How does your agency handle pricing? Let me guess, billable hours? For many agencies, price often depends on resources, including cash flow and capacity.
Don’t get me wrong—these are important factors to consider. But, they aren’t the only factors on which to base your pricing models.
At the end of the day, your clients care about value. How you deliver value is critical to developing relationships that are mutually beneficial for both teams.
For us at PR 20/20, developing a value-based pricing strategy has given our clients transparency into pricing, progress and performance—but that’s not all.
To learn how we (and other top-tiered HubSpot Partners) have transitioned away from cost-based pricing, read on for pricing strategies you can’t miss.
Cost-Based Pricing
Before diving into the ins and outs of a value-based pricing model, let’s first take a look at the origins of cost-based pricing.
HubSpot outlines three cost-based pricing models in its free ebook, Nail Your Pricing Strategy. These include, but are not limited to:
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Opaque Pricing
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Billable Hours / Line-Based Pricing
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Fixed Packaged Pricing
The above models calculate price by cost, all of which is determined by you (the marketer), with very little consideration into your client’s needs and wants. At any point in time, a client may step in and challenge your offerings based on expertise and efficiency.
Are you equipped to answer why it takes 50 hours to produce a case study? If the answer is no, it may be time to implement a new strategy.
Value-Based Pricing
According to HubSpot, “Value-based pricing is a method that quantifies your agency’s value in ways a client can relate to his or her profitability.”
At PR 20/20, we believe an agency’s value is measured in outcomes, not outputs. That’s why we run integrated marketing campaigns that produce results based on our clients’ business goals—leads, sales, etc.
But to create the foundation for a successful value-based partnership, you need to align your client’s marketing investment with his or her growth goal. In doing so, the client sees that you’re willing to ask the hard questions to make certain services support sales.
In 2012, PR 20/20 CEO and Founder, Paul Roetzer (@paulroetzer) established point pricing to ensure clients get the full value of every dollar spent, regardless of how much time it takes to deliver.
This model is built on the philosophy that if you can define the scope of a campaign or project, which is possible with nearly every marketing agency service, then you can standardize the services and assign a set point value. If executed correctly, everyone wins.
Pricing can be your differentiating factor. Ready to make the transition?
Time to Make the Transition
Transitioning to value-based pricing doesn’t happen overnight. It takes time to get internal processes in place. Plus, you have to get buy-in from team members before rolling out to clients.
When piloting value-based pricing, roll out the model to new clients first. This is an easy transition for clients who are unaware of previous pricing methodologies. As for existing clients, introduce value-based pricing when it makes the most sense.
But before making any sudden changes, quantify value in a meaningful way for your client. To do so, HubSpot offers the following advice:
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Discuss investment versus growth.
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Sell the process, not the promise.
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Share the risk.
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Don’t set goals with insufficient data.
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Don’t chase perfect data you’ll never find it.
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Set performance metrics.
These actionable insights can help you get started with value-based pricing.
To get a grasp on all things agency pricing, download HubSpot’s free ebook: Agency Pricing Strategies You Can’t Miss. You’ll get exclusive agency content that will help you nail your pricing strategy.