Problems with agency-based pricing models
by John Kelleher on 5 February 2020
At ESM Inbound, our pricing model has evolved with our agency. Since we launched in 2015 we’ve tested a range of approaches, from packages to points-based pricing. It’s only as a result of this extensive road-testing that we’ve been able to arrive at the strategy we feel works best for customers and for us: hourly pricing.
Hourly pricing affords our customers better value for money and more flexibility than any other approach we’ve tried. It also works better for us. Here are the problems we’ve identified with the other pricing strategies we’ve trialled:
The allure of a package is its predictability: You know exactly what you’re going to get, and you get what you pay for...except you don’t. Packages suit agencies because they’re productised ‘off the peg’ solutions that are easy to deliver. The problem with this, from the customer point of view, is that packages don’t take account of the needs of individual businesses.
Once a package-based subscription is under-way, whether or not the regular assets deliver (a typical example would be a pillar page, two blog-posts and a weekly marketing email), you continue to get served the same recipe, month after month, regardless of what the data shows. Packages like this also don’t work in an agency’s interest in the long term in that the lack of flexibility and one-size-fits-all approach means customer disappointment is inevitable.
So why not adopt a completely ad-hoc approach to pricing, costing everything on an individual basis, looking at the unique set of variables for each task, then quoting based on that. There are a number of problems with this, the first is that it isn’t feasible, in terms of the time involved, for us to do this: we’re too busy delivering to spend such a large proportion of our time quoting for ad-hoc work.
The second is that we’ll come up against the same problem we meet with packages - the need to round-up to protect ourselves. We also need to plan our resources and the availability of our team to ensure we can deliver the work we promise, so some form of retainer-based model is necessary in order to offer this.
With points-based pricing, different marketing assets (a blog, landing page, interactive feature, and so on), come with a number of points attached- this makes it easy to calculate their price. The idea with points-based pricing is that customers can use a pick and mix approach to choose the combination of assets they want, each month, to add up to a pre-negotiated regular monthly points quota.
In theory this strikes the perfect balance between customisation and value. But the problem for agencies in calculating points — factoring in the variability inherent in delivering creative assets and solutions — is that you have to round-up. Much of the time, this means that customers end up paying over the odds for what they get. On the flip-side, a significant minority of more problematic customers end up taking up far more of our time than they’ve paid for. That’s not fair either. We learnt this the hard way and decided to put the average customer’s needs first. Because we believe it’s unfair for customers to pay more than they should do for our services.
In short: you get what you pay for with hourly pricing. Not all our competitors think it’s the best model, but for us, it ticks the right boxes. With hourly pricing, there’s no rounding up, or padding out. Plus, you can tailor your hours to match your needs, so if one month, you need extra development work for a site redesign, we can flex to accommodate that under the terms of your hourly retainer. The next month, you may want to focus more on content - so we can allocate you time with our content strategists.
It also means that pricing more accurately reflects the service you see. For example, a blog post that is fairly generic and straightforward to research may be quick to turn around - so you’ll get charged for the time rather than the points value. But on another occasion, if you need content that is more in-depth and requires two separate interviews with transcripts and dedicated research, you’ll be charged for that - we won’t be under pressure to complete it in an arbitrary, generic timeframe.
Whilst the hourly model offers you more flexibility and transparency, because we offer it on a retainer basis, there’s no question that we will be able to devote the team-hours you need for a given month.
As an ESM Inbound customer, you have the right to cancel your retainer right up until the day before the following month’s payment is due. We introduced this rule after being inspired by HubSpot CTO Dharmesh Shah’s talk at Inbound 2018, where he quoted a stat: 89% of customers say if it’s easy to cancel, they are more likely to buy. We switched to our one click cancel model soon after, and we haven’t looked back.
Having a ‘cancel anytime’ policy puts the onus on us to deliver excellent service and ensures customers don’t feel entrapped. It’s a great way of delighting customers and we have seen the proof in our churn rate, which has reduced as a result. From an agency point of view, it does away with the inbuilt break-points in ongoing client relationships - we can focus instead on continuing to deliver month by month. The only exception to this rule is for customers who have come to us to deliver HubSpot onboarding - HubSpot specifies that this needs to be offered over a minimum of a three month period, and you will find this rule applies whichever HubSpot partner you choose to work with.
Most of our customers choose an ongoing retainer of between 20 and 60 hours per month, ranging from £1,900 to £5,100 per month. We recommend considering this as your starting point. That said, we have customers on smaller retainers for the occasional bit of support. If you just need to have a developer on hand for a few edits each month or a copywriter available for some quick ad copy, then a 5 to 10 hour per month retainer could be perfect for you.
Whatever you need, we're able to build a service that's right for you.