article

Activity based pricing model and KPIs for engaging with Marketing Agencies

by Keerthana Dulipkumar , Lead Analyst, Marketing Agencies

24 July 2022

activity based pricing

Activity based Pricing is a unique pricing structure where every marketing activity that will be required is explicitly predefined along with their associated deliverables and assumptions. Each tactic is then assigned with the relevant job roles and the number of hours required. Every job role has its associated Job Description, Years of Experience and Hourly rate predetermined by the agency.

In a Fixed-price model both the price and the time span are fixed. The contractor agrees to accomplish a product or provide a service within a set time frame in exchange for a fixed payment. Non-delivery may entail considerable penalties. Thus, the scope of work and specification are very clearly defined right upfront and most risks (such as non-delivery or cost overrun) are shifted to the agencies.

Activity based pricing model

Agencies that follow a fixed rate pricing typically focus on providing value and long-term client retention. This is mostly because the company and the agency goals are in sync. One of the main benefits of charging clients a fixed rate is that the company’s income each month is much more predictable.

Activity based pricing model and KPIs ensure long-term strategic relationship between the agency and the client. This model also enables price discount, as it assures client demand over a period. The client can take the previous year marketing plan to benchmark this year’s requirements.

A typical activity based benchmark would look like the following:

activity based pricing model

Hence the total fee required for each activity would be;

Total Fee = ∑(Hourly rate*Hours required)

Activities – to be determined by the Company:

Activity Type – Activity category or classification

Brand Strategy

Activity Name – Name of the Activity

Strategic Consulting and POV Development

Description – Brief description of the work that needs to be done

New campaigns, new launches support and consultation related to account. Includes participation in marketing team meetings, cross-functional team meetings, medical and data downloads, support/consultation related to market research, brand fundamentals, and development of strategic insights for HCP and Consumer/Patient channels.

Includes quarterly strategy plan/POV or ad hoc strategic presentation development or support. Includes attending up to 8 Ad Board or market research events.

Deliverables and Assumptions – Detailed List of deliverables and assumptions associated with the tactic

Deliverables

- Quarterly strategy palns (4)

- Slide presentation(s) or other documents as needed

- Attendance at Ad Boards (8)

Assumptions

- Consultation and AdHoc support to be determined on a monthly basis

- New ideas = high complexity (senior creative & strategic oversight throughout)

Complexity Level Definition:
- High - New Idea (senior creative & strategic oversight throughout)
- Mid - 50% - 25% of content changes/refinements (strategic & creative support at key touchpoints)
- Low- 25% or less content changes/refinements (no strategic or creative support needed)

High

Resources – to be allocated by the agency:

Job Titles – Title of the role

Account Coordinator

Job Description – Brief description of the work reponsibilities applicable to the role

Agency account coordinators provide administrative and customer service support to account executives, media planners and client services managers.

Years of Experience – Minimum and maximum years of experience applicable to the job role

2-3 years

Hourly Rate – Average hourly rate of the role in local currency

Hours – to be agreed between the company and the agency

The company and the agency agree on the number of hours required by the role per tactic.

	Role Titles	Planning Director	Client Service Director	Senior Account Director	Account Director
	Hourly Rate	240	300	200	155
	Total Fee	Hours Required
~Activity Details~	114,000	40	8	200	400
~Activity Details~	13,400	0	8	24	40
~Activity Details~	19,860	24	0	24	60

Conclusion

Agencies find it a bit difficult to implement activity based fixed pricing and KPI models to new clients. Also, the agencies are taking quite a risk by adopting this model because if they mismanage the hours, especially on complex activities, they could face problems with profitability. Hence, it is important to determine and constantly evolve the price benchmark and the KPIs. This ensures increased profitability, growth, and supply assurance for the companies as well as the agencies.

While implementing activity-based models for pricing and measurement, advertisers must also understand that there will be too many variables involved. Hence, a well-developed ACTIVITY BASED BENCHMARK can be best used as a guiding tool for price negotiations and performance measurement customized for a project or a client.

References