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On this episode of the Agency Leadership Podcast, Chip and Gini discuss different agency pricing methodologies to help you determine which model or combination of models is the right fit for your business.
They go into the pros and cons of 9 different models used across the industry and apply their own personal experiences, providing a unique take on the topic.
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Transcript
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin
Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin
Gini Dietrich
and I’m Gini Dietrich,
Chip Griffin
and we’re here today to talk about pricing models. Not pricing models but pricing models. Oh boy. Yeah. I gotta give listeners know at this point, Jenny I have to come up with something weird to sort of tight to make Joe weird. Yeah. Strange. I’m a strange person. It is what it is.
Gini Dietrich
Today, dear listeners and viewers, I learned that Chip Griffin used to have an earring. I did I did. That is so uncharacteristic that I am still shocked at this news.
Chip Griffin
Time a shocking individual journey. But in fairness, as I told you, I was a kid. So this is no
Gini Dietrich
doesn’t matter. You you as a kid, it doesn’t matter because it’s still uncharacteristic. You as a kid, I pretty much can guarantee He wore a suit and a tie or a bow tie every single day in high school while you’re trying to take down the school board. So you having an earring just just not fail.
Chip Griffin
Now, wait a minute here. I did not wear a suit and tie. I did wear a collared shirt every single day. Of course you In fact, I’m not sure well, it’s probably just in the last few years that I’ve worn a non collared shirt in public. I still remember the first time that I went No, I Well, I sometimes will wear it to a sporting event. Like if I’m out in the sun. I don’t I don’t put on a golf shirt like I have on now but I generally I don’t
Gini Dietrich
what do you what do you wear a T shirt or your Oh, your friend has let’s say that I’m taking
Chip Griffin
I’m fairly certain that that that that is that is not on the approved list of
descriptive terms anymore.
Gini Dietrich
Thank you, right?
Chip Griffin
Please come into the 2020s or the 20. teens. Yeah, no, I still remember the first time that I walked into the custom scoop offices probably 15 or 16 years ago in a pair of blue jeans. And I had a staff member say to me, I didn’t even know you owned blue jeans,
Gini Dietrich
exactly where they pressed with, like pleats on them and everything they were
Chip Griffin
not because the only time back then that I would wear jeans in public was if I was going to Home Depot or something like that. And I was it was a day off. I was going to pick something up at Home Depot and I happen to stop by the office to I figured with Ares picking something up or dropping something off or whatever. But yeah,
Gini Dietrich
so my point is made that you having an earring,
Chip Griffin
uncharacteristic, uncharacteristic? Absolutely. Well, I mean, I got that I in more modern times, I did get people who said I can’t believe you’ve shaved your head. That that was uncharacteristic. I had people say I can’t believe back 10 years ago when I got these classes that were you know, thick framed black people. I can’t you look like hipster? Like I don’t think I look like a hipster.
Gini Dietrich
You also watch TMZ. So you know,
Chip Griffin
I do I do. And see Jenny, this is what this is why we’re gonna turn this into a live stream. We’re just gonna we’re gonna put this on YouTube so that everybody can see in any color. These are the conversations we normally don’t have on the show itself. These are the conversations we have before we record Right, right. So what would you like us to show you the behind the scenes recording process each week, sort of like they had on on remember 20 years ago when radio shows like Don Imus, they would they would simulcast it on TV so you could see the behind the scenes and commercials that they did. Yeah. And some sports stations here in in New England do that as well. Still to this day. So you see the interaction between commercials and stuff. It’s originally it was a cheap way to fill TV airtime. But it was also I mean to someone who likes the behind the scenes stuff. I found it kind of cool, but In case we actually do have a real topic to discuss today, real substance that will help you run your agency business better. Although it probably won’t be nearly as entertaining as this, but more important,
Gini Dietrich
hey, it’s money. So
Chip Griffin
it’s my money, entertaining Money, money, money, money, money, money, money, money, money. And there’s a lot of things to think about when it comes to money and charging your clients and all that. But one of the most important things is to understand what pricing model you’re going to use. And so I wrote an article recently about nine different models that you can use either alone or together to help figure out how to charge your clients. So this is not about how much to charge, how to set your prices. It’s not about the terms of your agreements, you know, do people pay in advance or in installments, that kind of stuff. This is the actual models themselves that you use to package up your pricing.
