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Hacking Agency Compensation
The document discusses pricing strategies and compensation for agencies, highlighting the impact of variable costs, revenues, and pricing on profits. It emphasizes the importance of focusing on value instead of costs, suggesting practical methods for changing pricing approaches and enhancing client-agency relationships. Key recommendations include aligning economic incentives, diversifying compensation portfolios, and utilizing transparent discussions about value and expected outcomes.
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Hacking Agency Compensation
- 1. HACKING AGENCY COMPENSATION Presented byTim Williams Ignition Consulting Group www.ignitiongroup.com
- 2. WHICH LEVER SHOULDYOU PULL? VARIABLE COSTS REVENUES PRICING A 1% improvement (reduction) in variable costs will improve profit by: 4% A 1% improvement in volume (revenues) will improve profit by: 7% A 1% improvement in pricing will improve profit by: 11% Fixed Costs Variable Costs Volume (Revenues) Pricing A 1% improvement (reduction) in fixed costs will improve profit by: 3% PROFIT IMPROVEMENT #4AsWebinars
- 3. COSTING THE COST TOTHE SELLER Requires the expertise of production and finance professionals A CALCULATION PRICING THE VALUE TO THE BUYER = A JUDGMENT Requires the expertise of pricing professionals #4AsWebinars
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- 7. A PRICING REVOLUTION PAYYOUR AGE #4AsWebinars
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- 10. A PRICING REVOLUTION TIRESBY THE MILE #4AsWebinars
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- 13. COMPETITOR-BASED Penetration Pricing Skim Pricing CUSTOMER-BASED Solution-Based Value-Based WEAK Pricing Competency MODERATE Pricing Competency STRONG Pricing Competency PRICING PRACTICES COST-BASED CostPlus Hourly Billing PRICING PARADIGM PRICE TAKER PRICE FOLLOWER PRICE MAKER THE (R)EVOLUTION OF PRICING #4AsWebinars
- 14. KNOWLEDGE WORK MANUAL WORK COST-BASED Time Spent Cost ofLabor Cost Plus #4AsWebinars
- 15. The only place“time spent” should matter is in prison. #4AsWebinars
- 16. 1. Whose jobis it to change agency pricing strategies and compensation approaches? #4AsWebinars POLL QUESTION A. The industry at large — all agencies must agree together B. Advertising and marketing associations like the 4As and ANA C. The marketers who hire agencies D. Each individual agency
- 17. SELLERS ROUTINELY RE-EDUCATEBUYERS ABOUT PRICING IN ALL TYPES OF MARKETS Software #4AsWebinars
- 18. SELLERS ROUTINELY RE-EDUCATEBUYERS ABOUT PRICING IN ALL TYPES OF MARKETS Airlines #4AsWebinars
- 19. Professional Services SELLERS ROUTINELYRE-EDUCATE BUYERS ABOUT PRICING IN ALL TYPES OF MARKETS #4AsWebinars
- 20. Not a fairfight Agency-side sellers and client-side buyers An even match? #4AsWebinars
- 21. THE WORLD OFTHE PROFESSIONAL BUYER #4AsWebinars
- 22. Why amateur sellers arevulnerable to professional buyers #4AsWebinars 1. We fail to establish value up front. 2. We focus on defending costs instead of proving value. 3. We are willing to reduce price without also reducing value. 4. We believe all price challenges are real.
- 23. Not a fairfight #4AsWebinars 12 PRACTICAL WAYS AGENCY PROFESSIONALS CAN BEGIN HACKING COMPENSATION CHALLENGES STARTING TODAY
- 24. Outcomes Results, market effects Outputs Deliverables,work product Inputs Hours, time of staff ©Ignition Consulting Group Sell your value instead of your costs 1 DRIVEN BY UTILITY TO THE BUYER DRIVEN BY COST TO THE SELLER INPUT-BASED PRICING OUTPUT-BASED PRICING OUTCOME-BASED PRICING Move the dialogue away from inputs to what clients really buy: outputs and outcomes. #4AsWebinars
- 25. Trade the language ofcost for the language of value A change in language is a critical precursor to a change in behavior. LANGUAGE OF COST LANGUAGE OF VALUE Cost Estimates Hours Rates Billable Time Labor Utilization Time of Staff FTE’S Price Talent Results Solutions Outcomes Results Value Metrics of success Accountability 2 #4AsWebinars
- 26. Align the parties’ economicincentives Instead of a discussion about who gets the biggest slice of pie, show how you can grow the entire pie. 3 #4AsWebinars
- 27. 2. We beginevery major assignment with a discussion of “Scope of Value” (expected outcomes) before we discuss Scope of Work. #4AsWebinars A. Always B. Most of the time C. Sometimes D. Rarely E. Never POLL QUESTION
- 28. Focus on transparency ofexpectations in place of transparency of costs Guide your client to focus on “Scope of Value” before getting to Scope of Work. 4 #4AsWebinars
- 29. Attach different pricing todifferent classes of value Proactively decouple your high and low value services. 5 #4AsWebinars
- 30. Put your valuein perspective by offering options Options provide context for the value you’re providing and change the dialogue away from inputs to outputs and outcomes. 6 #4AsWebinars
- 31. Diversify your compensation portfolio Just likea personal financial portfolio, diversifying your compensation portfolio produces higher returns. 7 #4AsWebinars UNIFORM PRICING Cost-based calculations based on a formula that creates a self- imposed ceiling on profit VARIABLE PRICING Employing varying pricing approaches based on customer value; create many more opportunities to capture profit
- 32. Apply the same creativityto pricing as you do to solving marketing problems Once you take hourly billing off the table, there are virtually unlimited ways to get paid for the value you create. 8 #4AsWebinars
- 33. Always provide pricingoptions, but never ranges. 9 #4AsWebinars Never quote a price on the spot.10 Never, ever lower your price without also stripping out value. 11 Formalize pricing as a function separate from costing. 12
- 34. CPOChief Procurement Officer PURCHASING ASA CORE COMPETENCY CPOChief Pricing Officer PRICING AS A CORE COMPETENCY PRICING COUNCIL AT THE CLIENT AT THE AGENCY #4AsWebinars
- 35. ESSENTIAL ROLES OFTHE PRICING COUNCIL Identifying and championing the multiple dimensions of value the firm creates for its clients. Experimenting with various pricing approaches to maximize profits and diversify the firm’s pricing portfolio. Developing tools that will keep the firm focused on value instead of cost, including changing the language. Overseeing the development of pricing options and presenting pricing proposals to current and prospective clients. Creating new revenue streams by cultivating, packaging and monetizing the firm’s intellectual property. #4AsWebinars
- 36. NEGOTIATE SOMETHING BOTH PARTIESWANT TO MAXIMIZE COST PRICE VALUE SELLER’S PROFIT (Agency) BUYER’S PROFIT (Client) #4AsWebinars
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- 38. INFLUENCER TWilliams@IgnitionGroup.com @TimWilliamsICG linkedin.com/in/TimWilliamsICG Presented by TimWilliams © 2017 Ignition Consulting Group, Inc.