Bookmark and Share

Thursday, October 7, 2010

Agency Compensation - Variables that Impact Pricing

It's tough to make predictions - especially about the future.
                                                                    - Yogi Berra

How much will it cost to build an x for us? Where x stands for Website, Microsite, Facebook Page, Mobile App (or even a House, a Bridge, an Aircraft Carrier). Tough question, right? The answer is, "It depends". What kind of x do you want?

Unfortunately, this question is asked by clients of their agencies every day. Given the recession hangover, fortunately it is still being asked. I find that a little education helps either avoid this overly, simplistic question or more productively, it helps point to a method for finding an answer. The approach pretty much has to do with helping your client (as well as your team) understand the variables that impact pricing.

While on the topic, in the spirit of precision, I like to define terms. In general, the price of services and/or deliverables is made of two components: fees (pretty much labor) and costs (usually pass-throughs, such as travel, licenses, equipment, etc.).

Below is a list of some of the variables impact the price of a project. As I hope you can see this list will generate some pretty interesting discussions that, if handled, properly will result in a level of professional empathy that should elevate all involved
  • objectives’ clarity / validity
  • strategy integrity / clarity
  • project duration
  • time of year   -   for info on an ugly confluence of factors, see Use It or Lose It
  • program complexity
  • state / quality of assets, briefing, brand and style guides
  • 3rd party involvement (e.g. other agencies, technology vendors, email / sweeps vendors, client-internal parties [legal, IT, etc], client-external partners [other marketers])
  • scale & volume (planned scale decreases pricing)
  • review / approval process – including: cycle duration, feedback quality / consolidation, and number of stakeholders (e.g. marketing, legal, compliance, branding, etc.)
  • specification quality / stability
  • production value
  • costs (e.g. photos, video, locations, research, technology, travel needs, etc.)
The old Triple Constraint is also a valuable concept to help frame an agency compensation discussion with clients and your team.

There's a wide range of things on the agency side that also impact pricing, such as available staff, their skills, their rates, etc. Is it fair to charge a client an Art Director's rate to do a Production Artist's tasks? Same answer, "It depends".

Let us know your thoughts or if you have some other major variables that drive pricing.