Gini Dietrich
Yeah, and you’ve made it very easy to have this conversation because you did write an article That breaks down all of the models. So I’ll go through them really quickly
Chip Griffin
and it’s almost like pre show research to me. It’s like I cared about this podcast.
Gini Dietrich
I’m gonna let that one go for now. The Nine models that you have in your article are billable hours will project based buckets of hours, fixed fee retainers, all you can eat, product productized services, points based pay for performance percentage of ad spend, and then choosing the right model. So I think we can talk about each one of these but there are a couple that make me groan and there are a couple that I think work really well. So where shall we begin?
Chip Griffin
Cuz I’m lazy Jenny, why don’t we start at the top?
Gini Dietrich
Okay, the top is,
Chip Griffin
again, billable hours, billable hours. And for those of you watching on video, I am sorry I tried to show you the article but for some reason, my share screen button on my fancy equipment chose something else entirely. I’m not sure why. So I missed it. That will be something that we’ll have to look at after the show. But so billable hours, and I think I think that billable hours get a bad rap. I think there is a time and place for billable hours. I think that the people who say you should never use billable hours, it’s because they haven’t gotten their their billing rate correct. I am not saying that you should use billable hours as your primary method. But I think there is a place for them, particularly if you’ve got a project where you don’t know how much time it’s going to take. You can’t put any definition around it. You haven’t used. Jenny’s fantastic. I forget the name of your process that you use at the start with clients. You have a name for it helped me with that. I thought you had something. Anyway, whatever it is it if you haven’t gone through a process like that, and it’s going to come to me at some point in this journey. I will remember what it is that you cannot be like, Oh, your own process. Happy to help you there. So, I saw so I do think that it’s okay to use it and I think the people who say well, you know, if I charge by the hour then you know, I’m I’m not being rewarded for my efficiency and I’m not being rewarded for all the knowledge I have. Well, that’s why you charge a higher rate, right? I mean, yes, it’s not it’s, it’s that you have priced yourself wrong. I mean, I work with some very high priced lawyers, guess what, they charge me a high price because they have expertise and efficiency built in. when they were younger attorneys and they charge less it was because they had to do research and figure things out. And so you were paying for them to learn and if you’re going to pay for them to learn, you can’t pay as much. Same thing if you are an agency leader, you should be charging more for your services based on what you know and how fast you can do it. You know, I talked to writers I don’t want to be paid by the hour because I write fast so charge more per hour. You Not that hard. Now that said I there are there are problems with the billable hour because it does create some conflict with clients and relationships. So you know, you have to be careful how you use it. But if you don’t, if you legitimately have no idea how long something’s going to take, you should absolutely look at the billable hours possibility.
Gini Dietrich
Well, and I will say, too, and partly because I’m in the middle of this kind of work right now, but crisis work has to be billable by there, it has to be because you don’t know. And so what we do is we charge a certain amount upfront and charge against that retainer for lack of a better term. And then anything above and beyond we build by the hour, and it is a higher hourly rate than we would do for our normal services. Um, I also will say that you have to track your time you have to so even if you’re not billing by the hour, you have to you you and your team have to track your time, right so that you know how much time it takes to do so. So that you can say, Okay, if that’s what you want. And this is our process. This is our hourly rate. This is how much it costs. You can’t do that if you don’t track your time. So even if you’re not billing by the hour, you still have to track your time.
