If you're a marketing leader in the process of hiring a marketing agency, but you're not sure what kind of contract you'd like to sign, consider the points in this article before you make your choice.

Marketing leaders spend too much time wondering whether they are getting burned by their marketing agency. But as someone who has worked in agencies for 13 years, I can tell you that marketing leaders are the ones with the most influence over that. It comes down to communication.

Business relationships usually fail because of a lack of communication, not a lack of results. So even if you select a creative agency with a shining reputation that can churn out exactly what you're looking for on deadline, that doesn't always translate into a great working relationship.

If you think the agency you've hired doesn't understand your business and therefore makes for a bad partner, don't rush to judgment: The onus is not solely on them. Like all business partnerships, working agency relationships are a two-way street.

You hired the agency, so your neck is on the line in upholding that agency's reputation. You've also paid the agency to do work for you, and you don't want to blow your budget. So go that extra mile and communicate effectively. It will help you get the most out of your money while also respecting the agency's creative reputation.

Hiring a marketing agency starts with your KPIs

Your goal and your KPI-based statement of work (SOW) must be aligned. You should understand each of your KPIs and have goals associated with each one before hiring a marketing agency.

As the in-house marketing leader, it's your job to know exactly what you want from an agency before signing on, while also ensuring that your SOW is flexible enough to include expert suggestions of the agency you're trying to work with.

When onboarding an agency, ask questions and listen carefully to see whether the agency can accomplish what you need.

Pin down the following before even reaching out to an agency:

  • Benchmark marketing numbers relevant to the project or goal (traffic, CPA, closing rates, etc.)
  • A set budget
  • What a successful partnership will look like 12 months from now
  • A scorecard of essential factors for your organization to reference when hiring an agency (performance, reliability, cost, contract length, etc.)

Should your contract measure hours, deliverables, or goals?

As you speak with agencies, they will share their preferred method of accountability: hours, deliverables, or goals.

When hiring a marketing agency, consider that you should work with the agency's strengths while remaining aligned to your own situation:

  • An hourly contract usually works for smaller budgets and companies that want to test the waters with an agency.
  • Deliverables make sense if you possess the skills but not the resources to meet the task at hand.
  • And goal-based deals work for businesses looking for strong results and a creative partner.

When you understand the nuances and advantages of each scenario, you can determine which situation will be most beneficial to your agency relationship.

1. Hourly Rate-Based Contracts

Hourly contracts are great if the agency you're working with provides you with a quick feedback mechanism on hours spent; otherwise, it can be quite easy to go over budget.

If you need quality work done on a deadline and you find an agency that has a reputation for completing that sort of work on an hourly basis, you could stand to benefit from this kind of agreement.

Hourly contracts can also be good for smaller-scale projects for which you need additional help to reach a clearly defined goal.

Keep in mind, however, that agencies hired for hourly work typically aren't held accountable for results.

2. Deliverable-Based Contracts

If you want the agency you hire to be accountable for the tactics and the results of a project, you might want to go with a deliverable-based contract.

These contracts can be great when bandwidth is your primary issue. If the work you need is the kind you normally oversee at your company but you need extra creative firepower, or if you're time-constrained and you need that extra bit of "oomph" to get you over the finish line, consider a deliverable-based contract.

Another reason for signing a deliverable-based contract might be that your team doesn't have enough historical data to create a reasonable goal so you're just looking to get the project done on time and on budget.

However, deliverable-based projects often come with a lower chance of success because the agency is required to deliver on a project basis—not integrate themselves into your team's framework or help drive your marketing strategy as a whole.

3. Goal-Based Contracts

Goal-based contracts are usually the route that brings long-lasting success. They allow agencies to have more skin in the game.

That said, goal-based contracts are almost always more expensive but almost always more successful than deliverable-based contracts. Goal-based arrangements are great if you're leading your marketing into new terrain and therefore want to partner with an outside agency to build a new strategy from the ground up.

If you're looking for a partnership in which you and the agency share accountability for strategy and results, consider a goal-based contract.

Goal-based contracts are also beneficial if results and partnership are among your priorities and you're looking to build upon a reliable source of historical data to target either new or established goals.

Think of this relationship as your taking the suggestions of an external yet equal department within your company to drive growth. When you sign the contract, you're forming a partnership.

Communicate your needs, set measurable goals, and prioritize feedback

By communicating your goals from the outset, you'll always get the best results. You wouldn't go to a barber and just say "Go for it," so why would you hand over that amount of creative license to an agency?

The best way to get the most out of an agency partnership is to treat the agency as you would members of your own team.

Whether the partnership is for the short term or the long term, it's best-practices to ensure the agency you hire is always highly aware of your company's direction. Better communication means better creative work.

More Resources on Hiring a Marketing Agency

Six Tips for Getting the Most Out of Your Marketing Agency

10 Questions to Ask When Interviewing Your Next B2B Digital Marketing Agency

Outsourcing Digital Marketing: Your Questions Answered [Infographic]

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image of Paxton Gray

Paxton Gray is the CEO at 97th Floor, an award-winning digital marketing agency that counts Edmunds, Celebrity Cruises, and Salesforce among its clients.

LinkedIn: Paxton Gray