What the hell is Progressive Pricing?
When you book a flight or take an Uber, it is pretty standard for fares to fluctuate depending on demand and supply. It’s a pricing structure that has been adopted by all kinds of industries. And now creative agencies are looking at it to change the way we bill for our time. We hit up Leo Burnett Melbourne GM, Naomi Gorringe, with 5 quick questions to explain exactly what progressive pricing is and how it could revolutionise the way we do business.
1. What is progressive pricing?
In the creative industries, we know that all hours of work are not created equal. Some hours of work create amazing value and others none. Yet the primary remuneration model for agencies is still the billable hour.
Progressive pricing is thinking differently about the value we are providing our clients, which in turn means we look at how we price that value differently.
Progressive pricing is a shift from billable hours and ‘costs’ towards identifying the value of the outputs we create or outcomes we can help our clients achieve and pricing accordingly. Progressive pricing is based on the value for a customer – it can take many forms and is present in most other industries.
2. What are some examples of other industries using it?
The reality is that many of our clients use some form of progressive pricing. Here’s some other examples:
Brand identity and logo design. Paula Scher scribbled the new Citi logo on the back of a napkin during the briefing, but Pentagram charged for the value of the output not the time spent on coming up with the idea.
Product/industrial design – IP is owned by the designers they are paid per sale or via subscription.
Management consultants – identify the cost of the problem they are going to solve for a client, then price their solution at a percentage of that problem cost.
Hotels and flights – dynamic pricing based on demand is accepted by consumers despite paying for the exact same product.
3. Why is it being considered for creative agencies?
Because it’s mutually beneficial for clients and agencies. Clients don’t pay for unproductive time, and agencies are rewarded for achieving outcomes for clients—shared goals resulting in stronger partnerships. The time-based pricing most agencies use today was first introduced in the 1960s and doesn’t reflect the current state of the industry or the work agencies do for clients today.
4. How would it benefit our day-to-day?
Less focus on timesheets, more on solving clients problems through creativity. A different pricing model encourages innovation by focusing on the impact our ideas will have on our clients’ business, not the number of people solving the problem or how long it takes to come up with an impactful idea.
5. When will it become a reality for agencies?
This is a total paradigm shift for agencies so certainly won’t happen overnight. Currently, an element of most new business pitches is procurement’s evaluation of rate cards and cost schedules that are based on cost + pricing.
However, we can start straight away by changing the language we use around pricing and looking for opportunities to talk to clients about mutually beneficial progressive pricing models that are based on the ‘value created’ not the ‘hours worked’.