Introduction

The traditional agency model is broken. Businesses pay big retainers, lock into long contracts, and hope their agency delivers. If results fall short, the agency still gets paid. For founders and marketing leaders under pressure to show ROI, that setup feels increasingly out of touch.

Performance-based marketing changes the rules. Instead of paying for “effort,” you pay for outcomes. When incentives are aligned, agencies work harder, smarter, and faster — because their success depends on yours.

1. The Problem With the Old Model

Marketing retainers have been the industry default for decades. Agencies scope out a set of activities — ad management, content creation, SEO — then charge a fixed monthly fee.

The problem?

• No direct tie to revenue – You’re paying for deliverables, not results.
• Low incentive for optimisation – If the agency gets paid regardless of performance, there’s less urgency to push for maximum returns.
• High risk for the client – If campaigns underperform, you eat the loss.

According to HubSpot’s 2024 State of Marketing Report, over 47% of businesses have reduced or renegotiated retainers in the past two years due to ROI concerns.

2. Why Performance-Based Works Better

Performance-based marketing flips the equation: agencies only get paid when they deliver agreed outcomes — leads, deals, revenue.

Key benefits:

• Aligned incentives – You both win when results happen.
• Lower upfront risk – You’re not locked into a high retainer without proof of ROI.
• Faster iteration – Agencies are motivated to test, refine, and optimise quickly.

A Nielsen study found that advertisers using performance-based contracts saw a 30% increase in campaign ROI compared to traditional fixed-fee models.

3. How It Actually Works

A performance-based setup typically involves:

• Low or no retainer – Covering basic operational costs.
• Clear success metrics – e.g., cost per lead, number of sales, or revenue targets.
• Revenue share or commission – Paid when agreed outcomes are achieved.

For example, at Rad.Digital we run three models:

1. Flat retainer – For clients who prefer stability and predictable budgets.
2. Small retainer + pay per lead – Ideal for businesses with solid sales teams but weak pipelines.
3. Small retainer + pay per deal closed – Best for high-ticket offers (£10k+) with proven close rates.

4. The Trust Factor

For performance-based marketing to work, both sides need trust and transparency:

• Full data access – The agency must see what happens to leads after handoff.
• Agreed attribution model – Everyone must agree on how success is tracked.
• Realistic targets – Based on historical performance, not wishful thinking.

According to LinkedIn’s B2B Institute, trust between client and agency is the number one driver of long-term partnerships — outranking even creative quality.

5. Who It’s Right For (and Who It’s Not)

Performance-based marketing isn’t for everyone. It works best when:

• You have a clear, high-value offer.
• You can convert leads consistently.
• You’re willing to share sales data.

It’s less suited to businesses with:

• Very long sales cycles.
• Weak close rates or unclear sales processes.
• No proven product-market fit.

6. The Future Is Hybrid

While some brands will stick with retainers, the trend is clear: hybrid models — blending a base fee with performance incentives — are gaining ground. Agencies like Rad.Digital are leaning into this because it keeps partnerships honest and focused on what matters most: growth.

Statista projects the global performance marketing industry will grow to $25 billion by 2027, driven largely by demand for ROI accountability.

7. Final Thought

The days of paying big retainers for “activity” are fading. In their place, a more accountable, transparent, and performance-driven approach is emerging. When your agency’s revenue is tied to your success, everyone plays to win.

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