Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Point Pricing: An Inside Look at PR 20/20's Value-Based Pricing Model (#INBOUND15)

5,297 views

Published on

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.

Published in: Marketing

Point Pricing: An Inside Look at PR 20/20's Value-Based Pricing Model (#INBOUND15)

  1. 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)!
  2. 2. #INBOUND15!! www.pr2020.com @paulroetzer
  3. 3. @paulroetzer #INBOUND15!! www.pr2020.com I spent the first six years of my marketing agency career chasing hourly quotas instead of results.
  4. 4. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer “Strive for 5”
  5. 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. 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. 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. 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. 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. 10. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer The problem was that the billable-hour model was the only one I had ever known.
  11. 11. @paulroetzer #INBOUND15!! www.pr2020.com @paulroetzer How would I build an entirely new financial model and productize a service business?
  12. 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.”
  13. 13. #INBOUND15!! www.pr2020.com @paulroetzer value-based pricing!
  14. 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. 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. 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. 17. #INBOUND15!! www.pr2020.com @paulroetzer The agency, not the client, should pay for professional development and inefficiencies.
  18. 18. @paulroetzer #INBOUND15!! www.pr2020.com inefficiency factors distractions
  19. 19. @paulroetzer #INBOUND15!! www.pr2020.com inefficiency factors time tracking
  20. 20. @paulroetzer #INBOUND15!! www.pr2020.com inefficiency factors motivation
  21. 21. @paulroetzer #INBOUND15!! www.pr2020.com builders are recurring campaigns designed to create and expand assets @paulroetzer
  22. 22. @paulroetzer #INBOUND15!! www.pr2020.com image:  Pedro  Moura  Pinheiro   drivers are campaigns designed to capitalize on existing assets to accelerate success @paulroetzer
  23. 23. #INBOUND15!! www.pr2020.com @paulroetzer origins of the point pricingtm model!
  24. 24. @paulroetzer #INBOUND15!! www.pr2020.com 2006! @paulroetzer
  25. 25. @paulroetzer #INBOUND15!! www.pr2020.com 2008! @paulroetzer
  26. 26. @paulroetzer #INBOUND15!! www.pr2020.com 2010! @paulroetzer
  27. 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. 28. @paulroetzer #INBOUND15!! www.pr2020.com Looked to agile development models for inspiration on building software and standardizing recommendations using artificial intelligence. @paulroetzer
  29. 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. 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. 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
  32. 32. #INBOUND15!! www.pr2020.com @paulroetzer the value metric
  33. 33. @paulroetzer #INBOUND15!! www.pr2020.com source: Price Intelligently
  34. 34. @paulroetzer #INBOUND15!! www.pr2020.com a value metric is a pricing unit that aligns with the value you create for customers.!
  35. 35. @paulroetzer #INBOUND15!! www.pr2020.com eggs = eggs!
  36. 36. @paulroetzer #INBOUND15!! www.pr2020.com
  37. 37. @paulroetzer #INBOUND15!! www.pr2020.com
  38. 38. @paulroetzer #INBOUND15!! www.pr2020.com
  39. 39. @paulroetzer #INBOUND15!! www.pr2020.com
  40. 40. @paulroetzer #INBOUND15!! www.pr2020.com
  41. 41. @paulroetzer #INBOUND15!! www.pr2020.com
  42. 42. @paulroetzer #INBOUND15!! www.pr2020.com 2010! @paulroetzer
  43. 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. 44. @paulroetzer #INBOUND15!! www.pr2020.com Copyright © 2015 PR 20/20. ! Point PricingTM is a PR 20/20 trademark. All rights reserved.! @paulroetzer
  45. 45. #INBOUND15!! www.pr2020.com @paulroetzer inside the point pricingtm model! Point PricingTM is a PR 20/20 trademark. All rights reserved.!
  46. 46. @paulroetzer #INBOUND15!! www.pr2020.com (it’s our value metric) ! a point is a fixed unit of value.!
  47. 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. 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.
  49. 49. @paulroetzer #INBOUND15!! www.pr2020.com builders! 60%! drivers! 40%! sample monthly gameplan
  50. 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. 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. 52. @paulroetzer #INBOUND15!! www.pr2020.com www.pr2020.com every campaign is a series of projects designed to achieve a goal sample campaign center
  53. 53. @paulroetzer #INBOUND15!! www.pr2020.com www.pr2020.com sample campaign center
  54. 54. @paulroetzer #INBOUND15!! www.pr2020.com www.pr2020.com sample campaign center
  55. 55. @paulroetzer #INBOUND15!! www.pr2020.com sample point pricing value chart Standard Point Pricing project value charts are built into online client centers
  56. 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. 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. 58. @paulroetzer #INBOUND15!! www.pr2020.com We’re still very early in the process, with significant iterations in the works . . . @paulroetzer
  59. 59. @paulroetzer #INBOUND15!! www.pr2020.com But we can already see positive impact on productivity, accountability, client performance, agency growth and profits. @paulroetzer
  60. 60. #INBOUND15!! www.pr2020.com @paulroetzer considering a pricing model transformation?!
  61. 61. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What are the weaknesses of your current model?
  62. 62. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What are the agency (and client) goals for the new model?
  63. 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. 64. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What is your agency’s value metric?
  65. 65. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations What is the price per X (X = your value metric)?
  66. 66. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Does the price per X vary based on service package level?
  67. 67. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Should you publish your pricing?
  68. 68. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Will the model work within your existing project management, time tracking and accounting software?
  69. 69. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations Are there options to beta test the model?
  70. 70. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations How and when do you introduce the new pricing model to clients?
  71. 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. 72. @paulroetzer #INBOUND15!! www.pr2020.com pricing model considerations How do you benchmark and monitor impact on performance— clients, agency and personnel?
  73. 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. 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. 75. INBOUND15! Remington Begg! CEO & Founder! Impulse Creative! Panel Discussion: Room 108! Carman Pirie! Principal! Kula Partners! 11:45 AM – 12:30 PM !

×