Artificial intelligence (AI) is opening up a world of possibility for businesses across all sectors. Supporting a host of professional services, from data processing and research to content creation and ideation, it’s become the ultimate labour and money saving tool, and its potential is only just beginning to be tapped.
For marketing agencies, this is an exciting development, enabling faster service, greater insight, and reduced outsourcing. However, it also brings one significant challenge: pricing. Why? Because if you currently use the established time/effort-based pricing model, AI is going to slash your income.
The problem with AI and pricing
For decades, time/effort-based pricing has been the norm for the marketing sector. Each project is billed according to the hourly rate of the individuals involved in its completion and the number of hours they put into it. It’s undeniably simple, which is one of the reasons it’s so widely adopted. In the most part, it’s also served its purpose well. The difficulty now though is that if AI reduces the time and effort that goes into your projects, your fees will have to reduce accordingly. Even if your standard of work remains the same or improves. Meaning that, incrementally, the funds coming into your business will reduce. This not only impacts your revenue, but also fundamentally undervalues your services.
It’s a difficult situation, particularly as the benefits of AI are only likely to increase. So, what can you do? Suck it up, and accept that your profitability is going to nosedive? Or change your pricing model to reflect the changing times?
Tech-proof pricing for a changing business landscape
The majority of marketing agencies use time/effort-based pricing simply because that was the established model when the business entered the market. Everyone else was doing it, so you knew your customer base would be familiar with it. The problem is that despite its simplicity, time/effort-based pricing has always had its limitations. It lacks transparency, and it doesn’t sell your services in any meaningful way because for most customers, the amount of time that goes into their project is less important than the results that are delivered. That’s why deliverable-based pricing is gaining traction.
Deliverable-based pricing – also known as asset or outcome-based pricing – works on the premise that every element of a company’s service is assigned a value. This means that quotes and pitches can be clearly itemised, customers can understand exactly what they are going to be paying for, and agencies have an opportunity to showcase their services. It not only brings transparency to the process for customers, but provides your sales teams with a comprehensive structure to build their quotes and pitches around, removing guesswork and reducing stress. Importantly, however, in addition to that, it removes the emphasis away from the time and manpower that will go into project completion, and puts it firmly on results. This means that it doesn’t matter how you achieve your outcomes, just that the deliverables are met.
Adopting deliverable-based pricing
Of course, while that sounds pretty amazing, it comes with the major caveat that in order to benefit from deliverable-based pricing, you will have to transition away from your current model. So, how can you do that without dramatically impacting operations?
The first thing with adopting deliverable-based pricing is understanding that it has to be an incremental process. You can’t just make an instant change. It’s going to take time, patience, and research, beginning with the process of assigning value to each of your services. This will usually benefit from a collaborative approach, taking in the views of all the major stakeholders within your business, to ensure that you fully understand what you offer, what your customers want, and how you can position your services to maximum effect. You may also require external expert advice to gauge the perfect pricing point.
Once you have a complete menu of services, your teams can use technology, such as configure, price and quote (CPQ) software to support their work. But the biggest step is to relay the changes to your customers. Many will be open to change, others will require persuasion, either way, this needs to be managed on a customer-by-customer basis and will take time. The results, however, will eventually speak for themselves.
AI is unavoidably changing the way we work, and consequently the pricing models we rely on – but this needn’t be a bad thing. It will be disruptive as the changes take place, but whichever way you look at it, time/effort-based pricing is no longer fit for purpose. It does nothing for your company other than oversimplify your offering. As marketing specialists, you need to differentiate your brand at every touch point, including your pricing. The deliverable-based pricing model enables you to do just that. And the sooner you make the move, the sooner you can reap the rewards.
- Tracey Shirtcliff, founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.
