\n  \n  They have used tiered but warns that it is an accounting nightmare.\n  \n  \n  Does Paul have any input as far as &amp;quot;adjusting&amp;quot; corporate pricing models \n  when they do not align with client goals and/or budgets?\n  \n  Yes, they do have a discovery process that allows them to customize pricing \n  structure.\n  \n  \n  How do you adjust incremental pricing after 3 years? \n  \n  It is challenging because initially you are up against historical data whereas \n  as campaign ages, you are up against yourself.\n  \nOne thing I personally go out of this session after each presenter revealed \ntheir pricing structures is that my own company does not charge enough! Price \nincreases coming. ;)\n\n\n\nSession coverage by David Wallace - CEO and Founder SearchRank."^^<http://www.w3.org/2001/XMLSchema#string>
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