Alex Bogusky thinks scrappy small-agency entrepreneurs will lead us from recession. In the piece, he mentions Big Agency Defectors (or BAD), an agency that aims to develop big ad ideas quickly and efficiently without the baggage involved with big traditional agencies.
They have a simple fee structure called “20:20:20” that’s pretty neat:
Our fee structure is simple and transparent. We call it 20:20:20. There are three phases of creative development, each with a bite-sized fee attached. $20k for creative initial concepts. $20k for developing each into a full campaign. And a 20% commission on production costs to produce them…If you don’t want to move forward from one phase to the next, that’s no problem. At the very least you’ll have some fresh thinking about your brand. But we think you’ll like what you see and want to go further. Our fee structure rewards us for getting the ideas into production. This means doing great work right from the start.
I sent an email to BAD’s Mark Simmons asking why they chose this pricing route. His response:
The traditional route is opaque. It takes so much time working out a fee arrangement between agency and client. We’re trying to cut through the bullshit and say up front exactly how much we charge so nothing is hidden. Our system means a marketer pays a reasonable amount at each stage and we’re incentivized to create work that actually sees the light of day.
Pricing can be usable too
We tend to think that only products can be more usable. But pricing can be usable too. Any time you can take something that’s normally complex for customers and make it a no-brainer, you’re closer to closing the deal.
Reminds me of when we did client work and launched 37express (1 page redesigned in 1 week for $2,500). It was our way of getting work done quickly while being as upfront as possible about pricing and deliverables. We eliminate the typical proposal documentation BS. We didn’t need a lengthy back and forth to get started. It was just “Here’s what we do and how much we do it for.” It wasn’t for everyone but some customers really loved the idea of getting down to business right away.
Years ago, Saturn turned the typical car dealer pricing model on end and made it “what’s on the sticker is the actual price.” The reason according to “Saturn: Secrets of the ‘no-haggle’ price”: Few people like the process of haggling for the best price on a new car. In fact, almost two-thirds of car shoppers in a survey said they would prefer to pay a single, set price. It’s no wonder then that people who buy Saturns generally love the no-haggle price.
Pricing is an easy place to fall into the “it’s always been done that way” trap. Next time you’re trying to make it easier for people to use your product or service, look at the way you price it and ask yourself if there’s a better (or easier or faster) way than the status quo.
Related: The early days: How 37signals built buzz out of the gate [SvN]
Matt Radel
on 01 Apr 09Pretty interesting and refreshing approach to pricing in the agency world – I like it.
Also, FYI – the BAD link throws a malware warning in Safari 3.
ajr
on 01 Apr 09I was always curious how many companies came to you for the $2500 redesign? Any idea?
Drew
on 01 Apr 09“We tend to think that only products can be more usable. But pricing can be usable too. Any time you can take something that’s normally complex for customers and make it a no-brainer, you’re closer to closing the deal.”
Amen to that. Full credit to the web for extending the term “use” to include anything that must be perceived, considered, interacted with, or acted upon.
For instance, traditionally, the act of reading a newspaper wouldn’t generally be referred to as “using” it. “Using” a newspaper would include smacking your dog or kids, lining a birdcage, making paper-mache, and actions of this nature. But the actual “use” for which the newspaper was designed is the act of reading the information presented.
Good food for thought. Thanks.
ML
on 01 Apr 09I was always curious how many companies came to you for the $2500 redesign?
The number wasn’t huge but each one was a real win-win for both sides. For us, they were fun projects that let us do what we like most, minus the hassles.
Joseph C Lawrence
on 01 Apr 09I recently wrote a post about 37signals range of apps on Schmahoo, but I didn’t know about this aspect of the business model. What I think is really clever is that pricing has almost been associated with branding. It is punchy and memorable, and I think clients will really appreciate being able to work with some figures in private. I hate the whole process of having to dig for ACTUAL prices when evaluating a business proposal.
Paul Leader
on 01 Apr 09I like this. I hate haggling, and loath complex pricing (yes I’m looking at you cell companies). My current mobile is with Virgin Mobile (UK) and is great: 20p per minute for voice, 10p per text, any time of day, any day of the week. Nice and simple. Could I get something cheaper? Possibly, but I think the certainty.
The first time I bought a cell phone I took a calculator and pad into the shop and spent an hour working out the costs. The assistants thought I was weird, I was almost asked to leave.
