Pricing has been an interesting journey for us. We are a professional services firm in the digital analytics and testing space. Our clients are Fortune 500 consumer brands with complex needs and wildly different expectations. Every client needs a custom solution, but we often have to name a price without complete information about the scope. With this challenge in mind, it’s been tempting to adopt an hourly price––partially because it will keep our risks to a minimum, and also because it’s what their procurement groups are accustomed to.
However, hourly pricing has been something I’ve tried to avoid since I started this firm ten years ago. The four reasons it doesn’t make sense:
1) It doesn’t reward us for working fast, beating deadlines or improving efficiency
2) Hourly rates make our employees feel like they’re in a factory, and keeps compensation top of mind rather than problem-solving. Everyone hates it.
3) Some of the best work we do might be done in an hour, and sometimes we’ll analyze data for 8 hours and glean no actionable insights.
4) It discourages communication. Adding an extra person to a meeting might be helpful for a project, but it adds considerable cost in an hourly contract.
With this in mind, we struggled with finding the right balance for pricing. How do we capture the value we create, manage our risk and our clients’ risks for scope mismatch, and offer a solution that fits with their budget needs and their procurement approach?
18 months ago, we put in place a new pricing approach that was a little different from all of our previous attempts.
We developed a fixed fee model that offers clients three pricing packages to choose from. The key innovation for us is that the main differentiators between the packages are the number of variations—or subcomponents of a test—that can be run per month during the contract.
A secondary variable is a bucket of hours for supplemental development, which is more essential for some clients than others. These hours expire each month if they aren’t used which helps keep the additional development requests focused on constantly progressive test variations. It adds flexibility into the contract and anticipates unexpected development issues like debugging, QA or building an extra-complex test. It also helps manage our risk while helping us be able to say ‘yes’ to unexpected requests each month.
All of our price plans include unlimited creative design support throughout the entire duration of the contract. This is highly unusual but serves several key functions. It gives us control over the testing process—from strategy to design to development to analysis. It increases the speed at which variations can be developed and deployed. It improves brainstorming and strategy iteration because all members of the multidisciplinary team work together in-house. It also ensures that clients hire us for our testing and analytics expertise—not simply because they appreciate our design aesthetic.
By using a fixed fee, we are able to pursue the best ideas—not just the ideas that fit into or fill the remaining billable hours. This is really important when it comes to testing because sometimes, getting results takes time. It’s an iterative process and sometimes more learning happens when tests fail than when they succeed. A fixed fee-pricing model allows us the freedom to indulge in this process and ultimately it’s the client that benefits.
This last point is something we really believe as a company—and we now back it up by including an unlimited service guarantee in every contract. It’s a powerful reassurance to our clients and also a representation of our confidence in the work we do.
This fixed-fee pricing model has been a huge success for us and for our clients over the last 18 months. The model enables our team to do the best work they can, it allows us to tailor packages to meet the specific needs of each client, and it helps clients focus on the testing—and more importantly, what they are learning from each test—rather than lists of deliverables and a diminishing count of hours.