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New Revenue Models for Agencies

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A top-line overview of the principles and practices of progressive pricing strategies for agencies, presented by Tim Williams of Ignition Consulting Group.

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New Revenue Models for Agencies

  1. 1. NEW REVENUE MODELS YOU CAN USE STARTING TOMORROW Presented by Tim Williams, Ignition Consulting Group
  2. 2. “We need a new website.”
  3. 3. SKIP THIS STEP + $300 million in online sales
  4. 4. AVERAGE AGENCY PROFIT MARGINS 1960s 2019 30% 9%
  5. 5. THE 20+ YEAR DECLINE IN AGENCY PRICING Study by Farmer & Company MORE WORK FOR LESS MONEY
  6. 6. New ways to think about agency remuneration. 7
  7. 7. Start using the language of value in place of the language of cost. 1
  8. 8. “All transformations are linguistic.” WERNER ERHARD FOUNDER OF “EST” LANGUAGEIS THE PRECURSOR TO BEHAVIOR CHANGE
  9. 9. LANGUAGE OF COST LANGUAGE OF VALUE Cost Estimates Hours Rates Billable Time Labor Utilization Time of Staff FTE’S Price Talent Results Solutions Outcomes Objectives Value Metrics of success Accountability LANGUAGEIS THE PRECURSOR TO BEHAVIOR CHANGE
  10. 10. Start charging for what you really sell. 2
  11. 11. What is the inventory of a professional services firm?
  12. 12. Paula Scher Principal, Pentagram
  13. 13. Start pricing outputs (or outcomes) instead of inputs. 3
  14. 14. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects
  15. 15. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects 3,200 hours of client service time 800 hours of account planning time 6,400 hours of creative time 1,500 hours of production time Inputs
  16. 16. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects Outputs Strategic plans Recommendations Brand identity Campaign elements Digital platforms Activations Social postings Earned media placements Analytics reports Etc.
  17. 17. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects Outcomes Store traffic Leads Trial Webpage views Online registrations Brand awareness Brand fame New customers Repeat purchase Incremental sales Etc.
  18. 18. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects VALUE TO CLIENT
  19. 19. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects PRICE =Utility of outputs and/or Impact of outcomes =Cost of inputs
  20. 20. Inputs Hours, time of staff Outputs Deliverables, work product Outcomes Results, effects Visible to AgencyVisible to Client
  21. 21. Start presenting a better alternative to the hourly rate. 4
  22. 22. XNOT A RATE CARD DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES USAGE-BASED AGILE SPRINTS A PRICING STACK
  23. 23. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES USAGE-BASED AGILE SPRINTS
  24. 24. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED
  25. 25. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES USAGE-BASED AGILE SPRINTS
  26. 26. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES USAGE-BASED AGILE SPRINTS
  27. 27. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED
  28. 28. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED LUXURY CAR BRAND $57 for every car sold in North America
  29. 29. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED
  30. 30. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED
  31. 31. DYNAMIC PRICING EQUITY PROJECT POINTS SUBSCRIPTION-BASED OUTPUT-BASED OUTCOME-BASED FIXED PRICE OPTIONS ROYALTIES AGILE SPRINTS USAGE-BASED
  32. 32. Start diversifying your revenue streams. 5
  33. 33. AN EFFECTIVE INVESTMENT PORTFOLIO?
  34. 34. UNIFORM PRICING Cost-based calculations based on a formula that creates a self-imposed ceiling on profit AN EFFECTIVE PRICING PORTFOLIO VARIABLE PRICING Employing varying pricing approaches based on customer value instead of agency cost VS.
  35. 35. Single Approach Portfolio Diversified Portfolio Client 1: Luxury automobile brand Fees based on hourly rates $50 per car sold Client 2; Mobile phone accessory brand Fees based on hourly rates Royalty on sales Client 3: Retail store brand Fees based on hourly rates Fixed price for fixed scope Client 4: Cosmetics brand Fees based on hourly rates Licensing fees for web video series owned by agency Client 5: Financial services brand Fees based on hourly rates Outcome-based pricing based on success metrics UNIFORM PRICING VARIABLE PRICING Taking a diversified approach to agency compensation
  36. 36. Start presenting options every time you quote a price. 6
  37. 37. What if Starbucks offered only one size of coffee?
  38. 38. Buyers need context in order to ascertain value.
  39. 39. Subscribe to software. Book a hotel room. Choose a ride. Select a cable plan. Smart marketers always offer options.
  40. 40. AIRLINE WEB DEVELOPMENT ASSIGNMENT
  41. 41. LIQUOR BRAND DIGITAL CAMPAIGN
  42. 42. RETAIL CLOTHING BRAND BRAND IDENTITY ASSIGNMENT
  43. 43. ALEXA SKILLS APP DEVELOPMENT COMPREHENSIVE OPTION BALANCED OPTION BASELINE OPTION 7 high-level themes 7 high-level themes 7 high-level themes Robust decision tree / Error support Basic decision tree / Error support Basic decision tree / Error support CMS implementation CMS implementation — Skills card integration Skills card integration Basic skills implementation Recorded responses Recorded responses Text to voice responses Testing Testing Testing Location details integration Location details integration — Custom landing page Product detail page Product detail page Analytics Analytics Analytics Digital banner campaign (1 concept) Digital banner campaign (1 concept) Digital banner campaign (1 concept) Email design Email design Email design 200,000 140,000 80,000
  44. 44. Program Elements Number and nature of program elements Degree of customization Number of versions Number of revisions Origination vs. adaptation International versions, translations Application to other channels Use of specialized agency services Insights Development Secondary research Primary research Customer insights analysis Strategic plans and briefs Optimization Pre-testing Redevelopment and redeployment Measurement Analytics Business intelligence dashboard Data visualization Coordination and Collaboration Special presentations to client management Special collaboration with other agencies Tie-ins with other sponsors or programs Hand-offs to internal agency Level of access to agency talent Implementation Peak vs. off-peak production Degree of client help or involvement Embedding agency staff at client Ability to offshore production Digital asset management Asset and data archiving Contract Terms Payment terms Term and termination period Indemnification and warranties Clearance and legal services Talent fee management Rights management Data security Intellectual Property Usage in other geographies Usage in other media channels Usage in non-advertising applications Usage post-termination MANY ELEMENTS TO CONSIDER WHEN DEVELOPING OPTIONS
  45. 45. CONSTRUCTING OPTIONS 1 OPTIONS CONFIGURATOR Objectives & Outcomes 2 Insights & Strategy 3 Solutions & Prototypes 4 Creation & Development 5 Production & Deployment 6 Analysis & Optimization Option 1 Option 2 Option 3 CHOICE ARCHITECTURE IN AGENCY PRICING
  46. 46. Start separating different classes of value. 7
  47. 47. PERCEIVED VALUE TO THE CLIENT Production Distribution Implementation Strategy Concepts Insights Analytics Measurement Optimization THE SMILE CURVE
  48. 48. Design Build Solutions Deliverables Ideation Execution MAGIC LOGIC UNIT-BASED PRICINGCUSTOMER-BASED PRICING
  49. 49. LOGIC UNIT-BASED PRICING
  50. 50. COST PRICE VALUE SELLER’S PROFIT (Agency) BUYER’S PROFIT (Client) Start negotiating something both parties want to maximize, not minimize.
  51. 51. Welcome to the Pricing Revolution twilliams@ignitiongroup.com @TimWilliamsICG linkedin.com/in/TimWilliamsICG

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