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Points based retainers - subscription economics in an agency model

Points based retainers - subscription economics in an agency model

What does it mean to be a ‘points based retainer agency’? There are lots of practical and psychological changes needed to transition to a points-based SaaS model. A points-based retainer system is one of the latter. For your transition to go smoothly, you have to shift your thinking. You also have to shift the client’s thinking. The key is to move away from a time/money framework and towards a project/value framework.

The points-based retainer does this by removing the emotional quotient carried by the idea of money, which has been colloquially referred to as the ‘money illusion’. Instead, a point-based retainer forces you and your clients to think about outcomes. It’s a valuable restructure for SaaS agencies. You’ll need to process-ify each of your services and in doing so will see your strengths and weaknesses.

How to pitch it to clients

The whole SaaS transition is going to require some re-education for most clients. Thankfully, the points-based system has benefits for clients too. It quantifies outputs for both sides to prevent price shock or projects blowing out of scope.

A points-based system also prevents backsliding. You don’t want to invest time and energy in restructuring, only to have your clients slip back into a traditional way of thinking. Points also help reduce churn, again by removing the association of hours. A client can’t look at outcomes in terms of hours and compare it to the outcomes (also in terms of hours) of their in-house staff. The ambiguity forces the client to consider the value of the outcome, not the hourly cost.

Where to start?

1. First up, you need to assign your points a value. If your agency does more than one thing (and we assume it does) this value will need to be universal. You can think of it as time (hourly intervals), words, or blocks in a work day. For example, let’s think of a point as one hour. It’s the most universal measurement. This goes against the idea of separating outcomes and hours invoiced. But points as time can still operate internally as an approximate measure of value. This will help early on, while your staff are acclimating to the new structure.

2. Once you’ve assigned the points a value, you and your team must comb through every product you offer. Break up the processes, examine what works, where time is being lost, and how to improve. This is a great opportunity to tighten up your processes and analyse where you can save time by outsourcing (more on that later). We recommend writing out a how-to for your revised processes, as clearly as possible. This will make it easier to onboard staff down the track.

3. Assign your points (or units - however you want to name them) according to value to the client, not time spent by the agency. This way, you’ll have a higher margin of profit than if it was based solely on hours worked. And the client will still be receiving a high-value product.

For example, in a traditional content agency, a blog post might be invoiced at a standard 6 hours’ work. This is to cover the bottom line. If the staffer or freelancer wraps the blog before the six-hour mark, they might be tempted to pad it out with redundant research or editing. But, if the client pays six points for a blog post, the writer is less likely to go in with an attitude of ‘this will take six hours’ and focus on the outcome instead. As will the client.

It’s the same when you hand over money for tokens in an arcade. Suddenly, you have less attachment to the tokens themselves. They don’t represent money, and infinite possibility, anymore. Tokens (or points) are then only valuable for items in the new system. The payer shifts their focus to the outcome of the transaction. They don't think about relinquishing the possibilities represented by money. Points don’t correlate with any other transactional framework. Your clients will become more enthusiastic about spending their points. It's integral to shift their thinking from loss management to strategic outcomes.

Who’s doing it?

Articulate Marketing do this really well. They’ve even gone to the extent of blogging about their processes. This is a great SaaS education technique as it broadcasts their conversation to many instead of few. Inbound content marketing agencies Synx and Uhuru Network are also hero examples of how to work both the SaaS and points structure. Both agencies offer streamlined, simple points-based subscription packages.

The points-based retainer structure is the perfect philosophical accompaniment to a SaaS agency. It’s particularly easy to implement if you’ve already made changes to your agency structure.

Check out our guide to easy-peasy client onboarding in a SaaS agency structure so you can start selling those points. 

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