Value Based Pricing

This is a model that focuses on the value of outputs or outcomes rather than inputs (head hours), where the marketer places a pre-determined value on the agency outputs based on the impact of the outcomes and the relative importance this will have on business success. This approach overcomes the need for suppliers of different qualities / costs in the same category as suppliers are paid for the value of their outputs not the cost of their work.

• • This model focuses on the value of the agency outputs or deliverables rather than inputs (resource head hours). Also known as the Pricing Model.
  • The value is determined based on market pricing, strategic importance or the activity or brand and the expected ROI on the marketing activity.
  • The marketer agrees a pre-determined value on the various outputs. broken down in line with service and creative output expectations for tangible and intangible outputs or deliverables.
  • These pre-agreed values can be paid on an output basis, bundled into a project fee or be the basis for calculating an effective retainer.
  • This can be part of a hybrid model covering some agency function only. E.g. Retainer resource to approved concept.

Advantages

• Places a value on each specific deliverable.
• The level of investment can be dictated by the marketer to reflect internal ‘return on investment’ (ROI) requirements.
• Easy to budget as internal marketing can add up the value of specific requirements, but not be committed to these outputs.
• Very flexible as the marketer can focus on short term requirements.
• Allows the marketer to engage the best strategic or creative partners when a roster panel is in place, as the value based pricing is pre-agreed.

Implications

• The marketer can pay a slight premium as services are often not retained.
• Less commitment from the agency due to the absence of a retainer.
• Requires internal marketing department to be more efficient, as the agency will push back on services that are not being paid for in an output.
• Generally works best when supported by a small base account services retainer.

Read more about Value Based Fees here