Getting Paid for Years Instead of Minutes
By Tim Williams
“If we complete a project in 30 minutes, it’s because we spent 10 years learning how to complete that project in 30 minutes. You owe us for the years, not the minutes.” So reads the hand-written insight shared by a career agency professional on a popular messaging platform. These two sentences represent the very essence of the concept of pricing based on value instead of cost.
Here’s yet another way to turn the pricing argument on its head:
NOT: “This is valuable because we spent a lot of time working on it.”
BUT: “We spent a lot of time working on it because our clients find it valuable.”
We don’t value a painting based on its size or a movie because of its length. Neither should we value the quality of a marketing solution based on how long it took the team to develop it.
Counting what counts
Nike’s famous “Just Do It” slogan was the result of an off-handed comment in an agency tissue session. The Nike swoosh logo was developed after just a few hours of work by a Portland-area graphic design student. Yet the value of these two assets runs into the billions of dollars. Should the individuals or organizations that develop these solutions therefore fix the price at a billion dollars? Of course not. But neither should they determine the price by counting the minutes or hours involved in their creation.
In most RFPs or RFIs, marketing organizations ask agencies to describe their basic approach to compensation. The unfortunate response by most agencies is weak and uninventive, something along the lines of “We meticulously track the time of those assigned to your business and keep careful records of our costs, resulting in a transparent, open book approach to compensation.” That response is wrong not only because of its defensive tone, but because it focuses on costs incurred instead of value created.
The solution? You’re overthinking it
One of the very best responses we’ve seen to this question is this single sentence: “Our fee doesn’t cover our time, but rather our experience, expertise, contacts, and industry knowledge.” That’s a brilliant distillation of what your clients really buy.
While most agency executives nod their heads in agreement with the point that agencies are compensated for the wrong thing, they also wring their hands in exasperation, thinking that the solution is hopelessly complex. Actually, the solution is startlingly simple. Stop billing for inputs (time) and start charging for outputs (deliverables), which clients actually buy. When you charge for the solution rather than the time that went into developing it, you’re able to recover the value of the “experience, expertise, contacts, and industry knowledge” referenced above.
Most agencies in the crisis communications business do this instinctively. They will often begin an engagement by asking the question, “If we can solve this problem, what would it be worth to you?” Clients are likely to respond with a number that is exponentially higher than the anticipated fee, which is exactly the point of the exercise: to frame the value of the solution.
Instead of attaching your pricing to the cost of your people’s salaries, attach it to the perceived value of the outputs they are delivering. Simply trade your schedule of hourly rates for what we call a “pricing guide” — a comprehensive catalog of the outputs and solutions delivered by your firm, each of which is assigned a minimum price. Of course not all deliverables are of equal “size,” so describe them as small, medium, and large.
Referencing the right resource
Your pricing guide is an internal document designed to help you make pricing and resourcing decisions, not something you would publish or make visible to clients. Your team can easily be retrained to reference the pricing guide instead of an hourly rate card. Such a change does not require overhauling the firm’s internal operations or disrupting internal systems. It does, however, require a significant change in the agency’s internal culture. Agency executives who have been schooled for decades in the old hourly rate system have to change their habits — and their language.
This means that the real resistance to changing your approach to pricing isn’t external but rather internal. You’ll find that the vast majority of client organizations actually prefer the output-based approach. It’s easier to understand, easier to account for, and infinitely more honest.
Getting paid for years instead of minutes is not a pipe dream. It’s immediately attainable, no matter what the size or business model of your firm. The first step is to remind yourself that you’re in charge of your own pricing strategies. Arm yourself with the output-based pricing information you need, then commit to changing the compensation conversion. First, internally — get your colleagues aligned behind a solutions-based approach to pricing. Then, engage your clients and prospects. You’ll be surprised at the reaction, which is never a straight-up “no,” but rather “tell us more.”
