With all the talk of inflation and recession, agency owners are understandably concerned about maintaining — let alone growing — profitability in the new year.
In this episode, Chip and Gini explore how you can correct your pricing to handle shrinking margins due to inflation and other factors. They look at how you should think about client retention as part of the profit mix.
Finally, they remind agency leaders that price increases aren’t the only way to protect profits and that managing scope and efficiency can have the same effect in some situations.
- Gini Dietrich: “Really it’s less about raising your rates and more about how you message it.”
- Chip Griffin: “Our nature is we want to over service. Fine. Just plan that into your estimates for how much it’s going to take to do the work so that you can price appropriately.”
- Gini Dietrich: “Don’t raise your rates just to raise your rates. Find creative ways to embrace the opportunity with clients, and you’ll be able to make money that way.”
- Chip Griffin: “When you’re trying to think about how do you continue to make money in an uncertain environment with all the things that are circling around us right now, part of that is focusing on client retention.”
- Follow the 4-20 rule to get your agency high profitability
- A small price increase can lead to a big boost in profits for your agency
- Setting and Meeting Your Revenue Growth Goals
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.
Gini Dietrich: And I’m Gini Dietrich.
Chip Griffin: And Gini I, I need to figure out how to make some money. I just, you know, it’s crazy time. I, I gotta figure it out.
Gini Dietrich: Holiday time. You gotta make some money. Get it. Yeah.
Chip Griffin: Right after this.
So we are creeping up on the end of the year here. Lots of folks are doing their year ahead planning and they’re reading about how inflation is continuing. There’s still the possibility of a recession and who knows what else 2023 might have to offer. So, so we thought we would talk today about how do we keep making money in this environment as an agency?
How do we, you know, not just generate revenue, but actually profits. And so that’s our jumping off point for today and, and we’ll see where we wind up.
Gini Dietrich: Yeah, I’m glad you said that because I was going to say, making money does not necessarily mean more revenue. It means profit.
Chip Griffin: Yes.
Gini Dietrich: How do make money?
Chip Griffin: And we beat that dead horse all the time.
Gini Dietrich: We do.
Chip Griffin: Because still too many people come to us and say, Hey, I need to grow my revenue by this, or, I’m a million dollar agency. I wanna be a $2 million agency. No, no. Let’s focus on profit, please.
Gini Dietrich: Right. Yeah, yeah, yeah. Please. And I think in as part of that, we can have, there are lots of things that we can be looking at. Certainly raising your rates. Making sure that you’re not over servicing, making sure that you’re getting paid for the work that you’re doing. Making sure that you’re considering a profit margin when you budget for new clients or for, for new projects. Considering other alternative revenue streams. There’s a lot of things that we can think about as we think about what to do in 2023 to continue to make money, even if the economy is shit.
Chip Griffin: Well, let’s, let’s talk about raising rates, right? Because I mean, just before we came on air, I got a, an email from one of my vendors that, you know, they’re the 1700th vendor that I have that’s raising prices on some software subscription that I have. So we’re, we’re seeing lots of, of price increases that are taking effect now. In part because of everything that’s going on economically and in part because that just gives folks an excuse to do it. Maybe they’ve wanted to do it for quite a while. Right? And so agencies I know are coming to me and I’m sure they’re coming to you saying, Hey, how do I increase my prices for my clients because, Everybody’s raising my prices, and so that means my profit is going down and the only way I can fix that is by going out and charging more.
So I, I get that question a lot. And then of course, the flip side is I also have a couple of clients who have been consistently raising rates as they should, and, and some are now getting some pushback from their clients saying, geez, you know, it, we can’t keep paying this higher rate. And so they’re concerned maybe we’ve gone too high. So, so how do you find that that Goldilocks point with your pricing and how do you figure out how to raise prices, particularly on existing clients, which I think is, is probably the biggest challenge that agencies have.
Gini Dietrich: Yeah, it’s really hard. This is totally an aside, but I am finally watching Emily in Paris, and it’s about a marketing executive who goes to, to Paris, and it’s, it’s campy and cheesy, but it’s fun.
The fashion is fun. But there’s one episode where she talks about, there’s a company that’s been with the marketing agency for 15 years, and they are still paying the same measly fee that they started with in the very beginning. And I think we all face that. Like I, it made me laugh out loud because that’s actually a very real thing that you… a client starts with you when you start your business and they pay you $1,500 a month, $2,500 a month, $3,000 a month, like really small, and you continue to grow and their business continues to grow. And yet you, you haven’t, you continue to do more and more and more with them, but you’re not getting paid the same amount that you would if it were a new client.
And so I think that’s a really, it, like I said, it’s kind of campy and cheesy, but it’s a really good analysis of what we do, and I think that’s really common. So there has to be a middle ground, and I think every client on earth understands that inflation has hit and understands that expenses have gone up and understands that we have payroll to make and all those kinds of things.
