Time is money - but should you be paying?
Marketing agencies often charge by the hour and exchange minutes for dollars. Effectively, the longer they work on a project, the more you pay them. Ask yourself - does this encourage prompt deliverables or long, drawn-out projects that cost more than anticipated? Perhaps the industry has got it wrong. Now’s the time to set it right.
Do you care how long a car takes to build?
In most industries, you pay for what something is worth - not the hours spent to deliver. When you buy a motorcar, you don’t expect to have a rolling bill explaining the time it took each employee to weld, construct, paint and polish that car; you pay for the end product.
So why don’t marketing agencies do the same?
As marketing agencies, we are paid to deliver the projects that our customers set for us. A company will employ an agency to accomplish a certain task, be that a website, a marketing campaign, or a blog post and then wait patiently until that task is done. However, the value of delivery is not always the same to the agency and the client. From the perspective of marketing agencies, it’s actually more valuable for them to take longer on something trivial like a blog post than it is to deliver quickly and efficiently.
Essentially, clients are incentivising marketing agencies to take their time, and marketing agencies are forced to value their services based on industry hourly rates - even if they’re good enough to deliver quickly.
To us, this sounds like a lose-lose situation. One where both the company and the marketing agency are lost in a never-ending cycle of non-transparency, delayed delivery and mismatched expectations because both sides aren’t playing the same game.
We think it’s time for a change.
Pay for output, not time
That change should come in the form of delivery on products and services - not the delay on the action required to achieve objectives. For example, a campaign may consist of emails, blog posts and landing pages. Each of those assets should have a price attached based on the value and effort the agency estimates to make up the full price of the campaign delivery.
Promises made, (payment accepted) promises kept.
Companies benefit from
Here are a few of the benefits for companies to encourage this kind of payment model.
- Faster delivery
Agencies are encouraged to deliver faster for assets and campaigns. If the agency can deliver more content of an equal quality in less time, they will earn more revenue for themselves.
- Reduced customer risk
The risk of delivery is instantly transferred to those who are in control of delivering. Which is exactly how most products and industries work, for good reason.
- Better quality
One may think that faster delivery would perhaps result in ‘rush-jobs’ - but this is inaccurate. The payment model that focuses on output incentivises the agency to deliver quality, lest they are forced into re-creating assets.
- Increased certainty and better planning
Certainty is always a good thing, especially when it comes to planning and budgets. When companies are forced into a time-and-materials agreement, they cannot be certain exactly how much a campaign or a certain result will take. Instead, they just hope it will be within their budget, and pray that their desired result will be complete before it runs out. With an output-based approach, they can see exactly how much the campaign will cost and what they get out of it for better planning and decision making.
Agencies benefit from
Agencies may believe that the output-based model puts them at a disadvantage - however, this is not true. There are many benefits for marketing agencies to adopt this approach as well.
- More transparent revenue streams
Agencies who adopt the output-based approach will benefit from a clearer understanding of how much income they are expecting to earn from each project and a better indication of how they can earn more of that income. This enables them to plan their business and sales activities with more precision and surety.
- Value-based pricing
With a time-and-materials approach an agency’s business can only scale based on the number of hours they are able to sell each week. With an output-based approach, the customer value of each deliverable can be assessed and the service priced accordingly. For services which the customer obtains little value, such as sending an email, charges may only just cover the cost of delivery. However, for higher value services, such as core branding elements or strategies that will deliver long-term value, the charge may be substantially higher.
- Greater innovation and efficiency
Agencies have to take ownership of the risk of delivering, but this is not necessarily a bad thing. In essence, agencies are in control of their deliverables and what they deliver. If they get it wrong, they would technically earn more money with the time-based system - however, this discourages innovation. On the contrary, output-based systems encourage agencies to find ways to deliver quality faster, with failed attempts come experience and lessons to do better next time. Only through embracing risk can you power innovation, and an output-based model is ideal for this.
- Better talent
Skilled and experienced designers, copywriters, marketing managers and other team members can deliver faster and with more accuracy than those who are not as skilled or experienced. An output-based approach highlights and rewards those who deliver faster than those who take more time to get something right. This enables agencies to identify top-talent and pay more attention to those who need more guidance.
Pay for what you get
We’re still only mid-pandemic, but we’ve already seen a lot of change. For companies and the agencies, it’s clear that we can be productive away from the office. This has created a healthier, more trusting version of accountability that no matter where we are, or how long we take to accomplish something that we can deliver. It’s time to take this change to heart and move towards a better, more transparent and sustainable way of offering marketing services.
We here at Demodia have already moved towards a credit-based system that accounts for the value and effort involved in delivering results - fast. As a world-class digital marketing consultancy, we believe this is the best, most honest approach for customers as well as agencies.
Our belief is that transparency is essential when building a working relationship. For that reason we work with all our clients using a point-based pricing model. At this time, we believe that we are the only Swiss digital marketing agency taking this approach!
What is point-based pricing?
Point-based pricing is a value-based pricing model in which a standard unit is used to determine the cost of a deliverable or service.
In the case of Demodia, we call our points, Digital Marketing Credits.
The number of points, or credits, that each activity is allocated is based on the derived value rather than the number of hours needed to perform the task. Each marketing credit comes at a set value and then any services from our activity catalogue can be procured using credits.
With this approach, you can quickly see and understand how your budget translates into campaign related activities, and if your plans change mid-way through a project it’s quick and easy to redirect the remaining credits.