Paying an agency on sales sounds like a good idea. 13 reasons why it isn’t.

3 years ago in Advertising, Amazon Explained amazon agency costs, amazon agency fee model, amazon agency fees, amazon agency performance fee 0 202

How your Amazon agency is remunerated will determine your level of control and long term profitability on Amazon

Many brands initially feel that if their Amazon agency partner is remunerated according to total sales that their objectives will be aligned and sales will be maximized because the agency will make this their #1 focus – after all, otherwise they won’t get paid much, right?

Well it’s not quite that simple. Of course every proposal and agency may have a slightly different structure but here are the concerns we have most commonly heard from brands who have tried the percentage of sales model (and then changed their model after much pain):

1. Commitment

Optimizing your Amazon presence can take 3-6 months before sales follow so performance-remunerated agencies require a minimum 12 month commitment to ensure they cover their early investment/effort. If they’re doing a bad job, you cannot part ways, and every day that you’re frustrated and they’re doing a bad job, you’re losing a ton of revenue.

2. Short term focus

An agency paid on sales will focus on what drives sales today, and de-prioritize aspects that are important to the brand but over the longer term. For example, if your company changed the logo from blue to red, or the brand updated their imagery, then these changes will not immediately impact sales and will be deprioritized by the agency – yet such changes are critical when it comes to consumer perception and brand consistency.

3. Loss of control

If your agency is paid on sales, then they will assume more responsibility over the product positioning, description, images and pricing. This will lead to many issues – who is responsible for a sales drop because of an increase in retail pricing? Who is responsible for a sales drop if the brand has a scandal? What if the products are out of stock – how is the agency compensated for sales they “would” have made? If a slightly misleading title or description sells more items, what will they choose? Are they penalized for bad reviews and returns?

4. Angst

There is inherent tension between the brand’s objectives and that of the agency. Who can force the other to make a decision? What is best for the brand? It becomes a combative and strained relationship.

5. Urgency

Because they are paid a percentage of sales, and sales are typically low to begin with (which is why they employed a new agency), the agency goes slow on updates – whether pages, store, images or other. They don’t want to put in lots of effort/time with low revenues. This hurts your sales.

6. Lack of brand building

If the agency is paid on selling products today to get paid, they’re not motivated to address areas that impact your brand and broader sales. Will they employ brand building tactics such as display/video? Will they provide the analytics to influence the broader business beyond Amazon – new product development insights, media consumption behavior, alternate purchase behavior and basket analytics? Will they respond to bad reviews and unhappy customers or deem such activities as a waste of time?

7. Siloed

The agency is being remunerated on Amazon sales, so they will try to get sales from anywhere, and anyhow. For example, they will tag your D2C site to get all your customers to buy from Amazon instead, albeit at a lower margin for you and generating no incremental customers. Amazon may become a dilutive channel rather than adding incremental sales.

8. Going for easy wins

Agencies can spend search budgets just against brand terms and deliver great results on the surface. However in doing so they would not be attracting new customers, stealing customers from competitors nor driving loyalty and lifetime value. You need a balance, and sales-remunerated agencies don’t get paid on lifetime value.

9. Data

Some agencies will set you up under their own account rather than your own for efficiency. This will mean you do not own your own brand presence, cannot view your own data/insights and will have trouble migrating your products and brand to your own account – causing massive sales dips during the migration.

10 .Transparency

Some agencies will offer to buy your product and then sell it on your behalf. On the surface this may seem beneficial (it’s just like adding another retail sales channel), but you will have no power over how your product is sold, the margins made, the brand and the price. Typically such arrangements massively over-pay the agency partner.

11. Innovation

Innovation by definition is something exciting and with great opportunity… but also unproven. It’s a calculated gamble and a performance remunerated agency won’t invest the time to test if new features or initiatives work, leaving first-mover advantage to your competitors.

12. Profit

Your agency will not agree to be tied to profit as there are so many factors they will argue are beyond their control – logistics, pricing, manufacturing, distribution, advertising cost and more. Topline sales are not the same as profit. They would rather drive sales at low/zero profit… and you are paying their fee on top.

13. The over and above

What if you need help running profitability analysis, looking at new markets to expand to, contributing to an annual report, researching new opportunities or exploring new products to develop? They won’t have the capabilities nor the motivation to help.

Choosing the right agency that is remunerated in the right way is critical to achieving long term success on Amazon. We’ve also compiled the questions to ask an Amazon agency before you hire.