Performance pricing and the myth of guaranteed ROAS

Every few years the Australian media market rediscovers performance pricing. The pitch is seductive: pay us when it works. Sometimes that is a grown-up way to share risk. More often it is a way to hide a weak offer behind a number neither of you can fully audit.

ROAS — return on ad spend — is the number most often asked to carry this weight. It is a ratio of attributed revenue to media cost. It is not profit. It is not incrementality. It is not a promise the market can keep on your behalf. When an agency guarantees it, they are guaranteeing a definition.

This piece belongs with the SEM agencies guides. Read it next to what good Google Ads management looks like and the fee bands in what Australian agencies actually charge. The operating work and the commercial work are the same relationship.

The sentence that should make you sit back

“We will guarantee a 4x ROAS.” Variations include a guaranteed cost per lead, a guaranteed ranking on paid, and a guaranteed volume at a fixed CPA. The number changes. The structure does not: the agency is offering to underwrite a system with more authors than itself.

Those authors include Google's auction, your competitors' discounts, your stock position, your landing page, your sales team, seasonality, and the attribution model that decided a sale belonged to a click. An honest shop will talk about those authors. A sales-led shop will talk about the guarantee.

Australian Consumer Law still cares about a representation made to win a contract. Feel it as a buyer: if they can guarantee the result, why is the fee not simply a share of the profit? Sometimes the answer is that they will make the number true by choosing the number.

How ROAS gets manufactured

There are ordinary ways to improve a reported return that have nothing to do with creating demand.

Count brand as a win. Bid on your own name, include those sales in the ratio, and the ROAS looks healthy. The customer was coming anyway. Google Ads management that cannot split brand from non-brand is not ready for a bonus, let alone a guarantee.

Widen the conversion. Count every form start, every call of any duration, every “engaged” session. The denominator stays the same. The numerator swells. Your sales team does not.

Lengthen the window. A 90-day click window will claim sales that a seven-day window will not. Neither is morally better. They are different stories. A guarantee that does not name the window is not a guarantee. It is a blank.

Prefer the platform's count. Google and Meta will report conversions their models believe happened. Your CRM will report fewer. The guaranteed ROAS is almost always the platform's. The bank is not.

Steer the catalogue. An ecommerce feed can be pointed at best-sellers and branded queries. The account looks efficient. The rest of the range sits in the dark.

Time the baseline. Offer a guarantee against last year's quiet quarter, or against an account they have just “cleaned”. If you pay on a ratio, you will get this behaviour. The agency may call it optimisation.

How performance fees are supposed to work

A clean performance element has four parts.

A baseline you both sign. Last quarter's qualified leads from non-brand search, or last year's contribution profit from paid, stated in your system. Not a number the agency brings from a previous vendor's dashboard.

A definition of the outcome. A qualified lead is a booked appointment, a sales-accepted opportunity, or an order that was not refunded. It is not a form fill. If you cannot define it in a sentence the CRM can enforce, you cannot bonus it.

A period long enough to be fair and short enough to exit. Ninety days is a common trial. Twelve months of locked performance terms is how a bad definition becomes a residency.

A base fee that covers the hours. The bonus is the share of upside. If there is no base, the agency has a cashflow problem and you have a partner who needs the metric too much. Desperate measurement is not independent measurement.

When those four exist, a hybrid can be a good deal. When any is missing, the agency steers the account toward the bonus and calls it alignment.

Hybrid models that are honest

A base monthly fee plus a bonus per sales-accepted lead above a baseline. The lead has to survive a human. The baseline is last quarter. The bonus has a cap, so a once-off television burst does not become an accidental jackpot.

A base fee plus a share of contribution profit from a channel you can isolate — for example, a new non-brand shopping campaign with its own discount codes or a geo that the rest of the business is not already working. Isolation is the hard part. If you cannot isolate, you cannot share.

A project fee for the rebuild, then a smaller retainer, then a bonus once the rebuild has a stable baseline. This is honest about the fact that the first months are plumbing.

A declining media commission as spend grows, with a minimum that covers senior time. Not really performance pricing, but cleaner than a ROAS promise. In each case, write how the number is pulled and who can change a conversion action.

Hybrid models that hide a weak offer

The agency takes a low or zero base and a large share of “revenue driven”. They define revenue in Google Ads. You discover later that brand, organic, and direct were in the pile.

The guarantee is offered only after a “discovery” month in which they change the conversion actions. The discovery is the heist.

The ROAS target is high and the exclusions are higher: they do not include branded competitors, they do not include the feed items you actually need to sell, they do not include weeks when you are out of stock. The guarantee applies to a toy account.

The contract lets them reduce spend until the ratio looks good. Efficiency without volume is a way of passing a test. It is not a media plan.

The bonus is paid on leads and there is no refund when the leads are junk. A “we only win when you win” slide with no formula in the appendix will not survive a dispute.

What to put in the contract

Name the system of record. Preferably yours. Name the conversion. Name brand versus non-brand. Name the attribution window. Name who can edit conversion actions — ideally, both of you, in writing, not a silent change on a Friday.

Say that platform-modelled conversions are reported and are not the bonus base unless you explicitly agree. After the privacy reset, modelled numbers are part of buying media; they should not be part of a private lottery.

Say what happens if you change price, range, or the offer. A guarantee that assumes a constant product is a guarantee that will break on the first merchandising meeting.

Say that you own the accounts. Cap the bonus. Include a kill switch: either party can revert to a flat fee with 30 days' notice if the definition stops matching the business.

When the guarantee is the product

Some shops lead with the guarantee because they cannot lead with the work. They do not want to talk about structure, feed hygiene, or the landing page. They want to talk about a number that sounds like a financial instrument.

You already know how to test that. Ask for a week of labour, redacted, from a current account. Ask who sits on the account. Ask whether you will own the login. Those are the same tests as any other brief in how to choose a digital marketing agency in Australia. A guarantee does not replace them. It often tries to.

A small specialist will sometimes offer a low base because they believe they can beat a sloppy incumbent. Meet that person with a tight definition and a short trial, not an open-ended ROAS covenant. If the offer is weak, paid media will find more people to disappoint.

A calmer way to pay

Pay for the hours you need. Add a bonus only when you can name the extra outcome in your own system. Report brand separately. If a shop will not take the work on those terms, they are telling you what they need the contract to do. Guaranteed ROAS is a myth because ROAS is a story about attribution. You can still share upside. Stop asking a ratio to do the work of a relationship.