My solution was to standardize services and apply set prices based on a number of variables. In essence, I believed it was possible to achieve economies of scale in the production and delivery of services, much like a manufacturing company does with products. If we could lower the cost of services over time by improving efficiency, then, in theory, we could increase profits, possibly even above industry benchmarks.
Set prices would enable us to bundle services into packages designed to fit specific market segments, such as franchise owners, and it would dramatically reduce the time spent building new business and account development proposals. Plus, we would be able to make marketing agency services more affordable and effective to the underserviced market of small businesses in the United States and around the world. Everyone wins. It seemed so obvious, but I had no idea how to actually build a financially viable business model. So I set out on a 21-month journey from February 2004 to November 2005 to make it happen.
Value-based pricing
I took the approach that if you can define the scope, which is possible with nearly every marketing agency service, then you can standardize the service and assign a set price. Although some services, such as website projects and marketing plans, are more complex than others, the vast majority of agency services can be standardized by clearly defining the scope of what is to be done
The marketing agency blueprint
Sample Standardized Service Standardized services, such as the following case-study example, commonly include description, features, benefits, and set price: Provide prospects and customers with powerful examples of how your products or services deliver value and results. Case studies are ideal website content for your visitors, make great marketing and sales tools, and can be used as editorial submissions.
What Makes a Good Case Study?
Satisfied, recent customer.
Unique or high-profile application (company, product, event, etc.).
Clearly defined challenge and solution.
Impressive, quantifiable results.
Innovative or customized solution.
Hi-res photos are available.
Customer resources are willing and able to be interviewed.
Limited legal concerns with trade secrets/proprietary information disclosure.
Story highlights key product/service benefits (speed, efficiency, productivity, profitability)
What’s Included?
Following a standard outline of challenge, solution, and results, PR 20/20’s professional marketing copywriters will craft a case study for publishing on your corporate website, blog, or media room.
Approximately 700 words.
Optimized with priority keywords and written with buyer personas’ key needs in mind.
Additional fees apply for graphic design and strategic planning if you plan to use case studies in print or PDF form as sales support. Average turnaround: 15–20 business days.
Price ¼ $1,000.
The guiding principle was that set prices had to be value-based, meaning they were to be determined based on perceived and actual value rather than the number of billable hours something takes to complete. So if a trifled brochure was priced at $2,500, then it did not matter if it took 15 or 35 hours to produce, the client would pay $2,500. The burden was on the agency to build systems and processes and put the right talent in place, to profitably deliver at the set price.
In the traditional billable-hour model, the basic formula to determine cost is hourly rag billable hours. It is simple, but as we have seen it is also inefficient and favors the agency’s needs over the client’s. On the other hand, the value-based pricing model takes seven primary variables into account
- Estimated hours.
- Hourly revenue target (HRT).
- Costs. 4. Perceived value.
- Builder vs. driver.
- Loss leader.
- Service level.
Last word
In most cases, you will be able to determine prices by simply calculating estimated hours HRT, but you want to take the other variables into account before finalizing.
