Ad agencies that serve clients by managing their online advertising campaigns are strongly being encouraged to move to a performance-based model by Coca Cola Co. The question is, Will it work?

There are pros and cons, of course, Agencies that fail to provide results won’t get paid for their efforts. That means no losses for the company, but it does mean a loss in revenue for the ad agency. It may also mean a loss of business. What company is going to continue letting an ad agency run ad campaigns that produce no results, even if they don’t have to pay for it? The idea, after all, is to get clicks to the company’s website and convert the traffic. Any ad agency that can’t do that shouldn’t be paid.

At least, that’s the way Coca Cola executives see it. The up side to the agency is a successful campaign could earn them more money. Coca Cola is talking about 30% commissions for successful campaigns. That’s well above the average. See here:

Coca-Cola Co. is trying to start an industrywide movement toward a “value-based” compensation model like one it’s adopted that promises agencies nothing more than recouped costs if they don’t perform — but profit margins as high as 30% if their work hits top targets.

Will performance-based PPC work? Is it a model that the industry should consider? In the end, if that’s what advertising consumers demand, ad agencies may not have a choice. If they want to remain competitive they will have to adapt. Maybe that’s what Coca Cola is shooting for.