Agencies

Stop Selling Hours, Start Selling Value [Video]

How professional services firms can align their fees to the value they provide.

Paul Roetzer Paul Roetzer on December 21, 2017 • 4 minute read

In the agency world, we’re all familiar with the dreaded billable hour.

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I discovered early in my career that the billable-hour model was deeply flawed and agency-centric. As I wrote in The Marketing Agency Blueprint, the guiding principle to eliminating billable hours was that prices had to be value based, meaning they were to be determined based on perceived and actual value rather than the number of hours something takes to complete.

But, when The Marketing Agency Blueprint was published in December 2011, we hadn’t “cracked the code” on value-based pricing. We had used some variation of standardized services and set pricing at PR 20/20 since our founding, but we struggled to find a single value metric upon which to build a new model.

Then Came Points

Then, in late 2012, we conceived of using points. The idea was partially inspired by my interest at the time in agile software development, and heavily influenced by my love for sports.

I wanted something that felt different, but wasn’t too abstract to understand. I envisioned a pricing mechanism that subconsciously conveyed that marketing dollars were an investment, not an expense, and that every dollar spent had a purpose and represented incremental progress toward a goal.

It took more than 12 months to build and test the financial and operational models (e.g. time tracking, project management, invoicing, etc.) needed to convert the agency to points, and then we began methodically rolling it out to clients in January 2014.

Point pricing was born.

Getting Started with Point Pricing

We continue to evolve point pricing today, and I recently sat down with HubSpot Academy professor Kevin Dunn as part of HubSpot’s Agency Pricing and Packaging Series to discuss how to get started with point pricing.

Below, we’ve embedded the full interview and also included highlights and resources from the chat.

 

 

Session Highlights

In case you don’t have time to watch the full video, here’s what you need to know before getting started with point pricing.

First, consider the long term value of moving to point pricing?

In short, value-based pricing builds transparency and increases the impact of your services. It removes the inevitable scope creep that comes with billable hours, and allows clients to fully understand services rendered. The client’s choice to purchase more points translates seamlessly to higher impact for them.

We’ve continually adapted the model through the years based on time tracking data, financial performance and client feedback. You’re welcome to emulate point pricing, or use it as inspiration to develop your own value-based pricing system.

As you dive in, below are a few initial questions to ask yourself and your team.

  • What are the weaknesses of your current model? Is it focused on activities, instead of outcomes? Do clients understand how fees are determined? Is it profitable?
  • What are the agency (and client) goals for the new model? Write down what you are trying to achieve with a new model.
  • What is your agency’s value metric? A value metric is a pricing unit that aligns with the value you create for customers. PR 20/20 uses points.

Are You Ready to Move to Point Pricing in 2018?

For the first time, we’re ready to share what we’ve learned in the upcoming educational series, Point Pricing for Agencies.

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.

Each session explores the concepts and processes behind the point pricing system, and gives agencies the knowledge and guidance needed to shift to a value-based pricing model that is designed to drive productivity, profits and performance.

Visit the event page for more information. Use databox10 promo code to save 10% off registration.

We hope you can join us for the live events!

Related Reads & Resources

 

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About the author
Paul Roetzer
Paul Roetzer Paul Roetzer is founder and CEO of PR 20/20, and author of The Marketing Performance Blueprint (Wiley, 2014) and The Marketing Agency Blueprint (Wiley, 2012).
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