“The future belongs to dynamic agencies with more efficient management systems, integrated services, versatile talent, value-based pricing models, a love for data, and a commitment to producing measurable results.” — The Marketing Performance Blueprint
Pricing can have a positive impact on productivity, accountability, client performance, agency growth and profits. Yet, many agencies still rely on billable hours as the key component to their pricing strategies. This wrongly ties agency performance to outputs, instead of outcomes, and lacks the transparency clients demand.
There is an opportunity for agencies to shift to value-based pricing models that focus on client needs and goals—rather than how long it takes to complete an activity. Without hourly quotas looming over their heads, employees are empowered to focus on results and value creation. And clients aren’t left asking how their money was spent.
An Inside Look at PR 20/20’s Value-Based Pricing Model
In early 2014, PR 20/20 began rolling out a proprietary, value-based pricing model—Point Pricing™. Point Pricing™ ensures clients get the full value of every dollar spent, regardless of how much time it takes to deliver.
A point is a fixed unit of value; it is PR 20/20’s value metric. Each project within a campaign is assigned a fixed-point total (e.g. blog post = 3 points) based on value creation rather than hourly estimates. Points are allocated by campaigns and goal type (i.e. brand, leads, sales, loyalty), and therefore always tied to performance. They provide total transparency into pricing, progress, performance and resource allocation.
But it’s just one model.
Evolve Your Pricing
Agencies should evaluate their own processes, services and personnel to determine the pricing model that best meets their needs. Here are 12 questions to get you started:
- What are the weaknesses of your current model? Is it focused on activities, instead of value? Do clients not understand how fees are assessed? Is it unprofitable? Document current challenges.
- What are the agency (and client) goals for the new model? Write down what you are trying to achieve with a new model.
- What services does your agency provide that can be standardized (i.e. description, scope, price)? If services can be standardized with a defined scope, then agencies can apply a set price to them that balances time required to complete against client perceived value.
- What is your agency’s value metric? A value metric is a pricing unit that aligns with the value you create for customers. The PR 20/20 value metric is points, whereas HubSpot uses contacts, for example.
- What is the price per x (x = your value metric)? Compare that price to others in the industry and what the market is willing to pay. Is pricing competitive?
- Does the price per x vary based on service package level? You may want to consider offering your best, ideal or largest customers better value to encourage loyalty and entice others to buy at that level.
- Should you publish your pricing? Published pricing can help leads pre-qualify themselves, and establish trust and transparency upfront. But it also removes the ability to customize pricing based on opportunity.
- Will the model work within your existing project management, time tracking and accounting software? Identify the systems that will be affected and how you will update them to better integrate with new pricing.
- Are there options to beta test the model? You may find it worthwhile to test the model on a few select leads or clients first before wide-scale rollout.
- How and when do you introduce the new pricing model to clients?
- How do you ensure loyal clients receive equal or greater value in the new model? Benchmark existing prices for services by client and then compare that against the value they will receive under the new model. Adjust pricing on a per client basis, if needed, to ensure that clients don’t suffer in the transition.
- How do you benchmark and monitor impact on performance—clients, agency and personnel? Note historical data on past pricing models, and regularly assess the new model against benchmarks. Are you reaching the goals you set out to achieve? Do tweaks need to be made to further improve the model?
The deck below was presented at HubSpot’s 2015 Partner Day.
How did you determine your pricing? Share your experiences below.