Chip Griffin
Yeah, you absolutely need to know what your effective hourly rate is. And so if not, you’re, you’re out to lunch. We don’t like that. Alright, so billable hours since this is not an hour long podcast, we probably should, you know, keep moving through project based project based This is very common this is this is probably becoming the most common way for agencies to build clients. It’s it’s overtaking the retainer in many cases, which I think was sort of, you know, in the old days was billable hours, then retainers and now projects, I think are overtaking that. And so projects are, they’re great if you want to have, you know, clear definition on both sides, how much money is going to change hands. The client knows exactly what they are going to get at least you’ve set. If you’ve set expectations correctly. They know exactly what they’re going to get for that bucket of money. The problem is on the agency You know, you take on the risk of being able to do it within your estimated time allotment. So, right, yes, you know how much you’re gonna get paid. But if you if you are wrong about the number of hours it takes, you’re either gonna make a lot of extra money, or you might take a bath.
Gini Dietrich
Yeah, and I will give an example, we, I just did a I just did a scope of work for a project base, which is a bunch of social media tutorials. So they want they want to be able to give their sales team tutorials on how to use the different social networks specific to sales. And so that’s pretty cut and dry. Like they want 10 videos, I know how long it’s gonna take to write the scripts and do the work and you know, and I’ve also included one round, one round of revisions, so if they want anything more than that, they’re gonna have to pay for it. So it’s really it is that cut and dried. It’s, this is what they want. This is how many This is when they want it delivered. And I’ll give them one round of revisions. So that if they want to make changes that that can happen and then we go on, so It’s a very it has a start and an end. And it’s very specific.
Chip Griffin
Yeah. And and the key with with a project is to make sure that you are being very specific about the scope of work. And you’re, you’re clearly laying out what the parameters are so that you don’t get into trouble. And you do have that, that shared expectation.
Gini Dietrich
Absolutely. And I think you can do that with larger projects, too. You know, we’re going through the PESO model program, the PESO model process with a client right now. And it’s not it. It’s not a retainer in the true function of the word because there are different phases, and each phase is a different amount. But then we’ve amortize it over the year so that they’re paying the same amount every month. So it is a retainer from that perspective, but we figured it out based on what the deliverable deliverables were for each phase and then we amortized it.
Chip Griffin
Yeah, that makes sense. And actually, that’s it. That’s a good segue to To the next piece, which is buckets of hours. So the next model rather, yeah, so, so buckets of hours, you know that. So this is this is not the retainer based bucket of hours, which we’ll talk about in a minute, this is just straight up, I’m going to sell you 100 hours of time, you can use it up over the next two months, four months, six months, it doesn’t matter, whatever it is, but I’ve, I’ve sold you this bucket. And so what this agencies that sell things this way, typically are doing it, because it helps you get cash in the door sooner. But in exchange, you’re doing it at a discounted rate. So if you normally charge $250 an hour, you might sell a bucket of hours, at $200 an hour to recognize the fact that they’re essentially pre buying it. So that’s that’s why a client might be interested in it. This is one way that people will sometimes do crisis work, right? So, you know, you can say okay, you know, we’re going to sell you 50 hours of crisis time, and we’ll draw down against that and then once you’ve hit the bottom, then then you got to read Fill the tank. So it’s, it sort of blends together some degree of predictability you know, with some cash flow benefits to the agency and a discount to the client. So it’s, it combines a bunch of different things.
Gini Dietrich
Yeah, and I actually I have one client who does it based on so she sells buckets of hours for clients. But what she does is she says, Look, if your budget is five grand a month, then you get I’m just gonna make this up, you get 100 hours a month for $50 an hour. Not that’s not the that’s not what it is. But But that’s an example of how she might do something like that. And so then the only thing I don’t like about that process with her specifically is she has to give time reports to the client which but then when they they run out of their hundred hours for the month, they either take from the next month and scale back for the next month or they have to buy a new bucket of ours. So it’s she’s her business is very profitable. So I, you know, I and it’s something that I had never considered doing until I started working with her. And I was and I see how well it works for her and it does work really well.
