How to hold a SaaS marketing agency accountable for results

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.

How to pay your B2B SaaS Marketing Agency 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.

Defining success

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.

Q1: Foundation - January to March

Within the first three months of the engagement, success will be measured by:

• Key Result 1a: Complete implementation of marketing OKRs
• Key Result 1b: Manage a weekly up-to-date, reliable marketing dashboard
• Key Result 1c: A Marketing calendar (PR, events/campaigns, product launches)
• Key Result 1d: An approved budget, and plan to drive the 2020 desired results.

• Key Result 2a: Migrate the Website to Hubspot CMS
• Key Result 2b: Implement Hubspot Marketing Hub
• Key Result 2c: Implement and Integrate Sales CRM with Marketing Automation
• Key Result 2d: Turn results a/b/c into integrated funnel reporting and attribution

• Key Result 3a: First MQLs attributed to optimized inbound channels
• Key Result 3b: First MQLs attributed to Account-Based Marketing

Q2: Impact - April to June

After 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.

• Key Result 1a: XX MQLs from Inbound Marketing Channels
• Key Result 1b: YY MQLs from Outbound Marketing Channels

• Key Result 2a: AA MQLs from email nurture and customer referrals
• Key Result 2c: BB MQLs that fit the ABM Ideal Customer Profile

• Key Result 3a: Establish an accurate “Customer Acquisition Cost” benchmark based on ACV (Annual Contract Value), to allow for the right future spend.

For the “Performance based Payment”, each Key Result counts as 20%, adding up to 100%.

Q3: Results - July to September

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%.

• Objective 1: Drive Demand to support 2020 Growth Goals
  • Key Result 1a: XX SQLs (“Meetings Happened”) with Sales/BDR/SDR Team
  • Key Result 1b: YY Opportunities handed to a Sales Executive
• Objective 2: Build a sustainable “FlyWheel” of Growth Marketing
  • Key Result 2a: AA MQLs that fit the ABM Ideal Customer Profile
  • Key Result 2b: BB MQLs from sustainable Organic Search Channels
• Objective 3: Create a net positive ROI demand generation machine
  • Key Result 3a: Get “Customer Acquisition Cost” 10% under the previous quarter

Q4: Scale up - August to December

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.

• Objective 1: Drive Demand to support 2020 Growth Goals
  • Key Result 1a: XX+ SQLs (“Meetings Happened”) with Sales/BDR/SDR Team
  • Key Result 1b: YY+ Opportunities handed to a Sales Executive
• Objective 2: Build a sustainable “FlyWheel” of Growth Marketing
  • Key Result 2a: AA+ MQLs that fit the ABM Ideal Customer Profile
  • Key Result 2b: BB+ MQLs from sustainable Organic Search Channels
• Objective 3: Create a net positive ROI demand generation machine
  • Key Result 3a: Get “Customer Acquisition Cost” 10% under the previous quarter

Pay-for-Performance

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.

Increasing Accountability over time

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.

Minimal Payments

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:

Total cost

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.

Example Payout - 6-Month Pre-pay:

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:

No-risk commitment

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.