What is value-based pricing?
It’s a buyer-centric pricing strategy where work is priced based on the value it delivers to the buyer as opposed to the seller’s time, costs, margins, or historical prices. In practice, it’s more than a pricing model. It’s an approach to business that aligns the financial interests of client and agency to reduce risk and yield a greater return on marketing investments. The only requirement from the buyer is a willingness to share performance data at the outset. Talk to us to see if this approach makes sense for your business.
“In the final analysis, time is not money (or value) and customers do not buy hours. Pricing by the hour is causing professional firms to focus on the wrong things, with deleterious consequences.” – Ron Baker, Implementing Value Pricing
For each project, Duffy Agency strives to offer clients pricing and payment options, not a take-it-or-leave-it, cookie-cutter proposition. To do this we start each project with a value discussion to agree on a price and payment terms at the outset. You’ll notice this discussion is focused on your results and the value you receive as opposed to our costs and the time we spend. This discussion will establish:
- How the project is intended to contribute to your business goals
- The objectives of the project and how will they be measured
- Scope, timing and expectations for how the project will be run
- Ways to align the financial interests of the client and agency
- Pricing based on the value the work provides, not agency costs
- Price options that let you choose your desired risk level
- Payment terms based on a range of options
Performance-based (also called results-based pricing) is a type of value-based pricing where value is based on actual performance metrics. In some cases, the metrics can be sales results, while in others, they may be measured by precursors to sales such as awareness, engagement, or audience metrics. This is the preferred method when results are fairly immediate and easily measured. Duffy Agency offers performance-based pricing as part of our Moso Growth Program.
Not necessarily. Value-based agreements aren’t intended to reduce marketing investment. They are intended to increase the return on that investment by reducing risk, waste, and disparity between the financial interests of the buyer and seller. While value-based pricing can make budgets go further, it still requires an investment that is proportional to the objective being sought.
Yes. Duffy Agency customizes value-based agreements on a case-by-case basis. There are two components to these agreements: the price and the payment terms.
- To arrive at a price, we agree to the value that will be generated by the activity. Typically, we price to ensure our client receives at least three to ten times the value they invest.
- For payment terms, we offer several approaches. Some agreements involve conventional flat-fee payments, while others involve installment payments, performance-based fees, commissions, equity, or a combination thereof.
