Revenue Models: Performance Based vs. Cash Upfront


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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 once knew a business owner that requested that we put all vendors on a Net 90. That makes sense on large contracts, but won’t work for most vendors. It was a comical request 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, the project won’t materialize and you won’t get paid.
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…
Carson Poppenger
After building a process to contact, qualify, and convert legacy data into new sales opportunities, Carson Poppenger co-founded Squeeze ( to help other businesses accelerate sales, grow revenue, and increase profitability. He currently serves as president of the company and lives in Utah with his wife and three children.


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