The attempt by some major marketers to launch "0% profit" agency reviews is a spectacularly relevant example of the real problem that underlies agency-client relationships.
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Pricing Strategy
When creating an investment portfolio for retirement, no reasonable person would put all their money just in gold, just government bonds, or just stocks (especially in today’s economic climate). In a professional services firm, your client compensation agreements are your most important financial asset. If they are all based on the same remuneration system — just fees based on hours, for example — it means you’re not diversifying your portfolio, and by definition not maximizing your firm's profitability.
Since the turn of the century, a global pricing revolution has been underway. Companies of all stripes now employ not just finance professionals who calculate the cost of products and services, but also pricing professionals who know how to determine the value.
Are you selling what's scarce? One of the most basic principles of economics is that products and services which are difficult to find, in limited supply, and available from only a few providers, are able to command a premium price. For professional services firms, there's a valuable lesson in the law of supply and demand.
Can you imagine taking a test drive in the breathtaking new BMW 7 series, turning to the salesman and asking "Wow, I'm really interested in buying this 750, but how many hours did it take to build it?" This question is out of place because buyers don't generally expect to know what something cost to build before they buy it. They judge the price based on a variety of factors -- the quality of the product, the reputation of the brand, and a whole set of other rational, emotional and sensory factors -- but not the actual cost of making the product.
In the marketing world, because the creative services business is still mired in the hourly billing model, it’s an unfortunate fact that bad ideas cost the same as good ideas. Advertising agencies count up their time and charge their clients the same for a game-changing campaign as for a poorly-crafted series of messages destined to be ignored.