Why paying your agency on output is the best option for your business

by Simamkele Matuntuta
Tue, 08/12/2020 - 08:46

Input-based pricing has been the most commonly used pricing model in the marketing industry since the early 20th century. It doesn’t come as a surprise that it’s still the most widely used model to pay agencies. It’s a linear and easily understandable model, wherein a digital marketing agency charges according to the time or hours put into a project. And, oftentimes, agencies use different rates for different specialists within the team, based on the skills, experience and market rates. 

So, each marketing agency’s pay structure varies. But the times we live in are showing all of us the importance of reevaluating our methods and strategies. 

We’re persistently compelled to innovate and prioritise solutions that offer mutually beneficial outcomes. In recent years, there’s been a growing trend of clients moving away from input-based towards output-based pricing models since it is seen as the model to unlock greater value and impact for both the agency and client. 

What is the output-based model?

In this model, you won’t be paying your agency an hourly rate, daily rate or fixed rate as stipulated in your ad agency’s rate card. You’ll instead be paying for the value and impact they offer your business with their overall output. 

For example, if you’re making use of a digital marketing and design agency for ecommerce website development services, you won’t be paying for the number of hours put in to develop or maintain and support your website. You’ll instead be paying for the impact made on your bottom line, i.e. an increase in traffic or conversion rates. 

Why is output-based pricing an option to consider?

Output-based pricing is one of the agency remuneration models that focus less on labour mechanics and more on how the deliverables impact your business. It means that you will not be fixated on the agency’s time, margins, or overheads. And, it also means that your agency’s efforts will be motivated by quality and tangible impact rather than the need to send the deliverables on time. 

It opens up opportunities for your agency to align their goals to yours. That way, everyone is fully invested in all of the processes leading to the outcome. Most importantly, it allows your agency to be fully transparent and become more accountable for their work. This, in turn, motivates your agency to work more effectively to maximise the budget for better results.

Are you looking at a seamless transition?

The challenge with this pricing model, however, is that some outcomes are harder to put a price tag on as they’re rather abstract and not always clear-cut. What we’re referring to here are outputs such as brand awareness campaigns, which are not as easily quantifiable as other marketing campaigns that you can measure via analytical reporting such as click-through-rates or traffic. 

This means that the transition will be challenging for both you and your agency. So, what do you do? Well, you sit with your agency and define what output-value means for your business.

Defining output-value for your business

If you’re looking to make a successful change, you have to be proactive from the get-go by defining what you expect the output-value for your business to be. Communicate this with your agency; in fact, our recommendation would be to sit with your agency to create a clear plan and realistic timelines. 

The process will require commitment from everyone involved and could take months before you realise some of the outlined goals. If you’re the type of client who expects overnight success, you might find it to be a tough process. But the best thing to do for yourself and your business is to keep an eye on the prize.

Final thoughts

Switching to a new model may look a lot like a risky, daunting exercise you don’t want to take part in, especially considering that you’ve gotten results out of your agency through the input-based model. However, the more we experience an environmental shift, the more important it becomes to look for alternative solutions. 

At Rogerwilco, we know that times are changing and the future of how agencies operate is changing. That’s why we evolve with the times and always strive to work with our clients to develop innovative approaches that will benefit both us and the client’s business goals. We’re one of the top content marketing and graphic design agencies in Cape Town that effectively implement data-led and future-proof strategies to meet aligned bottom lines. Connect with us today to engage us on business goals you wish to achieve, and we can work together to reach them.


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