I think it’s really, it’s less about raising your rates and more about how you message it. Because like you, I’m getting lots of emails from vendors saying, we’re going up, inflation, blah, blah, blah, and it pisses me off when they’re like, when they blame it on inflation because it, it seems to me like you said, an excuse or a reason to do it.
If they handle it differently, I’m like, yeah. Okay. That makes sense. So I think it’s less about raising your rates and more about how you message it.
Chip Griffin: Oh, absolutely. And, You know, I, I won’t admit this publicly, but I actually watch that show as well and had the same reaction when I, when I saw that, that episode, I’m like, well, this is, this is something that’s accurate on TV for once.
Gini Dietrich: Actually true. Yes.
Chip Griffin: And, and it is, it is a problem that many, many agencies suffer from because, and it’s one of the reasons why I’ve said on this show and in many other places before that having long-term clients who always renew isn’t always a good thing, right? There should be some degree of attrition because you’re going to outgrow some clients if you’re continuing to grow as a business, and, and that’s just reality.
But I think that the, you know, that the key is that you need to be, first of all, catching these things early, right? Because most of them happen because it’s scope creep. Yep, and it’s, it is absolutely much more difficult to correct it five years after the fact than it is to correct it in the moment and say, look, you know, we can’t do this without having an amendment to our existing agreement, because this is just well beyond the scope we initially agreed to.
When you try to go fix that years later, first of all, you’ve wasted years worth of profit. And it’s also a more difficult conversation with the client because the client’s like, well, I don’t even remember that, but we’ve been doing this forever, so why? Why is anything any different? And so I think when you’re talking about raising rates on existing clients, the more that you can disconnect it from, Hey, I’m just charging you more for the exact same thing.
And the more that you can shift that into, we’re going to do something different or we’re gonna reevaluate the overall scope of the relationship, or we’re gonna do a strategic plan for 2023, and here’s the cost of implementing it. The more that you can effectively obfuscate that price increase, the better. It’s also important to remember that, that you can also have the same effect by doing less work.
Gini Dietrich: Yeah, for sure.
Chip Griffin: So you don’t have to go to the client and say, I’m going to raise your price by 10%. You can find a way to do 10% less work and get to the exact same place from a profit place. So sometimes it can be just sitting down with a client and saying, We’ve been producing this weekly report for years now.
Does anyone even look at it? Right? Maybe not. Maybe you can cut that out and maybe you save two hours a week. And so now you’ve got an effective savings, which puts more money to your bottom line. So you need to think creatively about how you’re approaching this and, and not necessarily go into it and say, Hey, you know, inflation. Gotta, gotta pay more.
Gini Dietrich: Right. Right. One of the things that we started doing, probably it was right around the pandemic. So almost three years now. We start, we went from annual plans to quarterly. And now that allows us to have that conversation every quarter to say, okay, and not only do we have to like make good on these kinds of things or whatever happens to be because we added all this other stuff in.
Also what happens is clients will say, oh, we really want to do this. We really want to do an industry survey, or we really want to add video or, and we are like, great. And we actually keep a document that we call the popcorn list and every client has access to it, to their own. And we put the ideas in there and then when they say, let’s do this, we go to the popcorn list and we’re like, okay, great.
Should we save that for next quarter, or do you want to try to insert it here? And how do we move things around? And it actually creates a different level of enthusiasm and excitement because now they’re involved in the planning process and you can do it every quarter. So like right now, we’re recording this the first part of December, we’re going through quarter, quarter one planning right now with clients. And they’re really excited about, oh, we, we finally get to add in the video that we talked about, or we we’re finally gonna do this industry survey, or we’re gonna launch this podcast that we’ve been talking about because now we can do it into this next quarter.
It’s going to cost more, of course, but they’re prepared for that conversation. Right. And they’re excited about it.
Chip Griffin: Right. And,and it’s, it’s healthy anyway, because one of the reasons why clients will often say that they’ve left an agency is because the agency was no longer being proactive. They were no longer coming up with ideas.
They were sort of coasting and and resting on their laurels from the past. And, and whether or not that’s true or not, and I will argue in some cases it is true because we were talking before the show, there is a tendency for agencies to start ignoring their older clients, particularly as they bring on new clients, because hey, we all like the shiny new object, and it’s a lot more fun than the one that’s, you know, we’ve been doing the exact same thing for three years.
Part of the solution is, as you suggest, change up what you’re doing. And so that shows that you’re being, you know, creative, inventive, and thoughtful for the client. But it also keeps things interesting for you and your team so that you don’t fall into this monotony of, of simply, you know, churning out the, the same set of widgets week after week after week, which is not what most people signed up for agency life to do.