Chip Griffin
Mm hmm. Well, I think one of the things we’re seeing too, from this discussion is that you can find a lot of ways to blend elements of these different models together. So, you know, while I’ve tried to come up with non common ones in this article there, you can mix and match you can with the same client, you can say, okay, you know, we’re going to have a base retainer, but then we’re going to charge you for these kinds of projects or you know, however you want to pull them together. And that segues into the next one, which is the this is the holy grail Jenny This is really every agency owner I’ve ever spoken with pretty much says I want more retainers, how do I get more retainers I want? I want MRR and I love it when agency owner start talking about MRR because it tells to me tells me that they’ve been paying attention to the software as a service industry, which I spent a lot of time in because that’s where you tend to hear that phrase much more often than in
Gini Dietrich
recurring revenue is not Yeah, it’s not it’s different. Okay.
Chip Griffin
Yes. I would agree, but they they do get lumped together. So retainers, they’re all sorts of different kinds of retainers. For the purposes here, I’m talking about fixed fee retainers. So sort of the standard, you know, I go to a client and say, Yep, this is, it’s gonna be $5,000 a month for our services. Generally speaking in these agreements, as I’ve seen the most of the times over the years, they’ve some degree of vague definition around what the bumpers are, what the parameters are for the engagement. But they’re, they’re fairly vague. They’re not, they’re not as in depth as you might want. And part of that’s because who knows what the relationship is going to look like in 12 or 18 months. So you want to try to come up with something that that covers the gamut, and makes them want to stay with you. You know, the challenge of these relationships are, as we’ve talked about, many times on the show before with retainer relationships, you tend to take a bath in the first few months because your retainer doesn’t cover all of the getting up to speed time and, you know, learning the client learning that interest If you’re not, when you’re familiar with getting efficient with their workflows, then you start to become really profitable. And then you start getting afraid they might go away. So you start over servicing the hell out of those clients. And so it’s it’s a difficult model from that perspective. But it’s certainly from a pure looking at the book standpoint, it’s good because you feel like you’ve got Predictable Revenue coming in every month.
Gini Dietrich
Yeah, and I think that that’s your growth. The the idea that you have, that you can project your cash flow is really important. And that’s part of the reason why I’m one of them, too, I want to retain I want retainers to because I want to be able to predict the cash flow. And so that I know, you know, what I can do for payroll and what I can do for contractors and when I could do for benefits and so on. Without that predictable cash flow it, it’s a lot more challenging to grow your business.
Chip Griffin
Absolutely. And it you know, the one thing I would say is it does give you a false sense of security and I think a lot of agency sir. A lot of agencies have discovered that in the past few months now. As they realized that these retainers, even if they are long term retainers, they’re not necessarily worth the paper that they’re printed on. Because when you know what hits the fan, if a client wants to leave, the clients probably gonna leave and your recourse is to sue them, which is a bad look for your business. And, you know, probably not all that likely to be successful in terms of actually giving you a positive return on your investment. Now, if you’re, if you’re an agency, and you’ve got $100,000 a month retainer with someone in there in month one of 12 Okay, then maybe it’s worth all the legal fees and hassle to try to go collect that. You’ll burn that bridge for sure. But maybe it’s still worth it to you. If you’ve got, you know, a 20 $500 a month retainer and you’re in month 10. Are you going to sue them for the last two months? Yeah, good luck. I mean, you’ll spend way more in attorneys fees than you will ever recover. So I do know some agency owners who have sued clients sort of to make a point that you have to abide by the contract and they don’t care if they lose money on it. I don’t understand that one, Ginny. I really don’t. I really don’t. You’re gonna have to
Gini Dietrich
explain me. I will say I will say early in my agency life I did because I had one client that was just not a nice guy. And I didn’t care how much it cost. I wanted him to pay. And he did.
Chip Griffin
You didn’t just want them out of your life. I don’t
Gini Dietrich
know, I really I really wanted him to I wanted him to have some pain. He was really awful. And he did us really terribly. And he did not do he did not hold up any end of his bargain. And my attorney to his credit, kept saying, this is going to cost you more. I was like, I don’t care. I don’t care. And I did it to prove a point. And I do not regret that decision.
