Agency Pricing As A Tool Of Differentiation

By Tim Williams

By Tim Williams

Imagine three agencies presenting to a prospective client.  The client has provided all three agencies with a list of guidelines for the presentation, which includes explicit instructions to outline the agency’s proposed compensation approach, including hourly rates, expected hours, and staffing plans.

Agency A dutifully complies with the request and, toward the end of their presentation, shows a schedule of their hourly rates and a detailed spreadsheet indicating how many people would devote what percent of their time to the business, resulting in an estimated number of hours.

Agency B does almost exactly the same thing.  It is, after all, what the client asked for.

When Agency C presents, here’s how they handle the question:

“Unlike other agencies, we don’t believe we sell time; we sell intellectual capital and business results.  In fact, we believe the traditional ways agencies charge works against the best interests of both the agency and the client.  Hours and timesheets are focused on efficiency, and we don’t believe you’re buying efficiency – you’re buying effectiveness.

“Because we don’t bill by the hour, we don’t have hourly rates.  In fact, we don’t even have timesheets, because timesheets only serve to point us in the wrong direction.  We trade the time that would have otherwise been spent on tracking our internal costs and instead invest it in tracking the external results we create for your brand.
“We realize that this is quite different from the way you’re used to working with other agencies.  But we believe strongly that agencies and clients need a new and different way of working together – one that aligns the economic interests of both organizations.”

If you were the client, which agency is going to stand out?  Which agency is truly different instead of justsaying they’re different?  The more ways you can be different – in relevant ways – the more you look like a premium organization and the less you look like a commodity.

Expect to be surprised

The CFO of a large marketing organization once told me the story of sending an RFP to three agencies.  Two of the three agencies were units of large multinational agency networks.  The third was a small independent agency that had established a reputation for non-traditional ways of thinking and working.  Included in the RFP was a section asking for hourly rates, projected FTE’s, etc.  Here’s what the client reported about his experience:

“I could pretty much predict how the two large traditional agencies were going to respond; they did exactly what I asked for and did exactly what I expected, including pages and pages of spreadsheets and hours forecasts.  The small independent agency responded in a different way to almost every section in the RFP.  They gave none of the expected answers, and engaged in none of expected agency hyperbole.

“When it came to the section on compensation, they courteously informed us that they couldn’t – and wouldn’t – quote hourly rates because they simply don’t believe in being paid by the hour.  They quite convincingly made the argument that they are not in the business of selling time.  We couldn’t resist awarding the assignment to this courageously different agency.  Their unique approach was just too hard to resist.”

You preach differentiation to your clients.  You urge them to make their brand unique and different in as many ways as possible.  You help them muster the courage to take risks.  Isn’t it worth doing the same for your own brand?  Well, isn’t it?