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Value-Based Billing… Possible or Pipe Dream?

I’ve been pondering value-based billing practices of late. The reason for this is that the way agencies typically bill clients doesn’t work very well for either side.

There are really two prevalent billing models at play in the industry today:

Hourly Billing
I hate it! Hourly billing forces you not only to track hours ruthlessly but also to argue with your client about how long every single project task took. The entire point of hourly billing was to appease the bean-counters and to lower the veil over how agencies priced services. Clients revolted against huge, vague invoices for hundreds of thousands if not millions of dollars – who can blame them. The problem is that hours just open the door to quarrels about how much a certain idea or deliverable is really worth. (“You spent 143 hours on WHAT?”)

Fixed Fee Billing
TEEM almost always engages with clients for a fixed fee. This problem with this method is that a) clients can still bicker over what a particular phase is worth to them and b) the scope and timeline tends to creep and creep and creep making you engage in constant boundary wars with the very people you’re trying to serve. (“No, we can’t do a 7th round of revisions at the same fixed fee!”) In my mind, fixed fee kicks hourly billing’s butt, but is still a sub-standard solution.

(Now you get to join my noodling. Enjoy!)

Value-based Billing
I love the concept of value-based billing but putting it into practice is a tough beast to wrangle. Highly measurable services with metrics to support ROI make it easier. Digital marketing agencies are finding it fairly easy to use value-based billing because they can simply tie a charge to a KPI. (“For every lead we generate you’ll give us $250 – piece of cake!”) The problem comes in when you’re attempting to nail down the value of a service like branding, collateral design, campaign ideation or a culture video. How do you quantify the value of activities whose results are not immediately and visibly measurable?

I don’t have all the answers, but aside from just asking clients to name their budget or mapping out project timelines based on hours and converting to a flat fee, we’re going to start digging deeper into our client’s goals, dreams and external pressures. My hope is that by really understanding the drivers that incentivize clients to invest in marketing in the first place, we can come to an agreement about the real value of some of things that TEEM does very well.

〉 How much is a new identity that will serve your brand for 10+ years worth? Probably priceless.

〉 When we nail your messaging and it compels a new niche of buyers across print, digital and in-person sales as well as uniting your internal team – what value does that bring to your organization?

〉 If having an integrated, strategic marketing plan gets your investors to up the ante AND trust you to lead without constant meddling, how valuable is that relationship shift?

Think about it: a deep and productive agency partnership shouldn’t be reduced to an accounting formula. The best bonds (personal and professional) align everyone around common objectives and incentives, and prove mutually beneficial for both sides.

This is the new billing paradigm we seek with our clients… one in which we are trusted to invest dollars wisely to the highest end and clients realize powerful results from the great work we execute.

(If you have an idea for value-based billing anchors outside of ‘a dollar for a widget’, let me know. I’d love to hear it.)

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