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A (Mostly) Serious Look at Pricing Strategy and Structure

Jarad Johnson, President

Posted on August 14, 2012

When we founded Mostly Serious in 2010, we made a decision. Before we began solving problems for our clients, we first wanted to take a stab at solving several problems that sneak their way into new businesses. Toward the top of this list was how we would bill our clients.

Dealing with advertising agencies is difficult—especially for small- to mid-sized businesses and startups, which are the bulk of our clients. When we first talk with potential clients many of them are operating without an ad budget or even a clear grasp of what they’re needing. Part of our initial efforts is to help them figure out exactly what their needs are, create expectations, establish a budget, and work within those parameters to build a plan for each project. This typically starts with a ballpark and leads into a full proposal if we’re on target.

On Pricing Structure

Our industry experience had taught us to create a rate card, equipped with fair hourly rates for the many different tasks we would choose to take on. Research had a rate, information architecture had a rate, CSS and HTML had rates… everything under the sun had a rate. The problem with this system is it doesn’t reflect our workflow or how we choose the talented professionals that start careers here. Our team is assembled of the most talented folks we can find, so each member is multi-talented and brings a higher level of understanding to a project than their billable skill may reflect. With that in mind, great ideas spawn unpredictably throughout a project’s life, making it impossible to predict where in a project the most value will be added. The writing team may stumble upon a change in a startup’s billing strategy while assembling SEO research, or the project manager may discover a feature that the planning stage hadn’t fully revealed. This crossover allows for huge advantages for our clients, yet it creates a significant problem with attaching a billable rate to each skill or, more specifically, to each person.

This led to what we believed to be a simple conclusion: the entire company would operate under a single hourly rate. This rate creates consistency and allows ballparks and project proposals to be assembled more easily, while reducing the headache for clients who no longer had to peruse a ridiculously complex rate card. Since the rates spread potential impact throughout the company, we removed the expectations from certain parts of our process. This encourages a more creative approach from each department and takes the limits off what certain individuals could contribute, thus opening the door to more thought provoking input from day one to launch.

We then began a transition to a loose value-based pricing system but maintained a flat hourly rate. For us, this method delivers the best of both worlds. We keep a quick and effective way to ballpark projects by using our hourly rate and estimates on how long a typical project takes, while honoring certain aspects of a project that could predictably add more value than others. For instance, if a client has had zero SEO efforts in the past but is redesigning a fairly well-made site, we can pretty well assume that writing will have a heavy impact on the project’s success and weight that area accordingly by increasing the number of hours, even if the hours attributed are reflected in benefit to the project and not necessarily the exact number of additional hours spent.

The final step in our pricing system was to offer a tier approach to each project, allowing clients to choose which option is best for the needs we helped them establish. This is a concept we first learned about from teehan+lax’s own experiment with tiered, value-based pricing. We provide clients with a limited feature option that puts the focus on completing their project under budget, an option that hits the budget right on the nose and offers the features we had outlined for that price, and a feature-rich option that goes above and beyond our goals and reflects that effort in the price tag.

Most clients choose the middle option with modifications to include an addition from the feature-rich version. This has proven to be a very effective way to outline areas we think could greatly improve the project without presenting a bloated bid that backs the client into a corner of either spending more than they’d like or having nothing at all.

On Payment Structure

At this point we are easily able to collaborate with a potential client to agree upon a budget and plan of action for bringing the project to life. You may think, as we did, that the problem was solved, but we soon discovered that we had only tackled one half of the problem in agency billing. The second half, which is arguably even more ignored, is how those clients will be paying. Again, our experience taught us that you collect a certain percentage up front, typically 30% – 50%, and establish dates for the remaining amount to be paid throughout the project’s life cycle, with a final payment due upon launch. This is simple, which is why most agencies never question it, but we thought we could do better.

Our first conflict with this structure came in the form of how our clients view Mostly Serious. In the past, many of us came from freelance backgrounds, which had us accustomed to more longterm clients and very few one-off projects. This is atypical of many startup agencies, which strive on a revolving door of new clients and fresh projects. We’re a little different, and we prefer to secure long-lasting relationships that see the same clients bring many, many projects through our doors. By pure necessity this changes the billing relationship from a set number of payments to a monthly retainer that accounts for the projects we currently have in our queue.

This opened the door to experimenting with less traditional payment plans, such as our now standard 6-month and 12-month plans or even longer plans for projects with several phases broken out over more than one year. Since many of our clients sign on for a 1-year retainer after their project has launched, we realized how beneficial these options could be to both clients and Mostly Serious. Here’s an example we recently worked out with a new client:

  • 30% of individual project budget paid upfront.
  • 70% of individual project budget paid over 12 months.
  • 12-month retainer for ongoing work at X hours per month.
  • Hosting and minor maintenance included for the first 12 months free of charge.

This arrangement has clear advantages for clients and for our company. With lower monthly payments in place of a large lump sum due within a matter of months, clients can better plan how they will pay for their websites. On our end, we understand the advantage of longterm relationships, and this method gives us a full year to prove our value to our clients—at which point they can make the choice of whether or not to re-sign for another year. Given our success rate in landing more than one project per client, this is a great strategy for us.

Find the Balance

At the center of both our pricing and payment systems is the ease of customization. Each client and each project require a clean slate and close attention to requirements. We are able to use the versatility to offer every option from traditional hourly rates and 50/50 payments to completely tailored 1- or 2-year payment plans that include marketing, on-going SEO, feature additions, and more.

Money Doesn't Have to be Scary

Above all, the exploration through how we plan to charge for our work has revealed one huge and unintentional realization: people are way too afraid to talk about money. Discussing budgets with clients shouldn’t put either party on their heels; instead, it should offer a gateway to how we can help a client establish foundational goals and execute the project at the highest quality with the tools necessary to complete the work. Without having this conversation early in the process, both parties are doing themselves a disservice.

While we’re on the topic, do you have a project you’d like to discuss? We’d love to chat about it.

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