The Cons of Pay Per Success
The downsides of Pay Per Success tend to be hidden, largely because the negatives are largely driven by what’s happening on the vendor side. One negative stems from the vendor goals this payment structure incentivizes. The second negative stems from the risks that the vendor is taking on.
In terms of incentives: Since you’re only paying out when the vendor delivers an interested lead, it’s in the vendor’s best interest to get as many prospects as possible to say “Yes” to a conversation. Sometimes this can incentivize outright aggressive sales tactics – although given that most lead warming firms want to manage their reputations and their relationships with brands, these cases are less common than you might think. What is fairly common, however, is more subtle but still highly wasteful: Lead warmers who are less diligent about weeding out bad leads, and who are more focused on the fast (even if begrudging) “Yes” than on setting the stage for a productive conversation with the brand’s teams. Pay Per Success incentivizes quantity, not quality.
When the marketer’s team receives those less-than-stellar leads, it’s now their job to to clean up the the improper lead warming. Instead of spending their time on the focused sales they’re paid higher salaries to handle, they’re forced to waste time doing the qualifying and warming work that the lead warmer’s haven’t done effectively.
By incentivizing quantity over quality, the pay for success model effectively forces the higher-paid salespeople to waste time on work that should have been done by the low-cost vendors. Over the tens of thousands of leads that lead warming firms are meant to handle, this amounts to an enormous hidden cost.
On top of the payment incentives, there’s also the matter of risk. Brands appreciate the favorable terms of pay-per-success because, from their perspective, there appears to be zero potential downside. Of course, there’s tremendous potential downside for the vendor. If the brand sends over a significant number of poor-quality or otherwise difficult leads, the vendor ends up working to achieve success without seeing results. That lack of results means the vendor doesn’t get paid—and there’s no incentive for the vendor to continue the relationship.
To mitigate that risk to the vendor, the vendor must use two tools to protect themselves – neither of which is favorable to the brand. The first is simply increasing the charge per transferred lead enough to make the “wasted” work of failed leads still worth the vendor’s while. Of course, there will be cases where the leads prove particularly hard to close – so much so that even the normal additional “padding” won’t justify the work. At that point, the vendor may have no choice but to protect its interests and pull out of the tough campaign, leaving the brand without a warmer for these leads. Even if the result is just a temporary disruption in lead handling, the brand is still facing a “silence” in the prospect conversation during which leads get progressively colder.
Brands rely on their lead warming vendors to fill two roles. One is to ensure that their highly-paid sales teams focus efforts only on the most promising potential customers. The second is to serve as a reliable “bridge” from the lead source to sales conversation, ensuring that the best potential prospects are channeled quickly to sales representatives waiting to move them along the funnel. The problem with pay per performance is that it does a poor job of incentivizing vendors to work effectively on either front.