Chip Griffin
This is why I work very hard never to get on your bad side. Because I don’t I don’t want to experience that. It doesn’t sound like fun.
Gini Dietrich
I’ve matured since then like today I would definitely look at the return on investment on that and go Alright, fine. It’s just rip the band aid off and be Done. But yeah, 10 years ago I was Who knew? You do not? And he paid?
Chip Griffin
Yeah, great. Okay. Moving right along, on to the next model, which is the all you can eat approach the buffet style approach. Yes. And and this can show up in a retainer, typically, it’s in a retainer that you would use this approach, if not your little on the crazy side. But, and this is this is honestly, it’s become more popular as people have sort of productized services. And we’ll talk about that a little bit too. But, you know, where, you know, you’ve got, particularly in the design or development space, you’ve got some of this going on right now. Somewhat in the writing space. You know, we have agencies that will say, you know, you pay us X number of dollars per month, and we will create an unlimited number of graphics for you, we’ll create an unlimited number of landing pages, whatever it is, and typically, they’ve tried to frame it so that there are restrictions on how much you can eat by saying, okay, we’re lonely. to work on one graphic at a time, for example, or things like that, because otherwise you end up with a real mess. But But yes, just like with a restaurant buffet, you’ve got to get the price just right. Because if you if you price it too low, then you end up just you know getting screwed over on profits and probably even lose money if you price it too high then you have dissatisfied clients who turned constantly because they feel like they’re not getting enough value. The value model also encourages clients to have you do things that they don’t necessarily need. I mean think about if you go to a when I go to a breakfast buffet at a hotel, I throw all sorts of crap on my plate that i i certainly from a health standpoint, I don’t need and half the time I may end up throwing some of it away because I didn’t need it. So while you can eat has some risks there are there is a time and place for using it but you really have to understand your model and it has to be set up properly for this and then you got to get the pricing just right.
Gini Dietrich
Do you know if Anybody who who does that? I don’t.
Chip Griffin
So it’s not agencies in the sort of the traditional sense that you and I might think of having grown up with. But there are a lot of agency like businesses that are absolutely doing that. I mean, there’s design pickle, for example, is a very popular one that produces graphics. And again, they say we’ll create as many graphics as you want. They know and you just kind of work through the process. It’s just that they only design one at a time, is that I’ve seen some, some writing agencies that that do the same kind of thing. We’ll write an unlimited number of pieces, but we’re going to write one piece at a time sequentially. And that’s how you sort of throttle it a bit. And so it is, and honestly, most retainers end up being all you can eat even though nobody admits it. Right there. That’s just because most agencies don’t do a very good job of saying no, right? Because your your definition is so vague or even, even when it’s outside the scope. I see plenty of agencies just say sure. Yep, we can do that. Honestly, I’ve been guilty of that, too. When I’ve had clients on retainer, they asked me to do something that’s totally outside of what I’ve agreed to. It’s not even necessarily my agency does. But absolutely to maintain the relationship, we’ll do it. So, you know, even if you don’t think you’re doing all you can eat, you may be doing all you can eat.
Gini Dietrich
Yeah, that’s a really good point. Very good point.
Chip Griffin
And so that’s a segue into productized services, which, you know, is what the design pickles of the world essentially are, and more agencies are trying to come up with sort of productized ways of talking about the services that they offer. And I think this probably started more on the the digital side rehab folks who said, you know, okay, you know, we’ll do this package of social media marketing for this much per platform per month. You know, same in the advertising space, you know, we’ll manage these different platforms for fixed dollars in the you know, this is what’s in the package, we’ll build you a website. For you know, for this package price, we’ll build you a landing page for this price. But even on the PR side, I’ve started to see some agencies who are offering productized services. You know, where we’ll do, you know, and they’re clear about it, you know, sort of, it’s a menu that they will give you and say, okay, you know, we’ve you know, we will we will do a package of performance for you each month that looks like this. And so it can either be something that you stick to firmly sort of sort of like you are a software company and selling that that product or it can be a jumping off point, you know, so here’s my, my bronze, my silver and my gold packages, but we can always tweak it if you need to. And so this is certainly something to consider.
