Introducing a Points-based Pricing Model
How to drive more efficient ways of working
Points-based Pricing Model. Taking charge of how we charge.
As a small company, we are able to try different things ‘just because’, mostly, we think there’s a better way of doing it — and we’re able to either fail or succeed relatively quickly in evolving our processes. In this article, Co-founder Ian Hammond outlines why he thinks a points-based pricing model’ is better for HammaJack, and more importantly, much better for our clients specifically by rewarding expertise, experience, efficiency and client loyalty.
We now charge for how difficult a task should be, rather than how long it takes for us to do it. This is a good thing.
What is it?
The price-based pricing model is an alternative to time-based pricing. Essentially, it’s about charging for the complexity of a task instead of how long it took to complete the task. While there are a number of examples of PBPM being used in our industry, we have developed our own method based on our way of working scrum-ban and our small, yet highly-efficient and engaged team.
Why do we need to do this?
Essentially, we don’t like timesheets. Yes — they are 100% required in most agencies and organisations as a way of calculating the run rate and agency utilisation. However, when we started out, we wanted to try (if we could) to get rid of all the things we didn’t like. IMO timesheets encourage bad processes, reward cash-cowing, minimise sharing of knowledge of groups and are rarely ever accurate.
How does Points-based pricing work?
I’m sure there’s a bunch of ways of cooking this fish, however, here’s how we do it.
Get a Base Point
Everyone involved in the process needs to agree on what a point is worth. For argument's sake let’s say that we decide 1 point is worth $150 (plus GST). It’s important to consider that this amount is not set in stone and is subject to review every now and again.
So — What Does 1 Point Get You?
As an agency, we sat down and agreed roughly what one point is worth. Taking into account that there are different levels of expertise and experience, we wanted to make sure that 1 point:
would take one of our junior members longer than an hour and would require some research and guidance from other team members or more experienced staff.
Would take our mid-senior team members just under an hour to complete the task, with final QA and peer review from a director.
Would take a director much less time.
As an example:
Weekly review of a client’s Google ad account is worth approximately 1 point of complexity. This is on the assumption that
the ads are already set up
we’ve configured a dashboard to help our review; and
Only minor optimisations and new ad copy will be required.
Agree on a Benchmark Story
As the project works along, rather than thinking about 1-point stories, the team will build a base level story depending on the type of work and the client’s involvement.
For instance, our benchmark story is worth 8 points, I have broken it down for you below:
Story: New Landing Page
Assumptions: All content and branding already provided with access to CRM (Hubspot).
Landing Page Design in CRM
Content Review with Client
Form creation and publication
Tracking into analytics and page testing
Basic EDM creation to send to a pre-existing segmented list.
Backlog Refinement and Estimating Points
Once you’ve agreed on what a point is worth, we allocate points at the start of each week or fortnight during backlog refinement.
We have a few rules to help this process run smoothly. These have been developed by the team at HammaJack with a view of being super efficient and non-combative.
We need three people to estimate
You all estimate at the same time
If your estimates are different you have to convince or concede quickly
3 to Play
Three required to estimate. This can be a variety of team members, but you will need a minimum of three. We do allow additional voices at the table, however, we’ve found that three works.
What usually happens is you have someone who explains what the story is about, and another who writes the story up, and one more to make a quorum.
Same Time Estimation
We use poker cards that we have made with a Fibonacci-based numbering system (1, 2, 3, 5, 8, 13, 21 and ∞). Essentially, if it’s more than 21 points, we need to break down the story to a more manageable size. Each person should estimate at the exact same time as the others, and we try not to influence the decision of the other team members by saying things like, this “should be very difficult”, or “easy as” etc. It’s not a bad thing if we don’t agree on how complex things are as it means that we need to better understand why people think it’s difficult or easy. The overall goal of estimating is to agree on a common point.
Concede or Convince?
We take a very relaxed approach to the discussion if we do not agree. If someone has estimated higher than the others, they will usually try to explain to the team why they think the task is more complicated than the others. Likewise, with a low complexity score. One of the great things about this process is discovering different layers to work and getting another person’s view.
