"Setting the right goals and incentives is the key to ensuring your agency drives impact, not just activity."
Hiring a marketing agency can be a major pain point for SaaS companies. With endless options to evaluate and models to parse through, it often feels like you need a marketing degree just to understand it all.
Believe me, I've been there. Early at my last startup, we poured countless hours into agency demos and worthless "discovery calls" that led nowhere. After finally making a decision, we realized 3 months in that the agency we chose was completely misaligned on goals. Ouch!
But eventually, we cracked the code on how to maximize ROI with our marketing agency. After iterations and lessons learned, we developed an effective playbook that led to 2X growth in customers and revenue.
In this guide, I want to share the insider strategies and real-world tactics we used to ensure your agency relationship drives tremendous business value. I'll cover:
- How to select an agency model tailored to your startup's stage and needs
- Defining the RIGHT success metrics to incentivize your agency
- Fee structures and incentive models that align goals
- Oversight techniques to keep your agency honest
- Optimizing campaign spend for true incrementality
- And more...
Consider this your blueprint for getting the most bang for your buck when hiring a marketing agency as a SaaS business. With the right partnership and management model, your agency investment will pay dividends for years to come.
Let's get started!
Choosing the Right Agency Model
The first step is deciding what type of agency relationship makes the most sense for your company. There are a few common models:
- Full-service agency: Handles all marketing channels for you under one roof. More expensive but can simplify operations.
- Specialized boutique firm: Focuses on a specific function like SEO, PPC, or branding. May offer deeper expertise but less cohesion.
- Fractional CMO: On-demand CMO who works a few days a month. Good for strategy but less execution.
- Independent consultants: Freelancers who offer project-based work. Affordable but less consistent.
|Cost Per Lead||Fees based on number of leads generated||Aligns incentives to drive leads||Doesn't account for lead quality|
|Cost Per Acquisition||Fees based on new customers acquired||Rewards for driving real revenue||Higher risk for agency|
|Revenue Share||Percentage of incremental sales influenced||Closely aligns with business growth||Hard to measure and attribute|
To determine the right fit, consider your budget, marketing maturity, and need for strategic guidance versus hands-on work. Early stage companies often benefit from boutique firms or freelancers. More established brands can leverage full service agencies for turnkey solutions.
Defining Goals and KPIs
Once you've selected an agency, the next step is aligning on goals and key performance indicators (KPIs).
Having clearly defined targets ensures your agency delivers meaningful business impact instead of just "spray and pray" tactics.
Focus on 2-3 core SaaS metrics like:
- Monthly recurring revenue (MRR)
- Customer acquisition cost (CAC)
- Lifetime value of a customer (LTV)
- Churn rate
- Customer satisfaction (CSAT) score
A good agency will insist on measuring performance against meaningful business objectives instead of vanity metrics like impressions, clicks, and followers.
Structuring the Right Fee Agreement
Agency fee structures impact how aligned incentives are between you and your agency. There are three common models:
- Time and materials: Hourly fees for time worked. Simple but may encourage inefficiency.
- Fixed fee: Pay a flat rate per month. Predictable but agency may cut corners.
- Performance pricing: Fees based on success against KPIs. Risky but aligns incentives well.
|MRR Growth||15% YoY||$5,000 per % above target|
|New Customers||1,000||$100 per customer above target|
|Net Revenue Retention||95%||$20,000 if target exceeded|
|Customer Satisfaction||4.5/5 rating||$2,500 if target exceeded|
For most SaaS companies, a performance pricing model is optimal, especially if you're not working with the agency full time.
Popular performance models include:
- Cost per lead
- Cost per customer acquired
- Percentage of incremental sales influenced
This ensures the agency only gets paid more if they drive real business results for you. However, you need sufficient budget to incentivize them.
Ideally, 20-30% of the agency's fees should be tied to performance bonuses for full alignment.
Maintaining Oversight and Governance
Oversight Best Practices
|Status Calls||Operational alignment||Weekly|
|Business Reviews||Results evaluation||Monthly|
Even with the right model and incentives, you can't fully outsource oversight of your marketing.
To maximize ROI, you need to actively manage the agency relationship through:
1. Frequency touchpoints
- Weekly status calls
- Monthly in-person business reviews
- Quarterly budget planning
2. Performance dashboards
Share a live dashboard that tracks:
- Key campaigns and initiatives
- Spend versus budget
- Impact on KPIs
3. Marketing technology integration
Grant access to your martech stack like Google Analytics, Salesforce, etc. so nothing gets lost in reporting.
4. Random audits
Occasionally audit campaign performance, ad spending, etc. to ensure consistency.
With the right oversight model, you empower your agency to execute while still maintaining control over your marketing.
Optimizing Campaign Spend for Incrementality
One risk of hiring an agency is overspending on campaigns that would have happened anyway.
To maximize ROI, focus investment on incrementality: marketing that drives business results above and beyond what would have occurred otherwise.
Use techniques like:
- Geo-based holdouts: Run campaigns in some regions but not others, then compare performance.
- Pre-post analysis: Compare performance for a period before a campaign launches and after.
- Marketing mix modeling: Statistically isolate the impact of each channel.
Promising campaigns can then be amplified, while ineffective ones are reigned in. This requires detailed analytics and persistence, but it prevents wasting money.
Maintaining Flexibility in Budgets and Strategy
The marketing landscape evolves quickly. What works one quarter may flop the next.
To sustain maximum ROI, you must build flexibility into budgets and strategic plans.
1. Use a rolling budget model
Rather than an annual budget, plan in 90-day cycles. Adapt spending levels to emerging opportunities.
