Point Pricing: An Inside Look at PR 20/20's Value-Based Pricing Model (#INBOUND15)
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In his 2012 book, The Marketing Agency Blueprint, Roetzer advocated for the end to billable hours, and the need for agencies to move to value-based pricing that directly ties activities to outcomes. This session is an inside look at his efforts the last four years to discover PR 20/20's "value metric," and build an entirely new pricing system. Roetzer will share origins of the concept, challenges faced in constructing the model, lessons learned in rolling it out to clients, and tips for how agencies can reimagine their own pricing models to drive growth and unlock profits.
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Point Pricing: An Inside Look at PR 20/20's Value-Based Pricing Model (#INBOUND15)
- 1. INBOUND15! ! Point PricingTM ! An Inside Look at PR 20/20’s Value-Based Pricing Model! ! Paul Roetzer (@paulroetzer)! Founder & CEO, PR 20/20! Creator, Marketing Agency Insider! Author, The Marketing Performance Blueprint (2014) & The Marketing Agency Blueprint (2012)!
- 3. @paulroetzer #INBOUND15!! www.pr2020.com I spent the first six years of my marketing agency career chasing hourly quotas instead of results.
- 5. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer Yes, we cared if the client was happy and successful, but the fundamental economic driving force behind the firm's existence, and my career potential, was the billable hour.
- 6. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer I discovered early on that the billable-hour model was a flawed, archaic, agency-centric system that wrongly tied agency performance to outputs, not outcomes.
- 7. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer In 2004, four years into my career, I became highly motivated to build a more efficient and profitable solution that shifted the focus to client needs and goals.
- 8. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer The idea was centered on making services tangible, with clearly defined costs, features and benefits, almost like buying a product off a retail shelf or signing up for a software service.
- 9. @paulroetzer #INBOUND15!! www.pr2020.com My theory was that if clients understood exactly what they were getting, and agreed ahead of time what it was worth, we could remove the mystery from the equation and focus on delivering value and results.
- 10. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer The problem was that the billable-hour model was the only one I had ever known.
- 11. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer How would I build an entirely new financial model and productize a service business?
- 12. @paulroetzer #INBOUND15!! www.pr2020.com “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.”
- 14. @paulroetzer #INBOUND15!! www.pr2020.com estimated hours (at peak efficiency) perceived value builder vs. driver hourly revenue target costs loss leader service level value-based pricing variables
- 15. @paulroetzer #INBOUND15!! www.pr2020.com the price of inefficiency a press release! Professional A Hourly rate = $150 Hours to complete = 3 Cost = $450
- 16. @paulroetzer #INBOUND15!! www.pr2020.com the price of inefficiency a press release! Professional B Original draft ($150/hr) = 5 hrs or $750 Sr Assoc edit/review ($250/hr) = 1.25 hrs or $312.50 Edits ($150/hr) = 0.50 hrs or $75 Sr Assoc final edit ($250/hr) = 0.50 or $125 Total = 7.25 hrs or $1,262.50 Professional A = 3 hrs @ $450 Professional B = 7.25 hrs @ $1,262.50
- 17. #INBOUND15!! www.pr2020.com @paulroetzer The agency, not the client, should pay for professional development and inefficiencies.
- 21. @paulroetzer #INBOUND15!! www.pr2020.com builders are recurring campaigns designed to create and expand assets @paulroetzer
- 22. @paulroetzer #INBOUND15!! www.pr2020.com image: Pedro Moura Pinheiro drivers are campaigns designed to capitalize on existing assets to accelerate success @paulroetzer
- 23. #INBOUND15!! www.pr2020.com @paulroetzer origins of the point pricingtm model!
- 27. @paulroetzer #INBOUND15!! www.pr2020.com Started working on a marketing intelligence engine in early 2012. Marketing Score became the minimum viable product (mvp)
- 28. @paulroetzer #INBOUND15!! www.pr2020.com Looked to agile development models for inspiration on building software and standardizing recommendations using artificial intelligence. @paulroetzer
- 29. @paulroetzer #INBOUND15!! www.pr2020.com “Lean thinking defines value as providing benefit to the customer; anything else is just waste.” “As in any lean transformation, existing systems and tools often need to be reinvented.” seeking inspiration
- 30. @paulroetzer #INBOUND15!! www.pr2020.com In practice, many teams use a relative size measure such as story points or ideal days. In Scrum, it’s not about how much work you start; it’s about what customer-valuable work you finish. What we are trying to avoid is work that adds no short-term or long-term economic value. seeking inspiration Epics, Stories and Sprints
- 31. @paulroetzer #INBOUND15!! www.pr2020.com Epics, Stories and Sprints were too abstract, so we simplified the concepts for marketers. Epics = Projects Stories = Tasks Sprints = Campaigns seeking inspiration
- 34. @paulroetzer #INBOUND15!! www.pr2020.com a value metric is a pricing unit that aligns with the value you create for customers.!
- 43. @paulroetzer #INBOUND15!! www.pr2020.com 2014! Copyright © 2015 PR 20/20. ! Point PricingTM is a PR 20/20 trademark. All rights reserved.! @paulroetzer
- 44. @paulroetzer #INBOUND15!! www.pr2020.com Copyright © 2015 PR 20/20. ! Point PricingTM is a PR 20/20 trademark. All rights reserved.! @paulroetzer
- 45. #INBOUND15!! www.pr2020.com @paulroetzer inside the point pricingtm model! Point PricingTM is a PR 20/20 trademark. All rights reserved.!
- 46. @paulroetzer #INBOUND15!! www.pr2020.com (it’s our value metric) ! a point is a fixed unit of value.!