Gini Dietrich
I have a client who does that and she they are doing very well right now. Because it’s not only is it it’s not bronze, golden bronze, silver and gold but it’s something similar where it has three different packages in the middle one is usually what people buy. But and they’re very clear about what you get in that and it’s a 90 day agreement. So right now because of the environment that we’re in, clients really love that that they’re only they feel to quote unquote, commit to 90 days. But she’s also finding that they continue to work together, right? It’s not just 90 days that they continue and then and then they do tweak based on so that it’s that first 90 days, the fall inside that package. And then beyond that they start to tweak and customize based on the work they’ve done together.
Chip Griffin
Right. And this is this is a good one to offer as as a compliment other things sometimes too, right? So if you’ve got sort of a general ongoing retainer relationship with a client, but you know, maybe every six months, they need something. And so maybe that’s a webinar, right. So I know some agencies that will say, Okay, put on a webinar, including the promotion, the management, the recording, the posting afterward, all that kind of stuff. It’s this set price. And so it creates expectations, it’s a good way to upsell off of the retainer, it’s a good way to fence off the retainer. Yeah, because if you say okay, you know, and so I’ve done this in the past where I’ll put in a retainer, and I’ll say for these specific things here are the add on prices right upfront so they know at the start of the agreement because it makes it easier for me to say to them, this is not included in your retainer, remember what you signed, this was already out
Gini Dietrich
to do
Chip Griffin
so you don’t accidentally over service and it gives you an opportunity to explicitly get an upsell later on. So it’s a good one to work into a blend I think for many agencies and something that folks should certainly be considering.
Gini Dietrich
So talk about the points system because that would make my head just I would not enjoy that system at all.
Chip Griffin
So So points and and I first saw this, I don’t know, probably a decade ago or so. And it was there was a book I think, was Paul register or road strike, but I’m not sure how to pronounce his name, but I think that was the book that I first saw it and that he was using it in his agency. And and
Gini Dietrich
I think you’re right, the agency blueprints
Chip Griffin
Yes, I think and if I got it wrong, you know, my apologies. And if I’m mispronouncing your name, Paul, super sorry for that. But in any case, it sort of points based system and I’ve seen since then I’ve seen way more at CDs who have adopted this probably because they’ve read that book or maybe someone else pushed it too, who knows. I don’t know the origins of everything. But the the point space system basically says it can be done as a retainer or it can be done as a bucket. It’s it’s basic, honestly, it’s really no different than some of the models we’ve talked about before, except instead of talking in specific dollar terms for certain things, you talking points. And so what it does is it shifts the conversation with your client away from this press release costs $250. This landing page costs $500. And instead, you say, this press release cost three points. This landing page costs five points. And so it gives people a way to sort of, you know, pick and choose what they need. So they’re good for relationships where what you do for someone varies substantially, month to month. But it’s but it still gives you a framework to work within and it empowers the client to decide what their real priorities are. So if they know that they’ve got 500 points to spend with you this month, they can figure out, you know, this is, you know, we really want to put our emphasis on content or we want to put it on advertising or we want to put it on social or whatever it is. So it’s shifting the dynamic a little bit that way. I will say, my experience, I haven’t used this directly with my clients. But from talking to folks, a lot of people have tried it and abandoned it, because it requires a lot of explanation to the client. And anytime you have to enter your team. Sure. Yeah. And you also have to pre think about every possibility, right? So, you
Gini Dietrich
know, and it’s not a strategy at all, no, but if you did a strategic plan, and then they and then they decided to go off of that and they wanted a landing page and, you know, some tweets and like, all of a sudden you become a tactical agency instead of a strategic one.
