Get the best out of 3rd Party Marketing, urges accelerando’s Philip Kalus
There have been a lot of new 3rd party marketing (3PM) firms emerging all over Europe over the last couple of years, but the reputation of the 3PM sector is somewhat mixed, even negative, notes Philip Kalus, founder and managing partner of accelerando associates.
Having run an international 3PM firm in Europe for more than seven years I would like to reflect on the 3PM sector and its reputation, and also point out what fund management firms should have a particular eye on when selecting a 3PM.
Looking at shiny curriculum vitae’s, sales track records (true or not) and some references is not good enough in order to identify the right 3PM. Potential contractors of 3PMs must dive a lot deeper to find long-term satisfaction from their deal. They must get a real understanding of the 3PM’s business culture, way of implementing sales and long-term business ambitions.
Let us look first at the reputation issue of the 3rd party sector. The major reason for the somewhat mixed reputation lies, in my view, in the opportunistic nature of the business and secondly, some of the people behind and in the 3PM firms. How should fund management firms deal with these two factors?
The answer to the first challenge – the opportunistic style — lies in the business model of the 3PM. Conservatism is a term which I like a lot here, or Conservatism paired with healthy pressure. Conservative refers to the running of the 3PM business, with healthy pressure from their own and their client’s expectations.
Business cases should be Conservative in the short-term and demanding in the mid- to long-term. Many 3PMs, like marketers in general, tend to promise too much and deliver too little. There must be healthy pressure not only on the 3PM’s shoulder, but also on the client and the fund management firm, bearing in mind that there is no serious way to define or meet short-term sales targets systematically.
I believe this can best be achieved by the 3PM fee structure. Some 3PMs charge set monthly retainers in addition to placement fees once a certain placement hurdle has been achieved.
I think this is a good way to ensure serious effort on both sides. Retainers should be high enough for the 3PM to dedicate sufficient time and financial effort, but also low enough to keep the marketer hungry and keen to clear the placement hurdles quickly.
Set monthly retainers make sure 3PMs are always active for their clients, as clients expect constant activity, even in times when the client’s funds may be less appealing to investors.
Retainers guarantee a healthy pressure not only for the 3PM, but also for the client. Monthly retainer payments also ensure the client is dedicated to making the cooperation a success.
The retainer eliminates the opportunistic nature of the traditional placement agent business, which is placement fee only business, which in many cases tends to ride on momentum and / or commission (selling what‘s hot, ignoring the rest).
This business model paves well the way to dedicated, constant efforts to build up serious business for the client, while keeping the number of clients at the 3PM firm limited and exclusive.