'We will pay for performance only', says a prospect over an intense 20 minute conference call. For me, this statement is fairly usual. I respond, 'We are all for performance and ROI. Would you invest the first tranche without any expectations though? 'Prospect quickly quips, 'How is that performance?'I smile. Agreeing to send in a proposal, I close the call. In two days, I follow up with a ROI based inbound marketing proposal and also an unusual 'open' letter to plead our pricing model. I reproduce the entire letter here in all its glory.
Dear Prospective Client?It was good to speak to you, the other day. Thank you for considering us for your company's inbound marketing services requirement. Our proposal reflects the ROI that you would like to achieve from this engagement. Unlike your earlier fixed retainer engagement that billed you for hours (including inefficiencies) and defined 'output', our inbound marketing proposal is about ROI outcomes and eventually, your success. Since we have a "value-based" pricing approach, "very" different from the fixed retainer model, it isn't obvious. Through this letter, We are making an attempt to explain our inbound marketing agency pricing model / approach. To illustrate this well, I am taking the help of Geometry. Specifically, coordinate geometry to represent two important variables.
- Agency Pricing (x-axis)
- Client Value (y-axis)
The y-axis has an arrow mark to capture the objective of client value i.e. 'more the better'. The x-axis has limitations understandably and thus without the arrow mark. For this example, the agency has a pricing goal of 2 units, represented on the x-axis. Anything below 2 units may not be economic. On the other hand, the client has to achieve a medium-term goal of 4 units, before pursuing 'more the better'. How can we maximize the chances of "win-win" in this situation?By sharing the business risk.
To make a promising start, we need your support and confidence. Suppose we begin our engagement at the coordinate point (1,0). Based on your comfort, you take the risk of investing, without any immediate outcome. On our part, we begin at a fraction of our pricing goal. This helps cover some of our 'fixed' expenses - salaries, rent and receivables.
At this point (1,0); our immediate goal is to deliver 1 unit of 'client value' fast, so that we can reach the point (1,1) and be even. It may look easy, but it is far from easy. This phase bears the highest risk and many assignments fail this phase. During this phase, in my experience, only a few clients have appreciation for our efforts. Though we are getting 1 unit, whereas you are still to; this phase is teeming with ambiguity and overwhelming confusion. I call this phase "You think we win". Once we reach the point (1,1); the risk is out of the equation, usually. From point (1,1) we travel together, sharing ROI equally, to reach point (2,2). At this point, the agency pricing goal is achieved. I call this phase "We think you win" because by (1,1) the risk was out.From (2,2) to (3,4) and beyond; it is a "win-win" phase where the client derives significant portion of the incremental ROI - a deserved outcome for the faith and trust reposed in the inbound marketing pricing model. We also benefit with an 'extra' share in the ROI performance.
It would take a year to reach win-win. If you are reading this line, I am sure you too are committed to a win-win.
I look forward to your positive response.
Sincerely,What do you think of the three phases?I would love to hear your perspective.