If you have been following Paul Roetzer's meteoric rise in the marketing world over the past decade with his innovative "point pricing" model, you may be wondering just what is point pricing and how do I explain it to my client? It is well worth the inquiry. This particular pricing model has garnered a lot of attention, especially in the past few years, and seems set to disrupt traditional agency - client relations and all of the inefficiencies which come with them.
Point pricing owes the roots of its name, and perhaps its intention, to a 20th Century disruptive pricing model known as "base point pricing." This model priced products at a "base fee" with transportation costs added on top. This was a way to escape flat-rate models for which shipping costs were included in the price of the product. Thus, rather than creating market inequities whereby long-distance customers were "subsidized" by nearby customers who paid more than the shipping would otherwise cost, different localities were given equitable access to products.
Point pricing is a similarly disruptive model insofar as it seeks to eliminate hidden inefficiencies in the dominant agency - client pricing models which are used today, namely the "billable hours" model. Rather than focusing on the potential productive power of any particular employee, point pricing ties payment to the specific tasks which a client needs an agency to complete: each productive service that an agency offers has been assigned a point value ahead of time, enabling clients to request anything from small projects to extended campaigns at a fixed rate known in advance. It is one of those innovations that seems so obvious as soon as you have heard of it, wondering why it is not already commonplace.
Of course, disruption always requires effort. People are set in their ways and too often business turns down progress in favor of familiar inefficiency. Fortunately, the benefits of point pricing are easily conveyed to the customer if any convincing is necessary at all — the experience of using point pricing practically speaks for itself. If you do need to give a pitch to some clients that may be skeptical, consider explaining the model thusly:
Point Pricing Changes Employee Motivations
Rather than the stale motivating factor which has driven agency - client relations for decades, the billing hour which implies no actual production, point pricing has the implicit requirement that labor be performed (and tasks completed) in order for earnings to accrue. Instead of coming to work to fulfill an hourly quota, employees are driven at a contractual level to produce results. One need not be a trained behavioral psychologist to understand how this key distinction in motivation can energize productive efforts for the client's benefit.
Point Pricing is a Model for the Client
The hours-billable model is without a doubt anarchic and agency-focused. Any inefficiencies in the agency's production pipeline are pushed onto the client, even if workers make mistakes or suffer a bout of distraction. This forces a client to attempt to way in advance the productive competency of a client to avoid massive over-payment, ultimately leading to their engagement in fewer projects as they carry far greater risk than they would otherwise. The task-reward model of client-focused point pricing says to the client that an agency can do a specific set of tasks for a specific price and is thus willing to name that price up front.
Ordering Campaigns à La Carte
Point pricing is, by its nature, easy. It is easy to understand: an agency has assigned point values to each particular task or service it offers, with the point serving as a value metric convertible to currency. It is easy to use: an agency just has to select the tasks they need for a particular project and add up their point values to find its price, or add up project point values to find the cost of a campaign. The model thus offers a transparency that is often wholly lacking in traditional agency - client relations.
Point pricing saves everyone time and money, letting clients get back to running their business and agencies get down to work.