Why You Should Use Value-Based Pricing for Your Agency
People say that ‘time is money’, but when it comes to the creative industry, it doesn’t always apply. Many agencies rely on hourly rates to determine the cost of a project, often not accurately reflecting your value to clients. Many agencies are now opting to move away from time-based pricing models and use value-based pricing for more projects. Our 2022 Industry Trends report found that 25% of agencies have started using value-based pricing models.
This blog will discuss value-based pricing and the benefits it offers for both agencies and clients.
What is Value-Based Pricing?
Value-based pricing ties the value of your agency’s work to the outcomes generated for the client. Compared to traditional pricing models, it better reflects the contribution you are making to the profitability of your clients. Instead of telling your clients that you charge x per hour, you ask them what results they are looking for and how much they are willing to pay to see them.
Value-based pricing offers scalability. There are only so many hours in a day, and if you rely on time-based pricing, you won’t be able to take on any more projects, and your revenue hits a ceiling. By pricing on value, you will be able to charge more as you gain experience, education, and industry knowledge as the value you provide increases.
Value-Based Pricing for Your Agency
There is no cut-and-dry model for value-based pricing. However, no matter how you approach it, your pricing should be steeped in data and come with clear performance metrics. Ensure that you honestly evaluate your experience level, skills, and how much you can realistically increase your client’s revenue.
There is a common fear that projects can quickly go beyond the original scope without billable hours as a guideline. To avoid this, clearly define the project’s scope from the beginning and invest in agency management software to keep track of how many hours you are spending working on it.
How Value-Based Pricing Effects Client Relationships
Clients don’t always know what they need to reach their goals. It’s the agency’s job to build a strategy and add their layer of expertise to a project. However, traditional pricing models leave too much room for clients to request deliverables a la carte, diminishing your ability to build and execute an effective strategy. Value-based pricing focuses on outcomes, which builds trust with your client as you work towards a shared goal. With flat-rate pricing, clients may feel that projects are rushed to completion to increase profitability for the agency. With value-based pricing, agencies must deliver high-value work that justifies the cost.
When is Value-Based Pricing Appropriate?
While value-based pricing offers many benefits, it is not suitable for every project. Value-based pricing is most appropriate for one-off projects like website development, branding, and corporate communications where there is one central deliverable with which to measure success.
Traditional pricing models are still best for long-term projects with multiple moving parts. For example, a year-long inbound program that includes many deliverables (blogs, white papers, PPC, and SEO) contains too much breadth and variability to use value-based pricing accurately.
If your agency solely relies on hourly rates, now is a great time to explore value-based pricing. It may not suit every project, but it is a handy tool to have on hand. It can help you grow your agency, improve client relationships, and stand out amongst competitors when executed properly.