I do think that it is entirely possible for an SEO and client to work out a pay for performance pricing structure that is fair to both. Logistically, though the tracking involved to this would add additional layers to the total process of ranking and reporting. If both the SEO and the client are willing to take that on and set parameters that are agreeable between them then by all means a fair agreement can be reached.
Personally, I would not price SEO services based on performance unless I was given 100% control over the client’s website, something very few clients are willing to hand over, and rightfully so. (This is a lesson I learned the hard way, more than once.)
I love analogies, so I’ll provide one here: Providing SEO services based on performance (without 100% site control) is akin to a dietician asking to be paid based on the amount of weight lost by a client they are consulting. The dietician may set the plan, medications, workout schedule and menu for their client, however if the client sneaks Big Macs and Ice cream on the side, lounges on the couch instead of getting on the treadmill, or adds a few extra high-carb foods into their meals, then the client is not likely to lose much, if any, weight.
If the dietician was able to monitor the client 24 hours a day and ensure that the plan was being followed explicitly, then (and only then), real success can be assured and a pay for performance pricing model would be work.
In the SEO business, there is a lot that can be done to a client’s site that is likely to gain them success. However, even in the best of circumstances limitations to what can be performed on a site are inevitable. Does the SEO have free range over the entire site or just a few pages? Do they have permission to re-design the site, reword content significantly or change the navigational structure? Can the SEO dictate to the client how they should answer their phone or respond to email inquiries?
These are all important issues that lend directly to the sales conversion ratio achieved.
Another issues with pay for performance is tracking. Does the SEO have complete access to all sales statistics, including costs, profits and overhead? If payment model is based on profits, rather than just sales, does the SEO have a say in how the client spends his/her revenue? Does the SEO also have a say in regard to pricing? This, too, can have a great effect on conversions.
Beyond that is the issue of timetables. If the SEO does a fantastic job of increasing the clients sales and profits, can the client at any time fire the SEO to start hoarding all the additional profits for themselves? A pay for performance would only be fair if the SEO was guaranteed to receive the benefits of their optimization efforts for up to 12 months AFTER they had been released by the client. After all, good SEO does have long-ranging effects, and not just on top rankings.
Once a client is performing well on search engines, many other things begin to happen naturally, that would not have happened before. The most obvious is obtaining natural links from other websites. Now that the site is known and/or popular, thanks to the work of the SEO, the snowball that the SEO had started continues to roll, and therefore the SEO should rightfully reap those benefits.
I don’t think it is impossible for an SEO to charge based on performance, and I admire those that do. There are many other pricing models that can be considered outside of what I laid out above, which some SEOs utilize. For me, however, without 100% control of the site I don’t see a workable pay for performance pricing model that is satisfactory. There is just too much that can go wrong with a campaign if the SEOs hands get tied in any way.