As a business development consultancy, Outbound Pharma frequently encounters companies seeking lead generation services based on a Success Fee model — where the consultancy is only compensated if sales or deals are closed. At first glance, this may seem appealing for businesses looking to minimize upfront costs. However, this model has fundamental flaws that end up harming both the company and the consultant. This article will explore why the success fee model is counterproductive and why it is better to shift towards a sustainable, long-term approach that benefits everyone involved.
Short-Term Thinking and Misaligned Goals
"At our company, we believe that a success fee model aligns the interests of both parties. If the lead generation service provider succeeds in generating leads that result in sales, both sides benefit. This creates a shared incentive to deliver results."
Some companies believe that a success fee model aligns interests by rewarding the lead generation partner only if sales are achieved, creating a "shared incentive to deliver results".
Wrong.
To illustrate, imagine someone hiring a personal trainer who only gets paid if he or she helps them lose 10 kg within the next three months. While the trainer can create a workout plan, offer expert advice, and put in the work, the outcome is still up to the trainee — and various external factors beyond the trainer's control, such as your diet, consistency, or even injury. If you don't hit that target weight, the trainer gets nothing, even if they put in significant effort.
In lead generation, consultants are doing the same: researching, qualifying leads, and reaching out to prospects. In some cases, they may provide strategic advisory and industry expertise as part of their services. But if those leads don't close for reasons beyond their control, they are left with no compensation for their time and expertise.
Consequently, consultancies facing this imbalance are left with limited options: they may forgo experienced lead generation partners altogether, or rely on low-cost, automated tools that lack the nuanced understanding of a human expert. While this may seem like a cost-effective solution, they always produce low-quality leads, miss key opportunities, and fail to provide the strategic insights necessary to drive meaningful sales, ultimately costing companies more in the long run.
A Sign of Instability and Poor Management
"We believe that by working under a success fee model, we align ourselves with our partner's results, ensuring that we only pay for high-quality leads that lead to tangible sales."
Another rationale is that a success fee model ensures that only high-quality leads are pursued, so businesses only pay when real value is generated.
Bad idea.
While it may seem like an excellent way to focus only on performance, it's usually a major red flag. It is usually a sign that the company is desperate for results without considering the long-term implications. It signals that they are unstable or struggling with cash flow. They may have had bad experiences with other agencies in the past. They're looking for a quick fix, rather than thinking about sustainable growth.
This is especially alarming when the company doesn't use success fees to sell its products or services — it lacks self-awareness and ethics. If they're not willing to take the same risk for their own business, why should the agency? At Outbound Pharma, we avoid working with companies that propose success fees, as it suggests a lack of stability and a poor understanding of what it takes to grow a business.
Quality Over Quantity: Why It's Not Just About Closing Deals
"We believe the success fee model motivates our partners to focus on generating quality leads that will close into sales, thereby ensuring that we are only paying for real value."
Some companies argue that success fees push partners to focus on generating quality leads that will result in sales, ensuring they pay for real value.
Not true.
The flaw in this thinking is that it pressures consultants to prioritize quantity over quality. As in the previous example of the personal trainer, if the trainer's pay is based only on you losing weight, they may resort to extreme diets or inappropriate exercises to quickly reach the target weight. It might produce short-term results, but it exposes you to the risk of injuries. It is not healthy for your body, and it's not sustainable.
Similarly, the consultant may focus on generating as many leads as possible without necessarily ensuring that they are the right fit for your business. They will sacrifice long-term relationship-building for quick wins — and ultimately harm the integrity of your sales process. Even worse, it can damage your company's brand and reputation.
Lead generation is about nurturing the right relationships, not just closing deals as quickly as possible.
The Hidden Costs and Complicated Terms
"Success fee models often come with milestone payments and royalties based on sales, ensuring that compensation is aligned with results and reflects the value delivered."
Not a good idea.
On the surface, success fees, milestone payments, or royalties seem like a fair way to align compensation with results.
However, this approach often ends up being far more costly in the long run. The structure of steep milestones and high royalties forces the lead generation partner to focus on meeting specific targets, sometimes at the expense of delivering high-quality, strategic guidance. Rather than fostering a genuine partnership, these arrangements create pressure to prioritize short-term wins over sustainable, long-term success.
Ultimately, success fees and royalties add unnecessary layers of complexity and cost, detracting from the primary goal: building lasting, mutually beneficial partnerships.
The Real Cost of Success Fees: A Desperate, Short-Sighted Approach
Success fees tend to attract companies seeking immediate wins without fully appreciating the strategic complexities of lead generation. This approach is often an indicator of short-term thinking rather than a commitment to sustainable growth.
At Outbound Pharma, we take a different approach, blending upfront fees with performance-based incentives. This model enables us to invest the necessary time, expertise, and resources to deliver the highest quality service to our clients. Companies serious about growth understand that investing in a balanced, strategic approach yields far more enduring results than a quick-win mindset ever could.
While success fees may seem attractive at first, they can ultimately compromise your long-term objectives by focusing on immediate metrics rather than fostering true, collaborative partnerships. For businesses committed to quality growth, we recommend working with industry-focused consultancies that align with your vision of consistency, trust, and mutual success. With a well-aligned partner, you can build a client base that not only drives revenue but strengthens your business for years to come.
