Paul Roetzer
Agencies will create and nurture diverse recurring revenue streams through a mix of services, consulting, training, education, publishing, and software sales. (Location 279)
They will use efficiency and productivity, not billable hours, as the essential drivers of profitability. Their value and success will be measured by outcomes, not outputs. (Location 280)
Fast-forward to today, and many of the same challenges exist. Traditional firms—public relations (PR), advertising, search engine optimization (SEO), and web—are fighting to remain relevant by grasping for new services, such as social, mobile, and content, rather than focusing on what really matters, including pricing, technology, staffing, infrastructure, processes, and purpose. As a result, there are unparalleled opportunities for emerging agencies and consultants to transform, disrupt, and thrive within the developing marketing services ecosystem. The agencies and professionals with the will and vision to adapt and evolve will rise, and many traditional and digital-only firms will become obsolete. (Location 299)
(B2B) and business-to-consumer (B2C) organizations in every industry are shifting budgets away from print advertising, trade shows, cold calling, and direct mail toward more measurable and effective inbound marketing strategies that cater to consumer needs. (Location 329)
their service offerings in the areas of search, mobile, social, content, analytics, web, PR, digital advertising, and e-mail marketing. They also are diversifying revenue streams and driving new business through affiliate relationships and value-added reseller (VAR) partnerships with marketing software companies. (Location 332)
Although traditional marketing firms rely on impressions, reach, advertising equivalency, PR value, and other arbitrary measurements of success, marketing firms now have the ability to consistently produce more meaningful outcomes—inbound links, search engine rankings, click-through rates, website traffic, landing page conversions, content downloads, blog subscribers, and leads—that can be tracked in real time and directly correlated to sales. These success factors are how firms should and will be judged. (Location 339)
The Marketing Agency Blueprint, with its supporting resources at www.MarketingAgencyInsider.com, is designed to help entrepreneurs build their agencies and futures, and stimulate a more open and collaborative agency ecosystem. (Location 359)
“Create more value than you capture.” (Location 363)
Whether you are an emerging agency seeking to disrupt or a traditional firm on the wrong end of the impending evolution, here are several things to remember about disruptive innovation: Disruptive business characteristics include: lower gross margins, smaller target markets, and simpler products and services. It often comes from the outside, and once you realize what is happening, it is probably too late. Success requires an uncommon tolerance for risk and a desire to embrace the unknown. Victory favors those who are bold and decisive in their actions. Traditional agencies that are slow to adapt will fail, and many existing industry experts will become irrelevant. This will be good for the industry. Unparalleled opportunities will arise for marketing agencies and professionals, and new career paths will be defined. The underdogs and innovators will become the leaders. Pricing strategy is a key component to disruption. Agencies motivated to change will shift away from the inefficient legacy system of billable hours, and move to more results-driven, value-based models accessible to the mass market. This presents the opportunity for agencies and independent consultants to disrupt the industry with lower prices, and potentially higher profit margins. (Location 389)
For example, if an agency has a $5,000 per month retainer, the number of hours that will be dedicated to the account each month could look like this: If the agency exceeds its monthly allotment, they either absorb the losses or request more budget. The other, less desirable options are to push more hours to cheaper junior staff with less experience, record the time against other projects with available budgets, or make it up by shorting time spent on the account during the next month. In other words, traditional retainers do not really solve what is wrong with billable hours. (Location 453)
I became obsessed with the idea of making services tangible with clearly defined costs, features, and benefits, almost like buying a product off a retail shelf or signing up for a software service. My theory was that, if clients understood exactly what they were getting and agreed ahead of time what it was worth, then we could remove the mystery from the equation and focus on delivering value and results. (Location 540)
My solution was to standardize services, and apply set prices based on a number of variables. (Location 547)
Set prices would enable us to bundle services into packages designed to fit specific market segments, such as franchise owners, and it would dramatically reduce time spent building new business and account development proposals. Plus, we would be able to make marketing agency services more affordable and effective to the underserviced market of small businesses in the United States and around the world. Everyone wins. (Location 551)
Value-Based Pricing I took the approach that if you can define the scope, which is possible with nearly every marketing agency service, then you can standardize the service and assign a set price. (Location 557)
The guiding principle was that set prices had to be value based, meaning they were to be determined based on perceived and actual value rather than the number of billable hours something takes to complete. So if a trifold brochure was priced at $2,500, then it did not matter if it took 15 or 35 hours to produce, the client would pay $2,500. The burden was on the agency to build systems and processes, and put the right talent in place, to profitably deliver at the set price. In the traditional billable-hour model, the basic formula to determine cost is hourly rate × billable hours. (Location 584)
On the other hand, the value-based pricing model takes seven primary variables into account: 1. Estimated hours. 2. Hourly revenue target (HRT). 3. Costs. 4. Perceived value. 5. Builder vs. driver. 6. Loss leader. 7. Service level. In most cases, you will be able to determine prices by simply calculating estimated hours × HRT, but you want to take the other variables into account before finalizing the price. (Location 590)
I can tell you from more than six years experimenting with this model, value-based pricing is about testing and revising. You will get some pricing very wrong, and you will get burned a time or two, but as long as you have the right tracking and reporting systems in place, you can quickly adjust and move on. (Location 611)
For example, you may decide that, on average, it takes your agency eight hours to write a 1,000-word sales sheet, and your HRT is $105. Your price would be $840, but that does not take graphic design fees into account. So you contact your preferred designer and negotiate a fixed cost of $500 on design. Now you have a price of $1,340, which you can leave as is, or round up to $1,400 to account for markup or to give yourself a little flexibility on your time estimate. (Location 636)
Revisiting the example sales sheet, you may determine that $1,400 is too low. You have been charging clients $1,800 to $2,200 for the same job for the last two years and have had nothing but rave reviews. So put the price at $2,000 and move on to the next one. (Location 645)
The goal should be to sign up the majority of your client base to long-term contracts, preferably 12 months or more, and to have 80 percent or more of your annual revenue coming from those contracts. (Location 750)
While building your contract base, your largest client should not account for more than 20 percent of your annual revenue. (Location 753)
Focus on: Lead-producing keywords. Sale-converting keywords. Traffic-producing keywords. (Location 2513)
Use your content marketing to propel PR efforts. For example, consider the following: Pitch original content to reporters and bloggers: (Location 2669)