I was trying to work out a pricing structure for my new app (Graphomatic) a couple of months ago, I had several different levels with different prices and features. Then it struck me that this was dumb, I was making things needlessly complicated for a pretty simple application. So I’m going to have two levels, free (all the features, but limited data), and a couple of quid a month for unlimited data. Nice and simple. (btw: sign up now and you get an unlimited account forever).
Of course, deciding what the actual amount should be is still a bit of a balancing act. Pricing stuff like this is tough, any advice? I think I’ll just ask a few friends and see what they think.
Paul
Juan Maiz
on 01 Apr 09Yeah, simple pricing is a great way to build a transparent relation with your customer. In our market (e-mail marketing in Brazil) almost every other company hide their prices or their pricing system is too complex. We chose chargin for total contacts, and nothing more. Clients like it very much, ‘cause they can send as many messages they like in a month (respecting anti-spam principles, obviously!) . And finally, a great advantage: our billing system is soooo damn simple! For portuguese speakers: http://mailee.me/site
Paul Leader
on 01 Apr 09@Juan Maiz
That’s a good point about billing systems being simpler . It’s one of the the reasons graphomatic will have one price. Turning features on and off depending on the account type would have made the code much more complex, introduced more bugs, and made maintenance more difficult.
I also think that charging people different amounts for different feature sets (like Windows Home/Business/Professional/Clown/Vet editions) just prevents your customers from appreciating the full capability of your product.
Paul
Juan Maiz
on 01 Apr 09@Paul Leader
Exactly. In mailee we decided that all features will be available at all plans, including trial. Multimple users? No problem. Change the URL for e-mail links by DNS? Ok. We realized not blocking features is a great way to make your customers “stick” to your product. We try to charge more money for services we provide, like creating custom e-mail templates.
flynn like
on 01 Apr 09god mailee sux
Jonathan Dance
on 01 Apr 09We’ve recently been pitching our Ruby on Rails development services under a “1-10-100” plan. Each iteration is 1 month, costs $10k, and is 100 hours of work—a very competitive $100/hour. The cost is all inclusive, and the 100 hours is pure development—the project and client management time is baked-in.
Customers seem to like it—given the feedback, we’ll probably be making it an official part of our site soon.
Edwin Vlieg
on 01 Apr 09Can’t agree more with this post! We at MoneyBird (dutch invoice system for SMB) don’t think we can make more money with providing complicated pricing structures. Every user just gets the complete package if they decide to upgrade to a paid plan.
Advantages for us: easier invoicing system for us, easier signup/upgrade proces for the customer and a great marketing message: “Try us for free and start your business with 3 invoices each month. Need more: just pay €10 each month and everything is done”. We like it!
Tim
on 01 Apr 09I suppose it’s especially true for small companies where there isn’t necessarily a dedicated sales person. By having a fixed and clear price structure, all the information needed is there and I suspect people contacting you are much more likely to close the deal. It was a problem at the last company I worked for: no price was available on the site!
From a customer’s perspective, the Saturn approach is great. (I hate and don’t know how to negotiate anything) I’m not sure how the sales people see it since what they do is play with the price.
Eliot
on 01 Apr 09I’m curious as to why Saturn went away from this pricing. I always thought it was their strong point and at some point they went to the normal pricing route.
Matt Cline
on 01 Apr 09Apple does this too. Their pricing structure for computers is amazingly simple when you compare it to their competitors like Dell & HP.
Marc Robichaud
on 01 Apr 09There can be a distinct difference between pricing in a new market and a mature market. If you have a new product without competitors, you really need to keep pricing simple and easy to understand. In a mature market, the big players will need to have more options to make customers believe they are only paying for what they need. However, the smaller player in a mature market can standout with simple pricing.
So I’d comeback to customers: What do the customers want? What will the customers understand? How much of the market must we appeal to?
Some people will always think that Apple’s pricing model is trying to screw them for $500.
Jon Williams
on 07 Apr 09Our firm’s transparency in pricing projects has always been well-received by clients and prospects. Day rate x days = cost. That’s it.
But I always secretly envied the 37Express model. It was a great idea, marvelously simple, and timed just right to capture the UI/page redesign work that needed doing when the dot-com implosion had wiped out big budgets. Kudos.
This discussion is closed.