Chip Griffin
Right. But, but there is a place for that, right? I mean, that’s not it’s not necessarily where you were, I want to be if we were running an agency, but there is a place for the tactical agency and more So today, I think there are agencies out there that become arms and legs for their clients. If you are efficient in what you do, and you’ve priced it correctly, you can actually be profitable that way. Again, not not necessarily what I would want to run personally as a business, but you can do it. And so this works if you are an arms and legs agency, this can work and honestly, I’ve hired agencies in the past intentionally to have them as arms and legs, right, for whatever reason, I couldn’t hire headcount. So I have hired agencies where it’s basically, you know, I just say, I just need you to be my, my, my extra manpower. And so this is what I’m assigned to you this week. So point space can work pretty nicely for something like that.
Gini Dietrich
Okay, that’s fair. So it would still make my head explode, but that’s fair.
Chip Griffin
So now we’re gonna now we’re gonna get into a couple of models that are they’re used more so on the paid media side of agencies, but since all of us are getting involved in paid somehow because what’s the first letter in pesos stand for Jenny?
Gini Dietrich
A paid
Chip Griffin
Hello there, that’s who? I don’t know about that. All right. This is Oh, I still haven’t remembered the name of your process. So yeah, it’s going to come to me
Gini Dietrich
there is no for it. It’s just a strategic program. It’s no,
Chip Griffin
no, nope, nope, nope, nope. Anyway, we’ve talked about it on the show before and maybe I assigned it and you just aren’t using it properly.
Gini Dietrich
Right?
Chip Griffin
You just need to listen to me, Jenny. I do say some useful things on this and the condition. Yeah, yeah. So anyway, but so these do matter. And they have so let’s first one pay for performance. And this is something that has been used on you know, sort of the more traditional PR agency types as well. But it’s particularly common these days, on the digital advertising side of things where you get paid for the leads that you generate, you get paid for the clicks that you generate, you know, you might be paid a percentage of sales. There’s a lot of different scenarios, but on the traditional PR side of things in the past, there was always debate about you know, do you have success fees or placement fees or things like that, that you would charge clients So this is basically where the agency is engaging in taking, shouldering some of the risk in exchange for a larger reward. Obviously, clients, like these kinds of arrangements when they get them because they know, I’m getting not just this output, but I’m getting this result, right, I know that I’m getting exactly what I’m paying for. And I know what it’s gonna cost me. So they like that. The agency is shouldering a ton of risk, though. So you have to make sure that you are getting the proper rewards. And if you go down this path, it’s probably one you want to blend it with something else to mitigate your risk.
Gini Dietrich
Yes. And I will say having tried all sorts of pay for performance models, the one that works best for us for my agency is a mixture of equity and retainer. So that then I can I’m not only we’re not only servicing the clients business, but we’re also a partner and you know, it’s us. a minority partner, very minority, but we still get to influence the decisions based on the things that we want to do. And I have two clients right now that I have arrangement with. And I effectively serve as their chief marketing officer in both roles. And I get to affect change, and I get to influence decisions because I’m on the board for both. So I, I am a big fan of that kind of model. Because it’s a longer term play, you know, you don’t get paid out for 10 or 15 years, but it works really well. But when you’re thinking about and this is this is one thing that drives me crazy is when a prospect will call and say, Hey, we really just need to get in the New York Times and TechCrunch. And if you can do that, we’ll pay you right. No, right. No, that’s not how this works. No, no, no pay for performance.
