The agency ‘Cost-Plus’ time based model has largely remained the same for decades. Average agency profit margins have gone from 30% in the 1960s to 9% in 2018 (Kingston Smith: Marketing Monitor, 2018).
Agencies, now more than ever, need to be better at:
1. Articulating the value they create.
2. Charging accordingly.
Value based pricing requires the right match between client objectives and the agency’s differentiated or distinctive capabilities.
The starting point are quantified targets for the outcomes the client seeks.
The agency and client must then agree the monetary value of achieving these outcomes (to the client) or clearly defined non-financial targets.
This step requires the agency to identify which of their services contribute strategically and which are simply implementation.
Risk vs. Reward
The risk / reward appetite of agency and client must be in sync.
This alignment is essential.
It helps determine how value is pitched and allows for default to a simpler pricing model where a match is not achieved.
In practice making a value-based pricing strategy work means developing two or three core pricing models, each of which is easily customised to suit different clients and campaigns.
Otherwise the development work would have to be done afresh in each case.
We bring 35+ years of combined experience in defining value in sectors ranging from financial services to media, design and advertising.
This experience allows us to help you view the challenge of value based pricing from the client perspective of performance and develop offers accordingly.
A review of past work, your core services and client base enables us to help you:
- Identify the starting point for a range of alternative pricing approaches from simple, target based reward structure to a sophisticated positioning adjustment
- Explore your risk tolerance in different contexts and boundary your negotiations
- Develop positioning, offers and tools to facilitate value based conversations with clients
- Structure your value management team and refine new business processes
James has been helping agencies attract and win more clients for over 15 years. Prior to setting up The Growth Consultancy, he held board-level commercial and client relationships roles in the agency world.
David has provided expert advice on innovation and value to corporates and early stage companies for over 20 years. The core of his work is centred on structuring strategy around maximising value to the customer.