When it comes to revenue models for advertising agencies, charging for time isn't the only way to bill a client. In fact, there's a far better way for an agency to bring in revenue that benefits the client at the same time: an outcomes-based pricing (OBP) model. But what is OBP, and what are the benefits?
With a traditional time and resource base revenue model, the agency effectively tells the client that they will spend a certain number of hours trying to solve their particular business problem. If, at the end of that period, the agency hasn’t solved the problem, the client has to spend more hours until they are satisfied the problem has been solved. With an outcomes-based pricing model, the agency doesn’t base their pricing on how many people and hours it will take to complete the requirement. Rather, they determine what the value of the outcome to the client is and charge a set fee for this.
There are several benefits to an OBP approach:
At Demographica, we employ an outcomes-based pricing model, we charge a set fee to solve our clients’ business problem. This means that the cost to client stays the same whether we solve in two days or two months, whether it takes us three reverts or 30. And if it takes us more time and resources than we originally estimated, then that’s our problem – not our client’s.
Using an outcomes-based model means that we don’t use any timekeeping software. All our clients need to do is decide whether or not they are willing to pay X for result Y. This structure also means that our clients can make intelligent business decision based on what price is commercially viable to pay in order to solve a business problem. We work with our clients to determine what this figure is by creating a business case for the solution to the problem at hand.
Some might be wondering how you deal with a client who has nine reverts on a banner ad? Our view is that we back our approach to get it right more often than not, and that has been our experience so far. We also believe in spending significant time with more senior resources to complete even the smallest tasks. This formula of giving senior resources ample time to deliver on all aspects of the project means we win far more than we lose.
With an outcomes-based billing model, it becomes the responsibility of the agency – not the client – to deliver the solution efficiently and profitably.