Chip Griffin
Yeah, and I do want people to be careful here because you and I are both fans of equity as a pay for performance tool. You have to really know what you’re doing with them. And so, so I every time we talk about equity compensation on the show. I do worry because I’ve talked to a lot of people who don’t understand how to do it right. What are the implications are right? It is, it is a great thing to have in your arsenal, you need to understand the risks you need to understand, you know what it means you need to know how to structure it, there’s a lot of things that go into getting this right. And frankly, I’ve made a lot of mistakes myself over the years on those kinds of arrangements, I still do them. And I like them, there’s value in them. And I actually use them even in my agency consulting now as a tool, but you’ve got to really know what you’re doing. So be careful. Don’t Don’t just listen to us and say equity, cool equity. We’ve seen that happen, right? I mean, you know, back in the late 90s you know, the internet bubble. They were PR agencies and law firms and other vendors just taking you know equity payments from all these startups because oh my god, we’re gonna you’re gonna be the next Netscape. Remember Netscape everybody? Yeah, you’re gonna be the next Netscape and so we want a piece of your company south. Really good. A lot of risk involved a lot of
Gini Dietrich
a lot of risk involved. Yeah. And it is a long, long long term payout. So I’m really careful when I do those deals. Who I involved from? Because I mean, let’s be frank 10 or 15 years from now on the team will be different. So I’m very careful about how I structure it from that perspective as well.
Chip Griffin
Yep. Absolutely. And then the last model that I had on my list is this may have been one of the earliest models for agencies because agencies originally got started more on the advertising side of thing. Yeah, yeah. It’s one of the reasons why agencies are called agencies because essentially, the original agencies were buyers buying agents, they were agents to purchase the ad space for businesses. And so one of the traditional ways that advertising agencies have been paid on a percentage of ad spend. And again, those as more agencies are getting into advertising. This is a very common In a way, at least as a piece of the pricing model, where if you spend $5,000 a month on Facebook, we take, you know, a percentage of that, if you’re and so it’s very common in the digital space, obviously, to the extent that people are still buying ads and newspapers because they do still exist, they do still exist. It’s been a while since I’ve talked to someone about banner ad in any of them, but they do still exist. So I assume somebody’s buying the ad space. But so very common, you do need to think about how you’re going to use this. And part of the problem with assigning a percentage to it is it can all of a sudden make the ad buys themselves, look out of whack price wise and so dependent, because there’s all sorts of ways to do percentage of ad spend the one of the ways that has historically been done particularly in the political world that I came from, was you would just quote a price to the client and they didn’t know what percentage you’re actually getting. And, and it was a great way so a lot of the political ad buying firms make a ton of money even to this day off of their advise. The client has no idea how much they’re getting? Yeah, it’s it’s very opaque. And I think, largely the agency world has moved away from that, because clients have insisted upon more transparency. A lot of outlets are trying to be more transparent, because then they have clients come to them and say, well, you’re so expensive. We heard that you’re, you know, you’re this CPM? No, not really, that’s the markup that your agency was was giving you. So but but absolutely a worthwhile thing to think about. Because as your client grows and spends more, so if you’re working with a client, you see likely to be increasing their ad spend. Working in a management fee plus a small percentage of the ad spend can be a good way to get an escalator into your contract, without having to actually negotiate new prices every time they expand what they want you to monitor or man and
Gini Dietrich
I would add to that affiliates, too. So if you have opportunities to use software or things like that, that you can mark up I mean, a great example of that is sharp spring which, you know, is really inexpensive for agencies and then you can From a marketing automation standpoint, you can get all your clients using it and then, you know, charge them whatever the heck you want. So, you may you may be, you may be charged 200 bucks a month for it, but you could charge 1000 bucks a month or 2000 bucks a month or, you know, whatever, whatever falls within the realm of other marketing automation things. But there there are lots of things like that where you can also make a good little buck and it and that is monthly recurring revenue.
Chip Griffin
Yes. And that’s good. We like that. That is good yet. But that unfortunately has brought us to the end of this episode, we’ve spent a lot of time talking about these nine different models. Hopefully it has given you a lot of food for thought as you look at how you are going to work with your clients and prospects in the future, find ways to mix and match them. I will include a link in the show notes to the original article, but you can also just go to agency leadership comm for that. And so with that, we will close this episode out. I’m Chip Griffin
Gini Dietrich
I’m Gini Dietrich
Chip Griffin
and it depends