- 47. @paulroetzer #INBOUND15!! www.pr2020.com Point PricingTM ensures clients get the full value of every dollar spent, regardless of how much time it takes to deliver. point pricing basics
- 48. @paulroetzer #INBOUND15!! www.pr2020.com Each project within a campaign is assigned a fixed- point total (e.g. blog post = 3 points) based on value creation rather than hourly estimates. Points are allocated by campaigns and goal type (i.e. brand, leads, sales, loyalty), and therefore always tied to performance. Points provide total transparency into pricing, progress, performance and resource allocation. point pricing basics Every point has a purpose.
- 50. Campaigns Points Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Foundation 162 71 57 34 0 0 0 0 0 0 0 0 0 Lead Gen Strategy (Audience #1) 21 21 Brand Analysis 21 21 Marketing Budget Analysis 8 8 HubSpot Demo & Strategy 5 5 Contact Database Analysis 3 3 Blog Editorial Calendar 13 13 Lead Conversion Strategy 21 21 HubSpot Integration & Onboarding 13 13 Website Conversion Optimization Strategy 5 5 Agency Matrix Management Strategy 5 5 Google Analytics Dashboard Setup 8 8 Social Strategy Review 5 5 Brand Awareness Strategy 34 34 Lead Gen (Audience #1) 375 0 50 25 15 60 25 15 60 25 15 60 25 Lead Gen Campaign #1 100 50 25 15 10 Lead Gen Campaign #2 100 50 25 15 10 Lead Gen Campaign #3 100 50 25 15 10 Lead Gen Campaign #4 75 50 25 Lead Conversion 300 0 0 50 25 15 60 25 15 60 25 15 10 Lead Conversion Campaign #1 100 50 25 15 10 Lead Conversion Campaign #2 100 50 25 15 10 Lead Conversion Campaign #3 100 50 25 15 10 Brand Building 327 16 16 16 31 31 31 31 31 31 16 16 16 Blog Posts (4 per month) 192 16 16 16 16 16 16 16 16 16 16 16 16 Brand Building Campaign #1 45 15 15 15 Brand Building Campaign #2 45 15 15 15 Brand Building Campaign #3 45 15 15 15 Management 120 10 10 10 10 10 10 10 10 10 10 10 10 Monthly Campaign Scorecard Report 60 5 5 5 5 5 5 5 5 5 5 5 5 Monthly GamePlan Review Session 24 2 2 2 2 2 2 2 2 2 2 2 2 Weekly Activity Reports 36 3 3 3 3 3 3 3 3 3 3 3 3 Client Calls and Emails (Included) — — — — — — — — — — — — — 12-Month TOTAL Estimated Points 1,284 97 133 135 81 116 126 81 116 126 66 101 61 MONTHLY Budget @ $140/point $14,980 sample 12-‐month program Chart shows Point values for hypothetical 12-month program!
- 51. @paulroetzer #INBOUND15!! www.pr2020.com sample content campaign Project Points Ebook with Design 55 Landing Page 2 Email Nurturing (x4) 8 Case study 8 Blog Post (x3) 12 Social Shares 2 Social Ads 13 TOTAL 100
- 52. @paulroetzer #INBOUND15!! www.pr2020.com www.pr2020.com every campaign is a series of projects designed to achieve a goal sample campaign center
- 55. @paulroetzer #INBOUND15!! www.pr2020.com sample point pricing value chart Standard Point Pricing project value charts are built into online client centers
- 56. @paulroetzer #INBOUND15!! www.pr2020.com assigning point values Agencies can’t accurately predict hours due to variables such as professional competency, focus, efficiency and forecaster bias. The higher the number, the more uncertain the forecast. The Fibonacci sequence reflects this uncertainty.
- 57. @paulroetzer #INBOUND15!! www.pr2020.com assigning point values The sequence represents a set of numbers that increases roughly based on a fixed ratio of 1.618—the golden ratio. Each subsequent number is the sum of the previous two— 1, 2, 3, 5, 8, 13, 21, 34, 55 . . .
- 58. @paulroetzer #INBOUND15!! www.pr2020.com We’re still very early in the process, with significant iterations in the works . . . @paulroetzer
- 59. @paulroetzer #INBOUND15!! www.pr2020.com But we can already see positive impact on productivity, accountability, client performance, agency growth and profits. @paulroetzer
- 60. #INBOUND15!! www.pr2020.com @paulroetzer considering a pricing model transformation?!
- 61. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What are the weaknesses of your current model?
- 62. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What are the agency (and client) goals for the new model?
- 63. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What services does your agency provide that can be standardized (i.e. description, scope, price)?
- 64. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What is your agency’s value metric?
- 65. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What is the price per X (X = your value metric)?
- 66. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Does the price per X vary based on service package level?
- 67. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Should you publish your pricing?
- 68. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Will the model work within your existing project management, time tracking and accounting software?
- 69. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Are there options to beta test the model?
- 70. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations How and when do you introduce the new pricing model to clients?
- 71. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations How do you ensure loyal clients receive equal or greater value in the new model?
- 72. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations How do you benchmark and monitor impact on performance— clients, agency and personnel?
- 73. @paulroetzer #INBOUND15!! www.pr2020.com “The future belongs to dynamic agencies with more efficient management systems, integrated services, versatile talent, value-based pricing models, a love for data, and a commitment to producing measurable results.”
- 74. paul roetzer, @paulroetzer CEO | PR 20/20 creator | Marke<ng Score & Marke<ng Agency Insider author | The Marke)ng Performance Blueprint (Wiley, 2014) & The Marke)ng Agency Blueprint (Wiley, 2012) www.pr2020.com
- 75. INBOUND15! Remington Begg! CEO & Founder! Impulse Creative! Panel Discussion: Room 108! Carman Pirie! Principal! Kula Partners! 11:45 AM – 12:30 PM !