Gini Dietrich: No, they signed up for the stuff that you were doing in the beginning that was really exciting. And you know, doing it quarterly like that allows you to be able to, to be creative and do those kinds of things, even if it’s not like an industry survey is not creative, but they feel like it’s something new and it’s interesting.
Chip Griffin: It’s different, right?
Gini Dietrich: Yeah. Right, right. But when you have an annual plan, first of all, the annual plan never gets worked. You, and you never achieve the results that you think you’re going to. You stick it in a drawer and you just do the work and to your point, you end up resting on your laurels. So the quarterly plan actually forces you to be engaged, really engaged, pretty consistently, because now you have to, not only do you have to show the results that you got for the the previous quarter, but you have to show the results that you got, how you’re going to amp those up and add on for the next quarter.
Chip Griffin: Right. Now with that model, do you have sort of a, a preset fee that you’re sort of moving around the puzzle pieces or do you renegotiate your fee every quarter?
Gini Dietrich: We have a preset fee that’s sort of like the base retainer. And then if we’re adding certain things on, like if it’s, if we’re going to add something big like an industry survey, that’s, that’s significant, so we will add that on.
Right. Because the base retainer includes the stuff that you sort of have to do. You know, it’s the, it’s the blogging, it’s the emails, it’s the social, it’s the stuff that has, has to happen. And then the ideas on top of that are, are created or renegotiated, I guess.
Chip Griffin: Yeah. And I think that’s a smart way to do it, because you don’t want to have to renegotiate the whole deal every quarter that’s, that’s burdensome to both sides and adds unnecessary risk.
So, you know, but, but having that sort of, that base level that you can then add ornaments to, if you will, and charge extra for them, which is important to remember to do that, right, , because otherwise you’re just robbing from yourself. Now, if, if you’re going to do that and you know you’re going to do that, just price right from the get go. Right? Set the, set your retainer at a high enough level that, that you can give all these “freebies” because you realize that they’re not free, that you’ve baked them into your cost of doing business. And I, I always encourage folks to look at, if you’re going to over service, plan for it in your price.
Yep. And, and a lot of us, our nature is we want to over service. We want to go that extra mile. Fine. Just plan that into your estimates for how much it’s going to take to do the work so that you can price appropriately.
Gini Dietrich: Yeah, I mean, I am guilty of that too, and I’m definitely a people pleaser, so we do over service, but I’ve gotten so good at including that in the price.
And it’s just, it’s just covered in there. And I know that there’s a certain amount of money every month that we’re using to over service.
Chip Griffin: Right. And, and it makes people feel good that you’re not going and nickel and diming them and saying, well, you know, I, I’d look at this, but I’m gonna have to charge you a little extra for it.
Right. Because even if it’s, it truly is just a little extra, it’s that pain point. It, it’s, I, I think I’ve probably shared this story before, but the first agency that I worked with from the client side, way back almost 30 years ago now, used to nicklin and dime us for absolutely everything. And you’d get charged a dollar per page for the fax and you’d, you know, get charged for the taxi to, to go to lunch, which at the time was like four bucks because the way that DC taxi cab fairs are set up or were set up back then you could basically go anywhere downtown for $4 because the rates were approved by Congress and well, they wanted be able to go or wherever they wanted. So of course, Capitol Hill to anywhere downtown was, was four bucks. Anywhere else, and it was a million dollars, basically, but in the heart of the city, you were all set. And you know, to me that was just, it was silly, it was nonsensical.
Fortunately, we’re way beyond those days of, of having those kinds of charges on most agency bills, but you still don’t want to be in the business of having to say, well, you know, this is gonna be an extra hundred bucks here, a hundred bucks there. Figure out how to factor it into your pricing and, and only have to go back to the client to ask for more for substantial new projects.
Gini Dietrich: Yeah, and I think, I mean, going back to what we talked about at the very beginning, which is about messaging, that’s, that’s the whole point of this. It’s like it’s, it’s in how you message it. Like we had a client’s website go down probably about a month ago, and we called the web firm and said, Hey, the website’s down.
We need your help. And they’re like, okay, that it’ll be $1,500 for us to talk to you. And we were like, what? They’re your client.
Chip Griffin: Right.
Gini Dietrich: Their website’s down. Like, isn’t this your job? And they were like, no, it’s not in the scope. $1,500 just to have the conversation. And so I called the client and I was like, listen, we can fix this on my end with my developers if you’re okay with it.
And he was like, yeah, do it. And so they lost the client because the website was down. We had to get it fixed, and they wanted to charge $1,500 just to have a conversation. And so we took them to, to my developers. That was dumb. So remember that. Like when you’re nickel and diming or you’re saying, well, it’s gonna be $1,500 to have a conversation, or it’s a thousand dollars an hour to have this conversation because I’m dropping everything for you right now.
