Not all pricing models are created equal – learn why a value-based approach drives real results.
The path to digital transformation is filled with opportunities – but also risks,particularly when it comes to structuring the right commercial model between brands and their digital transformation partners.
Choosing the right pricing model is critical to ensuring that transformation efforts drive real business value rather than becoming a costly, misaligned investment.
According to George Smith, Regional Managing Director of Horizontal Digital for EMEA, the pricing model a company chooses directly impacts the success of its digital transformation: “If you measure success by effort alone, you get more effort. If you measure success by value, you get real business impact,” he says in an in4 video. “A transformation partner should be rewarded for the competitive advantage they help you create, not just the hours they log.”
Companies in the Middle East typically have four pricing models to consider when working with digital agencies on transformation projects. Let’s explore each model, its advantages, and its drawbacks – and why a value-based approach is the best path forward.
Embed video
1. Time and material model
This traditional approach involves paying for the time consultants spend working on a project, plus the cost of materials used. The model is flexible and allows for ongoing adjustments, making it a common starting point for many partnerships.
Pros:
• Provides flexibility to adapt to changing project requirements
• Allows for iterative improvements throughout the project
• Works well for projects with uncertain or evolving scope
Cons:
• Can create tensions if the brand feels the partner is prolonging work unnecessarily
• Costs may escalate without clear accountability on outcomes
• Focuses on effort rather than delivering tangible business value
2. Fixed price model
Under this model, all project details – including scope, time, and cost – are defined upfront, and the brand pays a predetermined price. This approach aims to provide cost certainty but often lacks the flexibility required for digital transformation initiatives.
Pros:
• Predictable costs make budgeting easier
• Provides clear accountability for deliverables
• Reduces financial risk for the client
Cons:
• Stifles learning and adaptation, as any change leads to renegotiation
• Can incentivize agencies to minimize effort rather than maximize impact
• Often leads to rigid, outdated solutions that don’t evolve with business needs
3. Story point pricing model
This model aligns with agile methodologies, assigning a monetary value to a measure of work output called “story points.” This enables better tracking of productivity while allowing for flexibility.
Pros:
• Encourages efficiency and productivity
• Allows for iterative development while maintaining cost control
• Better transparency in measuring work completed
Cons:
• Still tied to production effort rather than business value
• Requires careful calibration to ensure fair pricing
• Doesn’t fully align incentives between agency and brand
4. Value-based pricing model
A value-based pricing model shifts the focus away from cost and effort to measurable business outcomes. Instead of paying based on time, materials, or effort, brands compensate their transformation partner based on the real business advantage delivered.
Pros:
• Aligns incentives between brand and partner to maximize impact
• Encourages innovation and strategic thinking
• Ensures a focus on measurable business results
• Strengthens long-term partnerships and trust
Cons:
• Requires strong collaboration and a clear framework for measuring value
• Demands a higher level of maturity and commitment from both parties
• Needs well-defined success metrics to avoid disputes
Smith strongly advocates for value-based pricing as the optimal approach. “The most effective model is one where both parties are incentivized to deliver the transformation’s true value,” he says.
“At Horizontal, we focus on orchestrating customer experiences that drive competitive advantage – this should be the foundation for how partners are rewarded.”
Making the right choice
For businesses in the Middle East looking to embark on or accelerate their digital transformation, the choice of pricing model is crucial. While time and material, fixedprice, and story point models each have their merits, they ultimately fall short of aligning incentives between brands and their digital partners.
A value-based pricing model, however, ensures that brands pay for the real business outcomes they achieve, not just the time and effort spent delivering them. As Smith puts it, “Consider value-based pricing, but think seriously about what that means for the maturity and longevity of the relationship you need with your partner. Ultimately, that will get you the value you want.”
By shifting to a value-based pricing model, businesses can ensure that digital transformation efforts don’t just deliver projects – but real, sustained competitive advantage.