“What a designer thinks is easy is very difficult for a data-scientist, but once explained to the data-scientist in a way that outlines the pre-existing processes that the designer has put in place to save time and complexity — it’s very easy to convince the data scientist to lower their expectations”
What to do with the points?
Working in JIRA, we record the points for each story and use these points to measure the amount of work completed along with the velocity of the amount of work completed within the agency.
As a general estimation, we like to start out with expectations of 60% utilisation of team members, being able to complete 24 points per week.
What are the advantages of Points-based Pricing?
There are a number of advantages of PBPM, with the most relevant being:
Rewarding Efficiency, Expertise and Experience
Encouraging Client and Team Loyalty
Grows team understanding of tactics and tasks
Results in an increase of velocity of work and reduction in the overall complexity of tasks
Rewarding Efficiency, Expertise and Experience.
With time-based models, most agencies will have a blended model or a tiered structure. Regardless of what approach, essentially the way to make money as an agency is to have more bums on seats and more billable hours each month. Co-founder Jacob Moran often talks of why ‘there’s always an abundance of producers and project managers’ at bigger agencies — because you can charge them out at $250 per hour, pay them much less, and because they are pitching in the project, it’s easy to make sure they always get paid first.
With a point-based pricing model:
The easier the team thinks something is to do, the less money it’s going to cost.
The quicker a team gets something done, the more points they can do.
Finding more efficient ways of working (i.e. through tools and AI) will reduce complexity and speed up ways of working, meaning you will effectively get more done for less.
An expert team becomes essentially invaluable. By being able to teach and work with other team members, the entire process is geared around a join understanding and learning how to do things better.
Encouraging Client and Team Loyalty
The longer a team is working with a client, the type of complexity changes. Tasks that may seem complex at the start of the project become relatively straightforward as the team understands and gets to know what works for the client. And new opportunities are discovered that become doable that at the start of the project just would have seemed far too difficult.
A team who works together is continually learning about different ways of working. Rarely do we find that a group of people are happy to do a repetitive task the exact same way. We encourage our teams to find new ways of working. Not only does it keep them more engaged, but it allows them to organically discover new and improved ways of working.
Using Points-based pricing in proposals
Another advantage of the PBPM is the transferability of estimation into proposals and quotes. For instance, if a client comes to us and wants help with doing something, we ask a team to estimate the different stories that would be required to complete the project.
By way of example:
Set up Google Ads Account (points are indicative only):
Account access (1 point)
Account audit (3 points)
New account structure with keywords (3 points)
Landing Page development (3 points per page) X 3 pages
CRM integration and tracking updates (3 points)
Allow for 20% administration (5 points)
Total: 30 points
We could, therefore, using our point-based example pricing be able to prepare a proposal for the amount of $4500 (plus GST).
Where it doesn’t work
It might not be perfect, but there are a few things we have to keep in mind as we develop our practice:
Audit and keep track of what’s complex and velocity of points
Rotate people through the teams so you don’t have points bubbles
Complacency with base-level project points.
Keeping Track of What You’re Doing
If you aren’t tracking how many points the team and agency are completing, there’s a real risk that you will run afoul of what you can and can’t achieve. Obviously, putting too much or not putting enough into the top of the funnel will result in too much or not enough work.
It’s Important to Rotate
If sunlight is the best disinfectant, rotating people through teams is a great way of spreading good practices and stamping out bad habits. Think about it — someone who never gets to estimate is never having their thought process questioned, and is never able to critically analyse how other team members approach their workload.
Most Important Point
The Point-based Pricing Method is a fabulous alternative to time-based pricing. While there are a number of additional layers that you will need to have in place, it will reward experience and a better way of getting things done, and also keep team members engaged and encourage sharing of expertise and experience across your projects. HammaJack has decided to roll out PBPM over all of our projects and look forward to sharing you the results and specific data as things progress.