Points-based retainers vs. flat-rate pricing for your agency
Let’s talk about agency pricing. Value-based retainer pricing models are a hot topic in today’s agency world. The idea that you charge clients based on the value you provide rather than a flat rate has emerged as a remarkable step toward delivering outstanding, innovative results for your customers.
From this concept, points-based retainers emerged. Point pricing allows agencies and clients to devote standard units of work to certain tasks. A whole month of deliverables and campaigns can be planned from the stash of points, proactively working toward immediate and long-term goals. Agencies and clients alike enjoy dynamic flexibility and aren’t afraid to try new things, because if something doesn’t work, you simply don’t spend points on it in the next month.
But is points-based agency pricing truly a better option than flat-rate retainers? Both billing models have their pros and cons, and knowing the ins and outs of each is essential to deciding what will best suit your team and your clients.
Flat-rate pricing, explained
Flat-rate pricing is well-known to most agencies and generally self-explanatory: You charge a fixed monthly rate for a fixed set of deliverables each month. Prices are usually set in stone because they are tied to your ROI as well as a client’s budgeting — you can’t change fees midstream because it will mess up carefully crafted scopes of work as well as your staffing and strategy.
Yet, flat-rate pricing simplifies the relationship with a client: It pays you for a specific deliverable, and you produce that deliverable and are paid — period. Hourly pricing offers a little bit of extra flexibility, although hours may be capped so that projects don’t go beyond scope.
Pros of flat-rate pricing
- Easy to understand: Again, a flat rate is just that, with no haggling, no scope creep, and no complex budgeting. A client wants a marketing action achieved; the agency charges a set amount for that service.
- Clients pay for only what they need: If a client wants an agency to handle just a few marketing projects, flat-rate pricing allows it to pay for those projects without a long-term commitment.
- Defined deliverables: On a more concrete retainer, the client pays x to get a strictly defined set of deliverables. In this way, expectations are set, and the client can let the agency produce the work basically on its own.
- On-the-fly projects: If a client wants something not covered by the SOW, the agency can quote a one-time price, possibly leading to additional work. Furthermore, with an hourly model, the client can simply pay for more hours to get the out-of-scope work it needs.
Cons of flat-rate pricing
- Limited vision to expand scope: Flat-rate pricing not only hampers flexibility to move outside of scope but also inhibits vision to imagine something beyond that scope. If a client is focused on this and that, all it will get is this and that, and it will possibly resist any suggestions or strategies that don’t fit the narrow idea of what it’s paying for.
- Project limits: Your agency may find itself needing more resources or time to truly make a deliverable great and impactful, but your people back off because the flat rate prescribes a certain ROI that won’t be met if you put in extra effort.
- Missed ROI: Similar to the previous con, if you fail to accurately gauge what’s needed for a project or task, you’re on the hook to still finish the project, ultimately resulting in a lower return and time away from other projects, whose ROI also suffers.
- Time-consuming SOWs: Because flat-rate billing must define exact scopes and pricing, the SOW process can take time. If the client wants to try something unique, determining how to deliver consumes resources before the project even starts.
- Escalating hourly costs: When agencies charge by the hour, they might be given carte blanche to take as many hours as needed to finish the job, which can add up quickly — and stun the client — if the project isn’t accurately scoped or the client requests changes. However, when hours are capped, the project ends when time runs out, whether or not it’s ready to go.
- A lack of long-term potential: The fixed-rate model invites the client to use the agency for just what it needs and nothing else, which limits a grander marketing strategy many clients would benefit from (and many agencies would profit from).
- Little flexibility: With a flat-rate approach, things are either in scope or out of scope — there isn’t much room for creativity, versatility, or contingencies if something unexpected comes up.
Points-based retainers, explained
A points-based retainer flips the traditional flat-rate model upside down by allowing for a range of services within a set number of points every month. This approach embraces the flexibility of a value-based retainer while still using the ROI-driven, budgetary-conscious principles of fixed-fee models to deliver impressive scalability and agile, strategic results.
The points concept is straightforward: Instead of a client paying x dollars for a defined set of deliverables (either on a per-project basis or a monthly fee), it purchases a certain number of points each month. The agency’s service catalog lists tasks and projects by points instead of dollars, and your team and the client determine on a monthly basis which deliverables those points will be applied to.
Pros of a points-based retainer
- Outstanding flexibility: With points, you and the client aren’t locked into the same deliverables every month and are able to change course much more easily than with a flat-rate model. Strategy can be adjusted practically instantly — simply move points to the tactic you want to pursue from something that maybe can wait until next month.
- Consistent pricing: A client that likes a la carte deliverables may wrangle with budgeting as it determines how much to set aside each month for your agency’s services. With points, it pays one rate and won’t worry about crunching the numbers. The points are there when the client needs them, for whatever it needs them for.
- Plan for big projects and campaigns: If, for example, a client is launching a new product, it can dedicate more of its points to marketing that product without upending its budget or the continuity it has established with your agency. Points can be mapped out months ahead and then adjusted as needed when circumstances or tactics change.
- Scale beyond scope: A deliverable that goes beyond scope can lead to an adjustment of points, but with this model, simply buying more points — without the need for an updated SOW — also becomes an efficient option.
Cons of a points-based retainer
- Not every client will like it: Points-based retainers require deep collaboration between client and agency, whereas some clients just want to pay for a deliverable and have it delivered. In cases when the client trusts your agency to apply points in whatever way you see fit, the freedom is nice but could end up being more work if you’re running everything by the client for approval.
- The value of a point: Your service catalog must be precise and expansive for points to produce a solid ROI. Although you may already have achieved that on a project-based model, translating that to points — and the precise value you charge for one point and how many points each deliverable requires — is imperative. Set the value too high, and you risk clients balking at the idea or buying fewer points. Set it too low, and you’ll hurt your bottom line.
- Your team must be ready: This isn’t necessarily a con as much as it is a caveat — if your team has never worked with a points-based retainer or a value-based model, expect an adjustment period. Points offer exciting new ways to craft a marketing strategy that your coworkers will most likely appreciate, but don’t be surprised if, at least at first, their marketing plans for clients don’t look much different than under a flat-rate or hourly model.
Is point pricing right for you?
Although the points model brings numerous advantages to the table, it doesn’t always work for each agency. As already said, this is a different way of thinking that requires time and resources to successfully adjust. Some agencies are so entrenched in traditional billing that switching to point pricing may be met with resistance — or be too daunting to adopt.
Moreover, the services an agency offers may make point pricing more of a challenge. For example, consulting-driven services are almost solely based on hourly billing — and, subsequently, less on concrete deliverables — that may not lend itself to the flexibility that points provide. Or, implementation services that are more susceptible to scope creep can be chaotic if you aren’t perfect with the points.
Also, the nature of your clientele may drive whether you switch to point pricing or stick with something more traditional. If most of your customers prefer the buttoned-up, no-loose-ends structure of flat-rate or hourly billing, convincing them to change might be difficult.
Don’t let any of these considerations discourage you: Ultimately, there isn’t a right or wrong answer on the decision to switch to point pricing. Some agencies successfully rely on points with many of their clients but use flat-rate retainers with others.
The flexibility and potential of point pricing can help agencies expand their tactics, possibly including call tracking with a solution such as CallRail. The future is unlimited — both for your agency and for your clients — when your billing structure lets you be daring, purposeful, and versatile.