Point Pricing Basics: Q&A on Setting Up Your Own Value-Based Pricing System [Session 1]

By | August 14, 2018
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Presented by HubSpot, Point Pricing for Agencies is a three-course, on-demand series featuring more than a dozen exclusive resources, including pricing strategy documents, tools and templates that your agency can use to establish, launch and evolve its own point pricing model.

Point Pricing Now that you’ve taken a deep dive into the origins of point pricing, it’s time to eliminate billable hours for good, right? Not exactly. Odds are you still have some questions, and that’s OK! 

To help agencies (like yours) put point pricing into practice, we’ve curated all questions asked during the Point Pricing for Agencies series. Dozens of agencies have taken the live and on-demand series, all the while collaborating to fine-tune the system. In this post, we’ll cover Q&A from Session One: Introduction to Point Pricing. Stay tuned to Marketing Agency Insider for more insight into the remaining sessions.

In no time, you’ll have what it takes to effectively launch your own value-based pricing model, driving profits in the process.

Q: Why is point pricing beneficial?

A: The billable-hour model is a flawed, agency-centric system that wrongly ties agency performance to outputs, not outcomes. Point pricing ensures clients get the full value of every dollar spent, regardless of how much time it takes to deliver. Points provide total transparency into pricing, progress, performance and resource allocation. 

Q: Is the point pricing model profitable?

A: In rolling out a new pricing model, it’s imperative to show existing clients that they will receive the same, if not greater value, in the new system. While legacy clients may be grandfathered in at a lower price per point, they still represent a large part of recurring revenue.

For new clients, price per point is an opportunity to drive profitability at peak efficiencies. In most cases, you’ll be able to determine prices by simply calculating estimated hours multiplied by hourly revenue target (HRT). But you’ll also want to take into account other variables, including costs, perceived value, builders and drivers, loss leaders and service levels.

Regardless of what you charge, point pricing can be extremely profitable when administered effectively and efficiently. To ensure consistent profitability, set benchmarks and monitor financial performance as you go.

Q: If you’re going to pick a fixed unit, why not just use dollars?

A: Dollars are variable. Points are fixed.

At PR 20/20, every client is charged the same number of points per project. However, not every client pays the same price per point. While our rates are published online, legacy clients may actually pay less than the standard rate. By structuring pricing by points instead of dollars, we’re able to drive profits without having to lower the value metric. 

There’s also the psychology of it all. Dollars are seen as an expense. If you charge a client $450 for a blog post, they will think of the project as an expense. Points—at least more subconsciously—can be seen as an investment, a progression towards a goal. They’re a method to gamify service pricing. Points are building toward a shared goal, versus associating each and every service with a dollar amount.

Q: How do you scope add-on projects in addition to monthly service packages?

A: At PR 20/20, any service requested by the client or proposed by our agency outside of the original scope is budgeted, approved and billed as add-on services. The same standard payment terms apply for add-on services. Thus, if you charge $150 per point, the baseline for add-on projects is $150 per point.

We include this in our terms of service contract from the start to address it early on. We also encourage and reward clients with add-on growth and retention bonuses, as listed on the pricing page. For example, a client earns one free point for every 10 add-on points purchased. 

>> Note: Materials like a sample Terms of Service are part of the paid Point Pricing for Agencies offering. Click here for other templates and resources.

Q: Should points be separated from time and effort, and just linked to value?

A: Yes, that’s the whole idea behind the value-based pricing methodology. Charge for the value of the service, not the time input into delivery. That said, do what you can to factor time as an operating cost when determining value.

With any project, it’s important to take the value variable into account. Ask yourself: “What can we do that’s immensely valuable for clients, but doesn’t take a ton of time and effort on our end?”

Let’s use the example of online chat. If a client is willing to pay full price for a strategy on how to integrate online chat, it’s possible 80% of your client base may also find value in this deliverable. If that’s the case, you can standardize services without having to adjust the point pricing model.

While the initial strategy may have taken eight hours to complete, the second time around may only take three or four. As you refine these strategies, you can continue to charge the same amount of points across clients, saving your team time, money and effort with each new deliverable. While time input may decrease, the value of the end product has not changed. 

Register for Point Pricing for Agencies Today

At PR 20/20, we’re committed to helping agencies establish, launch and evolve point pricing models for continued success.

If you haven’t had a chance to watch the on-demand educational series, click here to register. You’ll get access to all webinar recordings and materials, plus downloadable slide decks, templates, worksheets and more.

Are you a HubSpot partner agency? Get access to your unique discount code here.

Point Pricing for Agencies