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Understanding Value Based Pricing & the HIVE Point System

Dustin Brackett
March 21, 2019

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When you think about working with a marketing agency, you're probably expecting to pay them on an hourly or project basis. It's been that way for decades. Why change something that has been working for so long?

Well, has it really been working or is it just what we were all used to?

Times have evolved and we believe that agency pricing should as well. That's why we have adopted our value based pricing point system. 

The first step in understanding why we adopted this model is understanding why we think the old models are broken.

Wasted Time

Let's face it - we're all human. And because of that, we can't expect anyone to actually be 100% productive. In fact, the normal person is only productive about 37.5% of the day! While that information seems low even to us, the fact is that if you're paying for an hour, you're probably not getting your money's worth.

Thinking along those lines, say you have a retainer for 20 hours of work per month. Based on the Inc. research above, you're really only getting about 7.5 hours of great work out of it! Are you willing to pay for 20 hours of work while only actually getting about seven and a half? You probably just thought to yourself, "HELL NO!" We didn't think it was fair either (even if we believe that our team is full of superheroes that are 100% productive 😉).

Wasted Money

Along those same lines, when you start to put dollars to your investment it gets even scarier. So, using the example from before, say you're in a retainer for 20 hours per month. The average marketing agency hourly rate is $150-$200 per hour. That means that, on the low end, you're paying about $3,000 per month, but only getting about $1,125 worth of truly productive time. I don't know about you, but wasting $1,875 per month doesn't sound like a good marketing strategy to me.

Ok - so these numbers may be exaggerated, but the point is still accurate. By employing an hourly rate as the primary mode for pricing, clients are truly wasting time, resources, and vastly overpaying for what they're getting. 

Frequently Over Budget

Another major issue with an hourly based pricing model is that the negative impact of inefficiencies really falls on the client. If a deliverable takes longer, the client pays more. Unexpected extra costs can cripple a marketing campaign. And, if we're being honest, for an unethical agency, it's easy to sit back and let projects go over time and over budget because it just means more dollars to the agency's bottom line.

Misalignment of Strategy

With project based pricing, the agency agrees to deliver a set of services each month for a set fee. That means that, for example, a client pays $2,000 per month for social media marketing, search engine optimization, and two blog posts per month. Every month the agency is committed to completing just those activities, whether they're really working or not.

The problem here is that things change - consumer needs change, the business changes, and stages of growth change, but the package doesn't. There is no agility or flexibility in the campaign and no testing. This kind of campaign may be just what the business should be running or it could be the complete opposite of what the client actually needs, but you'd never really know it because you're not trying anything new. You're not running the campaign based on data and not listening to what your customers are telling you.

So, What is Value Based Pricing?

Value based pricing is a way to eliminate inefficiencies and ensure that each dollar spent is used to move a business closer to reaching its goals. The focus is to eliminate the above issues with hourly and project based pricing while placing a premium on expedited deliverables.

What are Points?

How Do They Work?

Points are purchased and spent on marketing activities. They are the cost placed on each marketing initiative within a campaign. Instead of, say, purchasing five hours to complete a piece of a campaign, you'd purchase a set number of points to complete that piece.

Our clients typically have a retainer for a specific amount of money which equates to a set number of points. Those points can be used on any of the services that we provide throughout the month, guided by our team. Each month our team puts together a proposed point usage for each client with the goal of moving towards achieving both short and long-term goals.

What Do They Cost?

A point through HIVE Digital Strategy is $35. Which means that if we look at an average retainer of $3,500, that client will receive 100 points to use each month on inbound marketing and PR services, as recommended by our Account Managers. 

The next logical question is, "What can I get with 100 points?" Well each of our clients' campaigns are different and each of our campaigns typically change slightly from month to month based on data, but we have a basic point menu available HERE. Essentially, the best way to think about it is that the more points you purchase, the more aggressive your campaign can be.

What Are the Benefits?

Agility & Data Driven

With a point based pricing model, we are able to be more agile in responding to activities that are working and those that aren’t. Since we are not tied to a project based retainer (getting the same deliverables each month), we are able to be much more data driven. We are able to review the past 30, 60, and 90 days to see what is working and why it's working, what isn't working and why it's not working, and adjust the campaign accordingly - creating more successful campaigns.

We believe that data should guide our decisions - not feelings, guesses, client biases, or even agency profitability.

Eliminate Inefficiencies

As I mentioned earlier, there are some major inefficiencies with hourly and project based pricing models. Through a value driven point system, we're able to eliminate these inefficiencies. Instead of paying for the time to create a deliverable, you pay just for the deliverable. Whether a white paper, for example, takes five hours or 20 hours to develop, the client purchases the deliverable for 20 points. There is no grey area or excessive risk of a deliverable going over time or budget

Pressure on the Agency

With an hourly pricing model, the client is really taking on all the risk. If a project takes longer than expected, the client pays for it. 

I, for one, HATE that conversation. The conversation about a project going over the estimated time and budget and telling the client that they now have to pay more than they anticipated just seems so slimy to me.

With a point based system, the agency instead takes on that risk. It is our responsibility to be as efficient as possible to not only deliver the services in the time allotted internally to each deliverable, but to continue to improve our efficiencies in order to be more profitable. By improving our internal processes, we are able to deliver the same quality work at an up front price and even increase our bottom line. If, on the other hand, our processes fail us, we can lose money on specific projects. It's in our best interest to develop great work quickly - which is in direct alignment with our clients' goals. It's a win-win.

So - while the point system may seem abstract since it's not the pricing model we've all been used to, it really does help us be more efficient, consistent, and predictable, and it aligns the goals of both HIVE Digital Strategy and our clients. We want to be a long-term partner with all of our clients which is why we developed our point system. If you still have questions, we invite you to contact us today and we can dive even deeper into the point system and what it may look like for your business!

The GrowthPlan