2. Test and iterate
Continually pilot new campaigns on a small scale. Double down on winners, kill underperformers.
3. Review strategy quarterly
Formally reassess positioning, messaging, segments, etc. every 3-6 months.
Empower your agency to flexibly respond to changes over time. They will optimize performance while protecting you from massive strategic bets.
Focusing on Retention and Lifetime Value
For SaaS companies, retention and lifetime value are much bigger drivers of ROI than new customer acquisition.
According to ChartMogul, the top quarter of SaaS companies derive 60%+ of revenue from existing customers.
Work with your agency to shift budget mix towards retention:
- Customer win-back campaigns
- Usage lift initiatives
- Loyalty and advocacy incentives
- Retention-focused email and ads
- Surveys to drive CSAT improvements
This not only improves LTV, but reduces the volume of new customers needed. Combined, this can drive dramatic efficiency in marketing ROI.
Maximizing ROI with a marketing agency requires diligence. By selecting the right partner, enforcing rigorous goal-setting and oversight, optimizing for incrementality, and emphasizing retention, SaaS companies can make the most of agency relationships.
The key is aligning incentives around business impact rather than activity volume. With the strategies above, your investment in marketing services will pay dividends for years to come.
Q: What types of agencies should early-stage SaaS startups look to partner with?
Early stage startups generally benefit most from partnering with specialized boutique agencies or independent consultants. Boutique firms offer deeper expertise in specific disciplines like SEO, PPC, email marketing etc. without the premium fees of full-service agencies. Independent consultants are very affordable and can provide strategic advice tailored to early-stage startups. The key is to focus the agency's efforts on 1-2 core channels with the highest ROI potential at first. As your startup matures and budget expands, you can gradually scale up to larger broad-mandate agencies.
Q: How much budget should a seed-stage startup allocate towards hiring an agency?
For pre-revenue or early revenue startups, budget will be constrained. Aim to allocate 10-20% of overall marketing spend towards an agency, which could range from $5,000-$15,000/month depending on your burn rate. Focus the agency on mission-critical activities like content creation, visual branding, or tactical PPC management while keeping high-level strategy and analytics in-house. Supplement them with freelancers to keep costs variable. As revenue and margins improve, allocate more budget to the agency relationship.
Q: What are some red flags to watch out for when evaluating agencies?
Some red flags include:
- Pushing generic solutions instead of custom strategies
- Refusal to incorporate performance pricing
- Vague responses when asked about incremental value
- Excessive focus on vanity metrics versus business KPIs
- High churn in client accounts and account managers
- Opaque reporting and unwillingness to share details
- Lack of sophistication in measurement and analytics
Q: How can I determine if my agency's spending is driving true incrementality?
Start with holding out a control region or user segment from campaigns to establish a performance baseline. Then compare metrics in the exposed region before and after campaigns launch while accounting for seasonality. Look for statistically significant uplift over the control group. Use techniques like marketing mix modeling to isolate campaign impact from other factors. If results are underwhelming, iterate creatively or reallocate spending to other initiatives.
Q: What are some best practices for governing the agency relationship?
- Maintain transparent access to your marketing data and technology
- Conduct random periodic audits of spending and performance
- Institute monthly business reviews tied to a live dashboard
- Provide open and candid feedback at least quarterly
- Ensure your agency is continually training talent and innovating
- Leverage partial performance pricing to align incentives
- Don't become fully dependent - maintain some in-house expertise
Q: How can I optimize my marketing agency for better retention results?
Look for opportunities to add or enhance retention-focused campaigns like customer win-back offers, usage lift initiatives, loyalty programs, community engagement, and retention-focused lifecycle messaging. Audit customer segmentation and messaging personalization. Set concrete LTV and retention targets and make them central in agency reviews. Shift budget from acquisition tactics with marginal ROI into proven retention drivers. Keep testing new retention levers and double down on those demonstrating traction.
Q: What is a reasonable length of contract to commit to with an agency?
Generally a 6-12 month initial contract makes sense for both sides to build trust and prove out the relationship. Include off-ramps at 3 or 6 months in case of misalignment. After renewal, 12-24 month engagements are reasonable for established partnerships. Avoid very long 3+ year contracts unless the agency has already driven extraordinary value. Build in periodic renewal points to reassess the partnership rather than fully open-ended contracts.
Q: How much internal marketing staff should I keep if I hire an agency?
Even with an agency, you need some retained in-house expertise to manage the relationship and maintain institutional knowledge. For early-stage startups, aim to have at least 1-2 internal marketing FTEs who can handle strategy, campaign management, and analysis with the agency executing tactically. At scale, you may shift to more like 20-30%+ in-house staff who handle analytics, operations, and high-level planning. The agency becomes an extension of your internal team.
Q: What is a reasonable agency-to-in-house marketing spend ratio at growth stage?
For venture-backed startups scaling quickly, a 70/30 or 60/40 agency-to-internal ratio is pretty common, i.e. $60-70k/mo to the agency and $20-30k/mo on internal personnel costs. This provides sufficient budget for the agency to make an impact while retaining operational control internally. Beyond 12-24 months in, evaluate whether greater leverage on the agency side makes sense based on their delivery and institutional knowledge.
Q: When is it appropriate to end an agency relationship?
If an agency partnership has failed to drive incremental value for 6+ months and all efforts to correct course have failed, it may be time to part ways. Other scenarios where a breakup may make sense include loss of key staff, major strategy disagreements, lack of innovation, compliance issues or conflicts of interest, stagnant results, or cultural mismatches. Transition the relationship gradually by bringing certain functions in-house over a 6 month period. Clearly communicate the issues early and give the agency a chance to course correct before terminating.