Apply Creative Thinking To Pricing

By Tim Williams

By Tim Williams

No activity within an advertising agency gets as much time, attention, and energy as the new business pitch.  Countless times I’ve heard agency professionals confess that “We’re at our best when we’re developing new business presentations” and “Our best creative work is usually for new business prospects.”

It’s like the normal rules and practices of old business are suspended for new business.  In new business situations, agencies don’t obsess about how many hours are going on a timesheet or how far they are “exceeding estimate.”  As a result, they collaborate much better, invest in developing unconventional ideas, and produce recommendations with passion and enthusiasm.  When it comes to new business, most agencies give 110%.

Now get really creative

While there are many things wrong with the whole new business process (unpaid speculative work, unprotected IP, etc.) agencies are usually counting on their creative work to win the day.  Curiously, though, agencies tend to apply very little creative thinking to other dimensions that could help differentiate them from other firms.

Especially when you’re competing with agencies with good creative reputations, you can significantly tilt the odds in your favor if, in addition to presenting differentiating marketing thinking, you also present a different way of working.  As I detailed in aprevious post, this can include how you solve, how you collaborate, how you produce, how you deliver, and how you price.

Since compensation is often a tie-breaker when all else is equal, what would happen if, in addition to all the late nights and Chinese take-out involved in developing creative work for the presentation, you applied just 1% of that time thinking about creative ways you could get paid?

Can compensation be an emotional factor?

No one knows better than agencies that people never make decisions for purely rational reasons – including marketers when selecting an agency.  It’s human nature to make a decision based on emotional factors, but then justify it with rational factors, so we can look and feel logical and reasonable.

So what if we could make a seemingly rational factor – compensation – become an emotional one, which is much more powerful?

In other words, what if we could inject as much creativity into how we get paid as we do into the rest of the new business presentation?  Ours is pretty much the only business (professional services) that mistakes “cost” for “price.”  When you add up your expected hours, you’re not pricing an assignment; you’re just costing it.

Especially when it comes to knowledge work, clients don’t buy your efforts (hours), they buy the effect those hours produce.  They don’t buy a shovel; they buy the expectation of a hole.  When you get beyond the idea that you’re selling a shovel, there are literally limitless ways to get paid for the hole.

  • When presenting to a big national chain of LASIK clinics, a media agency proposed to be paid not based on hours, but rather $19 per procedure.
  • A B2B agency in the Midwest, who is essentially in the business of generating leads for big-ticket, considered purchases, proposes to be paid per lead rather than per hour.
  • For a medical diagnostics client, a Canadian agency proposed to be paid 25% of the revenues from each diagnostic test.
  • A California agency builds e-commerce websites at no cost to the client, and then collects 15% of the first year revenues.
  • Most of the firms that are in the business of building mobile apps charge not for the development (they tend to retain ownership of much of the development code), but rather per download.
  • An agency that specializes in food proposed “number of recipes distributed” as a KPI (Key Performance Indicator) that could determine agency compensation.

Ignition has seen many progressive KPIs used as the basis of agency compensation agreements, including changes in Net Promoter Score, Facebook likes, search ranking, value of earned media, etc.  For its client Chrysler, Universal McCann ties much of its compensation not only to metrics like sales and share, but to leading indicators like test drives.

Next time you’re engaged in preparing for a new business presentation, devote 30 minutes to the question “If charging for hours wasn’t an option, what are some of the ways we could get paid by this client?”  I guarantee it will take you in some interesting directions that will help differentiate your firm, help win the business, and — most importantly – help improve your margins.