OKRs: How to drive transparency, accountability, and results
OKRs drive results for your team. Here is an in-depth guide on what OKRs are, why they’re important for B2B SaaS marketing teams, and how to create...
As 2023 gets underway, many B2B SaaS companies are wondering how to hold their SaaS marketing agency accountable for results. Here’s how Kalungi customers pay us for performance.
Most of Kalungi’s clients would like to hold us accountable for specific results. If they outsource their complete marketing function to us, they want to include a Pay-for-performance model into the engagement. We agree. Here’s how we do it.
First you need to agree on what good results look like. We measure success for a full year engagement in 3-month increments. These stages allow us to be accountable for concrete milestones early in the engagement (as we are building capability), and move towards outcomes as the marketing function matures.
We prefer to use the system of “Objectives and Key Results”, or “OKRs” to measure results. The following example assumes you outsource your complete Marketing Function for a full calendar year.
Within the first three months of the engagement, success will be measured by:
Objective 1: Get a marketing leadership system and -rhythm in placeAfter building the foundation in Q1, success in the second quarter will be measured by specific outcome KPIs. Given the length of an average sales cycle, these are mostly “leading indicators” for downstream revenue impact.
Objective 1: Drive Demand to support 2020 Growth GoalsFor the “Performance based Payment”, each Key Result counts as 20%, adding up to 100%.
For the last two quarters of the year, success will be measured by specific results. Given the length of the sales cycle, marketing should now result into qualified opportunities and customer wins.
For the “Performance based Payment”, each Key Result counts as 20%, adding up to 100%.
The last quarter builds on Q3, and just asks for bigger numbers. Now that Q3 forms the benchmark, Q4 can be about stretch goals and getting more of what works.
Kalungi is comfortable making part of our earnings dependent on hitting specific performance KPIs. As the variable part of the total marketing cost grows, our customers can redeploy, or increase, variable dollars into specific Growth levers/Media, with the best returns.
As your agency builds the marketing function, the amount of variable compensation can grow. Here is an example of a payment schedule that Kalungi has used with one of our customers. It shows how the total amount of the engagement is subject to the split in fixed/variable compensation.
Most agencies will require a minimal payment, especially for the first part of the engagement when a lot of capabilities get built (content, infrastructure, processes). When working with Kalungi, a customer will only prepay the fixed portion of the engagement. After the 3-6-9-12 month marks, you will receive an invoice for the variable part, based on KPI achievements.
Here is an example:
Option | On-target payment | Variable part | Effective pre-payment |
1. Pay-as-you-go | $50k/month | N/A | $50k (100%) |
2. 3 month pre-pay | $142.5k/3 months | $14,250 (10%) | $128,250 (90%) |
3. 6 month pre-pay | $270k/6 months | $67,500 (25%) | $202,500 (75%) |
4. 12 month pre-pay | $480k/12 months | $192,000 (40%) | $288,000 (60%) |
Using the OKR definitions, and performance per quarter, we combine the fixed/variable split per quarter and actual KPI performance to calculate the fixed- and variable payments, for the applicable payment period.
The following examples show how the final payment would be calculated.
For a pre-paid commitment, we use the per month average payment for the variable payout calculation. For a 6-month prepay commitment, this is $67,500. The total cost would be as follows based on the example performance against the 10 agreed upon “Key Results”.
This is what the payout cash flows look like for a Six month engagement:
This is what the payout is based on per month:
When customers want to make a 6-month or 12-month pre-pay commitment, Kalungi provides the piece of mind that you can “get out” within the first 30 days of the engagement. If for whatever reason you are not happy with the partnership, you can cancel the complete engagement and will only pay for a one-month pay-as-you-go retainer. Your prepaid balance will be refunded completely. We believe you can ask an agency for this provision when you combine pay-for-performance and pre-pay models.
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