Agencies are expert at costing; forecasting the staffing requirements, counting the hours, and multiplying by the hourly rate.  But costing is not pricing.  Pricing is a skill that exists as a core competence at client companies.  It’s time for agencies to apply the same effort to pricing by asking questions like these:

1. Allocated budget.  What is the client’s budget range for this engagement?  What have they historically allocated for this type of assignment?
2. Resource requirements.  What resources (human, financial, and other) will be required to complete this engagement?  Similarly, what resources will be devoted by the client?
3. Level of talent.  What level of talent will be needed?  Does it call for our most experienced people?
4. Degree of client involvement.  If a client organization is willing to put an above-average amount of effort into communicating and collaborating with the firm, this should be reflected in the price.  The client’s approval process is one of the key factors to consider here.
5. Scope management.  How difficult will this engagement be to manage?  Do we anticipate relatively simple project management, or is this more complex in scope?
6. Time sensitivity.  Is this client inclined toward rush assignments that will not only disrupt our workflow, but require consistent late nights or weekends?
7. Marketing sophistication.  Does this organization view marketing primarily as a service, or are they willing to invest in marketing as a growth driver?
8. Client access.  Will we have access to the “economic buyer” in the organization – the person who has the power not only to say “no,” but “yes” in pricing discussions. 
9. Profitability.  How profitable is this company?  This is important not only as an indicator of the organization’s ability to spend enough to get the job done, but also of the company’s overall health.
10. Financial impact.  If we success in achieving the desired outcomes, what will be the likely financial impact for the client?  Conversely, what is the client’s cost of not solving this problem?
11. Strategic importance.  How important is this engagement in context of the client’s overall strategic objectives? 
12. Long-term value.  In the client’s value chain, is it high-value, moderate-value, or low-value role?  Does this engagement help create long-term value for the client, or is it essential tactical and short term?
13. Ownership of intellectual property.  While the whole question of IP ownership is new territory for most firms. It has potentially significant impact on pricing.  Simply put, if the client owns the IP then the firm’s value-based price should be higher than if the firm owns the IP (and therefore has the opportunity to license it back to the client).
14. Degree of risk.  The more risk the firm is willing to take by tying a portion of its compensation to specific outcomes the higher the price to the client.  The greater the risk, the greater the potential reward. 
15. Unique qualifications.  Is our firm uniquely qualified to perform this work, or could it just as easily be done by someone else?

Some additional considerations before finalizing a price:

• At what price would this engagement be so expensive a client would not consider buying it?
• At what price would the engagement be expensive, but the client would still buy it?
• At what price does the engagement become inexpensive?
• At what price does the engagement become so inexpensive the client would question its value?
• What would justify a premium price?
• What costs can we afford to invest at the target price and still earn an acceptable profit?

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• Brand Success Indicators »
• Changing agency compensation by changing the dialog »