Agency Pricing - Value-Based Pricing is Not a Strategy

Value-Based Pricing is Not a Strategy

Value-based pricing strategy

Let’s Get Real About Agency Pricing

We’ve all heard it: “Hourly pricing is fundamentally flawed. You need to value-price.”

To me this often sounds like “You’re doing it wrong and I’m smarter than you.” It’s also a bit obnoxious because if you ask me, all pricing is value-based. If something doesn’t have value YOU WOULDN’T PRICE IT IN THE FIRST PLACE!

Yes, I agree, hourly pricing is a very difficult model to work with. But I don’t think throwing the term “value-based” around is exactly helping anybody either.

The Problem With Value-Based Pricing

Besides, it’s name, the main issue with value-based pricing is that it is a concept, not a strategy. And the concept is pretty simple. Price based on the value of your services to the client. So if, in a vacuum of space and time, a client stands to make a million dollars off of your work, you might decide to price your work at a percentage of that value. Maybe you charge 80% of the client’s gain. After all, the client still stands to gain 20% on their investment. But as I’m sure you are already thinking, risk is being ignored in this calculation. Time to achieve that return on investment is being ignored. Strategy is being ignored. That doesn’t mean it’s a bad to speculate on what the value of your work is to a particular client. I think it’s more than worthwhile to consider these things when you are pricing an engagement. But it’s not a strategy. Hourly pricing on the other hand is a strategy to measure time to asses value and price a project. Value-based pricing is a thought exercise that can help you be more creative in your pricing strategy. They are apples and oranges. There’s a lot more to consider in pricing.

There more to consider than just value to the client. You must consider:

  • The client’s personality and risk tolerance
  • Client’s budget
  • Market conditions
  • Competitor bids
  • Your positioning in the market

All Pricing Is Value-Based

All pricing is inherently about value. Every buying decision, whether it’s a cup of coffee or a enterprise software implementation, involves a value calculation. Let’s stop pretending that value-based pricing is some revolutionary approach – we all make value-based calculations all day long, both as buyers and sellers.

The Reality of Agency Pricing

Most business owners charge as much as their market will bear while keeping their doors open. This manifests in various forms:

  • Hourly rates
  • Productized services
  • Retainers
  • Fixed-bid projects
  • Hybrid models

The key is constantly pushing pricing upward as long as the market allows, regardless of the pricing model you choose.

Real-World Example: Fixed-Bid Projects

Consider the typical fixed-bid scenario:

A Business has a website project and collects quotes from 5 agencies they think would be good partners. If you are have been asked to bid you’ll likely do you best to get a sense a budget, and in my experience if you push you can get a budget range.

In this situation, you’re making strategic decisions based on multiple factors:

  • Competitive landscape (3-4 other agencies in the same budget range)
  • How badly you want the project
  • Your competitive advantages
  • Available resources and timing

Strategic Pricing Approaches

Your pricing strategy might include:

  1. Pricing within budget when you want the project
  • Reverse engineer scope based on budget
  • Include contract safeguards for tight budgets
  1. Pricing above budget when:
  • You only want the project at a premium
  • You believe you have a strong competitive advantage
  • You can offer compelling upgrade options
  1. Using tiered pricing to:
  • Provide options above the stated budget
  • Allow clients to self-select additional value
  • Create anchoring effects with your pricing

The Hourly Rate Reality

In fixed-bid projects, the effective hourly rate isn’t determined until project completion – it’s simply the final price divided by the hours invested. This is true regardless of whether you explicitly price by the hour or not.

Real Pricing Strategies That Work

Let’s talk about concrete pricing strategies that agencies are successfully using today:

1. Productized Service Packages

  • Pre-defined scope and deliverables
  • Clear, published pricing
  • Streamlined delivery process
  • Example: Monthly SEO packages with tiered service levels
  • Consider taking this further with component-based pricing in order to mix and match various solutions

2. Blended Rate Model

  • Single hourly rate that averages out different team member costs
  • Simplifies pricing discussions
  • Easy to scale with team growth
  • Works well for ongoing retainers

3. Role-Based Pricing

  • Different rates for different roles (designer, developer, strategist)
  • Transparent about expertise levels
  • Allows for precise project staffing
  • Clients understand what they’re paying for

4. Retainer-First Approach

  • Focus on long-term partnerships
  • Predictable revenue for agency
  • Consistent workflow for team
  • Often combined with success fees or performance bonuses

5. Project-Phase Pricing

  • Different rates for different project phases
  • Higher rates for strategy and planning
  • Lower rates for implementation
  • Reflects value of expertise vs. execution

6. Milestone-Based Pricing

  • Payments tied to specific deliverables
  • Clear connection between payment and value
  • Reduces client risk
  • Improves cash flow management

7. Hybrid Models

  • Combine multiple approaches
  • Example: Base retainer + performance bonus
  • Example: Fixed project fee + ongoing maintenance retainer
  • Allows for flexibility while maintaining profitability

The key is choosing a pricing strategy that:

  • Is easy to explain to clients
  • Scales with your business
  • Protects your profitability
  • Matches your service delivery model
  • Works for your target market

The next time someone tells you you’re doing pricing wrong because you’re not “value-based,” remember that all pricing is about value. Your job is to create and capture that value using approaches that work for your business and your clients.

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