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Putting Value Pricing to Work: How to Get Started Down the Path to Compensation Based on Value

For the past several years Ron Baker, Tim Williams and the 4A’s have been encouraging agencies (and advertisers) to explore agency compensation that is based on the value of agency services and the benefits derived by the client rather than being based on the cost of agency services. In the recent 4A’s/Ignition Consulting Webinar “Putting Value Pricing to Work,” Ron and Tim discussed the range/continuum of pricing options that can and should be considered, methods of calculating a value price, case examples of agencies that have successfully adopted value pricing, and steps agencies should consider to get started down the path to value pricing.
Agency business development executives may want to consider five important and foundational steps that can help get your agency started:
1) Gain Internal Alignment
The agencies that have consistent success with value pricing have a strong internal alignment within the agency management team that they want to be paid based on the value of the agency’s work. These agencies understand that pricing must be an agency core competency and they have made a commitment to aggressively recommend performance-based pricing with ALL clients and prospects.
2) Appoint a Value Council
Establish a leadership team within your agency that has the responsibility and authority to construct and experiment with value compensation arrangements, track key performance indicators that are the basis of outcome-based arrangements and ensure that the agency is continuous learning about pricing, negotiating and articulating agency value.
3) Every Assignment Is a Value Pricing Opportunity
View every client assignment or new business proposal as an opportunity to think creatively about compensation and pricing. Get smart people at the agency to think beyond hours and cost and to consider how else the agency can be paid for what you do
4) Test and Learn
Pricing is no different than any other discipline…pricers need to test, experiment and learn in order to refine both the communications and financial  benchmarks that are used to establish prices. Gradually, over time and with experience, your ability to price will get better. Your agency’s ability to customize techniques and calibrate payment based on performance will improve.
5) After Action Reviews
Establish a formal process for reviewing pricing and servicing lessons learned and opportunities for improvement following every assignment. For evergreen assignments, the After Action Review should be conducted no less than annually (a sample AAR can be obtained by contacting Tim Williams at Ignition Consulting,

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Now Is The Time to Invest in Performance Relationships

This challenging economy does create an opportunity for aggressive agencies to partner with quality clients, jointly invest in a multi-year relationship and structure compensation to seek short term efficiencies in conjunction with significant rewards for business success. Success will likely have to be calibrated to the soft economic environment short term--but as the economy recovers the parties should jontly and richly be rewarded
Posted by Mr. Thomas Finneran (Saturday, March 21, 2009 4:51 PM)

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