Revenue Models: Performance Based vs. Cash Upfront

In today's economy, you want low barriers to entry. I've worked on setting up models which are all performance based. This is a great way to drive in new business, but can also create cash-flow problems later when it comes time to collect payment. The credit markets are tight, people are cautious and business owners usually have some of the worst track records with paying on time. Just ask the people at Amex, they're usually the first ones to be moved to the bottom of the pile when it's time to pay bills. Without any track-record with a new client, how can you ensure you'll get paid net 15 / net 30? I actually knew a business owner who once told me that he wanted to put all vendors on a Net 90. That's hilarious considering that his company collected payment from their customers weekly. "We get paid weekly; we'll pay you 4 times per year". That sounds like a recipe for success.

The salesman in me wants to just sign the contract and get rolling, but you sometimes can't take any chances. If you're risk adverse and want to hedge your bets, it's a great idea to collect an installment up front. In the marketing world, as with any industry, we have costs of doing business as soon as the relationship starts including; campaign development, strategy, creative's, programming.

Once the relationship starts you'll begin to incur costs whether you collect upfront or performance based. The meter starts ticking and cash is being spent. If your client isn't financially committed you might have the contract and work, but when it's time to push the button they may have a "change of direction". There's nothing like working on a project, then later finding out your client isn't fully invested and you won't collect your return.

I've seen this countless times over the years and it's always avoidable. Although I hate to cut checks for pre-pay items, I can't argue with the logic. In my experience, as soon as that check is cut, I want to know when the work will be completed and how quickly I can get my ROI. In contrast, with no commitment, they may find that I'm hard to get ahold of later for some reason. It's not on purpose, it's just how that seems to work. Nothing gets your attention like a line item on your budget.

Suggestions on collecting upfront pre-pays and still closing the deal

• Provide clear direction on what the deliverables will be once work begins, detail it out in a scope document if necessary. People are visual, they'll want to see what their getting.


• Detail your initial costs on commencement of the agreement (design, programming, staffing, etc.)


• Explain why you collect fees upfront, it engages clients and ensures they're committed. This might not work all the time, but it makes sense and it's logical.


• Use friendly lingo: Words like pre-loaded expenses, will work much better than "Deposit, Down-Payment, or Installment fee".


• If necessary, use a retainer: If push comes to shove, you might want to consider withholding a portion on a retainer. It allows you to sign the deal, secure some funds and confidently begin work. You can call it "sharing the risk".

In today's economy, cash flow is tight for many industries. In order to be successful, new business is critical, but getting paid should rank higher. In a presentation at Launchup last week, I heard a great quote from Ben Peterson. "In business, Cash flow is more important than your mother". Although we all love our Mom's, it's hard to disagree with that quote.

What do you think? Is it possible to have a 100% performance based model, without avoiding certain deals that have unpredictable results? I'd like to know your thoughts...

Twitter: Does it have any legs?

Unless you've been living under a rock, you're likely familiar with Twitter. It's the big buzz in SM right now. I've been using it regularly for about a few months and have found some interesting uses for it. However, unless your a die-hard tweeter, or marketer it's hard to see a lot of the value in the service. It's basically a public-facing, searchable, text message repository. In my opinion, if it's going to have any legs, they're going to have to make some updates to the interface. There are already a ton of app's that have sprung up offering the features that Twitter should be offering themselves already.

As far as I can tell, there is no clear revenue model with the service as of yet, but apparently it's in development. They're not making a dime yet, but I'm sure their rev model will involve advertising. Theres no way subscribers would pay for the service, not the critical mass anyway.

It's ironic however that there are a ton of users already advertising their products and content through tweets all day... It's possible that the folks at Twitter have been watching how the users are interfacing with the system, to decide how to best monetize all that traffic. It's an insane amount of traffic, and at present it seems that's all they have. It's enough traffic however to get Google's attention. Theres a rumor released this week that they've offered Twitter $250 Million for their platform (read the techcrunch article here).

As I was researching their revenue model, I found an interesting article discussing this issue. Silicon Alley recently completed a contest titled "Create a Twitter Revenue Model" to help generate ideas for the service. It's a cool idea, I'm sure there were some intersting submissions.

There are already a ton of people jumping on the bandwagon, building services and tools around the platform. Last week I attended a local entrepreneur "Barn Raising" in Utah called Launchup. One startup presented their idea called TweetBooty, multiple online twitter accounts, which you can follow, that publish coupons from local businesses. I was having a hard time seeing the value of building an online coupon distribution system on the coattails of Twitter, but they even had VC money behind them...very surprising. They plan to make 5 cents per published ad. That's alot of nickels boys and girls... With advertising appearing to be ultimately controlled by Twitter, I wonder how that will factor into their business model.

If I were Twitter, I'd take the $250,000,000 and run. They've done all the work to create the market for the platform, get people behind it. It's time to let the folks at Google work their advertising magic and get out of dodge.

What are your thoughts? Do you see the system evolving more, filling the needs such as applications such as Tweetdeck, Twitseek and others? What ways do you see the company monetizing all that traffic?

Direct Mail: Is it dead, or under-utilized?

It's been too long since my last post... In the past few months, I've been seeing an increased interest in Direct Mail, so I thought I'd post some thoughts and get feedback from everyone out there.

There's no question, that direct mail isn't considered one of the cheapest marketing channels lately, especially with the volume and production you can get out of email. However, there's alot to be said of mixing your marketing mediums and attracting a different type of customer. When digging through my bills and other junkmail (i'll classify bills as junk mail), I always appreciate a nice, high-quality, personalized mail piece in my mailbox. It's old school, but get's my attention sometimes more than an email with blocked images and no visible text (yes marketers still do that, I know some of the worst offenders out there).

I've had the opportunity recently to visit with a new friend of mine Kent Merrill with Merrill-Remington Direct Marketing. Kent has a tremendous amount of Direct Marketing experience, and has been a direct mail powerhouse since the 80's. I had to ask Kent how direct mail has changed over the past ten years, and he said that "he's seeing constant, steady production, really not much has changed in that regard". After talking with him further, and seeing some of his work, it's not surprising why he's had such great success. Kent's a very creative thinker and can leverage his experience to produce great results with any direct mail campaign.

In the past, I had overlooked the power of geographic and demographic targeting with my mailings. When you implement appended data such as geo and demographic data, you can produce the same volume of responders without all the waste in mailing those who aren't likely to respond anyway. I've put together an awesome proposal for a large group, which will leverage real-time delivery using variable data mailers as an upsell for a lead partner. In addition, I'm also looking for new ways to leverage this channel further within the financial, insurance and consumer product verticals.

One of my favorite Direct Mail stories involves American Express. Yes, I'm a card holder, I have two; blue and gold. I've actually signed up with both cards through their direct mail offers, so I guess you could say that I'm one of their DM success stories. However, the success stops there. Amex: When are they going to flippin' figure out that I have both of those cards? Note to American Express: Please cross-check your database when mailing me offers to sign up for the two cards I ALREADY CARRY. It's a huge waste of your money! Instead, you could be offering me other products and services. I think everyone out there can relate to that story, it seems to be fairly common. It's so important to know your customer and ensure you're sending them the appropriate offers. It would be hard for me to believe that Amex doesn't have my products flagged in their marketing database. It can get very annoying, especially for consumers more observant than the average bear, like myself :)

Please share any experiences you've had in the past few years with Direct Mail campaigns, or other effective ways you've used this channel to generate new leads and convert prospects...