That doesn’t bode well. But when you make them part of the conversation and part of the planning, that’s when you start to move things forward.
Chip Griffin: Yeah. And, and when you’re trying to think about how do you continue to make money in an uncertain environment with all the things that are circling around us right now, part of that is focusing on client retention.
Yes. And, and that’s something we’ve talked about recently, but, but a piece of that is, you know, how you’re communicating these things with them, the impression that you’re leaving and, and frankly, making sure that as you’re out there and, and absolutely hunting for new business for the new year, that you’re not neglecting to spend time and, and, you know, mental thought power for your existing client base. Because, you know, you want to keep them and not only do you want to keep them, you want to figure out how to grow them. I mean, we started talking about raising rates, but it, it’s not really about raising rates, it’s about finding new opportunities.
We can use the term upsell. I don’t love the term upsell, because that sort of implies I think getting someone to pay for something they don’t really need. It’s really trying to figure out how we can deliver the best service for the client and what, what more could we offer them? And it’s not just saying, Hey, I want to try to get an extra 10K out of this client.
It’s saying, Hey, wouldn’t it be great if we did this? Going to your popcorn list idea, right? Here’s an actual legitimate idea that we think makes sense, that would have value for the client that we can do and we can do well. Let’s go see if we can pitch that to them and win that additional piece of business.
Because you’ve already got the relationship there.
Gini Dietrich: Yeah, absolutely. And, and you know, I personally am very hesitant to say to a client at the end of the year, Hey, we’re raising our rates. I’m now, you know, our exec account executives instead of 150 are now 175. Like, I just, I’m not gonna do that. I don’t think it’s right.
I don’t think it’s the right way to do business, and I think it sends the wrong message. Maybe we do that internally. And as we’re doing, as we’re planning for quarter one or quarter two, whatever happens to be, we were doing quarterly planning. It’s in, it’s, we’ve already increased the rate internally, and so we’ve included that in the price, but I would never in a million years go to a client and say, inflation and year end and cost of living and blah, blah, blah, blah, blah, so we’re raising our rates. I just would never do that.
Chip Griffin: Yeah. I, I can’t say never would, I would say I never have. Who knows what, you know, what the future might hold. I, I think that to me though, the key is to, to try to find other ways to get that additional revenue. Yeah, absolutely. And, and part of that is just holding the line so you don’t have the scope creep because if you’re, if you don’t have scope creep on an existing client, you should be becoming more and more efficient at the work that you’re doing.
So your margin should naturally go up if you remain within the, the original scope. Yes. And so if I need to go back to them, I would prefer to go back to them and say, I, I need to charge you more because we’re beyond the original scope, right? And that’s a much more comfortable conversation to have with someone.
Or I’d like to do this new additional thing and charge you for that. And by the way, you can build in a little bit of extra margin in that new work if you’re able to pitch it, that then helps correct some of the, the other bits.
Gini Dietrich: That’s exactly right.
Chip Griffin: But I agree with you going back and just saying, you know, on, on January 1st, I’d like to do the same thing I did for you on December 31st, but I would like to charge you more for it.
I don’t love that and I particularly don’t love agencies that have, you know, the built in 3% escalator or something like that. That’s so silly. You’re just, you’re, but that is truly nickel and diming a client because you’re not really making a material difference to your own business and you’re just sorta, you know, just don’t do it.
If you’re going to have a price increase, have a real price increase. And understand you may lose the business.
Gini Dietrich: Right. Yeah.You might for sure.
Chip Griffin: And if that’s okay, great. You know, I mean, because you will hit that point with clients where it may be worth going to them and say, look, you know, the kind of work we’re doing it, it’s, it’s different now than when we started working with you four years ago.
And so these are the, the minimums that we have. You know, I, I like you, I’d like to keep working with you, but the only way we can do it is if we get it in line with the kind of business that we’re doing now. And if not, no hard feelings. I’ll help you find another solution. I’m okay with that too. I mean, that’s, that’s a legitimate conversation to have.
And because it’s, it’s truly sharing the honest truth that this is a different kind of business that you have now than when you first started working with them.
Gini Dietrich: Yeah, we had a client like that and the CEO and I are actually very good friends and remain very good friends, but I had that conversation with him.
And I remember he put his head down on his desk and was like, you’re killing me. And I’m like, I’m sorry. Like, yeah, I’m running a business too. And so we did part ways from a, from that kind of relationship, but every time that they are, the company’s in trouble. You know? Like there’s something that happens on the manufacturing floor.
There was actually a, a shooting at, at the plant, one of the plants, like every time something happens, he, I’m his first phone call. And he always pays premium rates because they’re no longer a client and he’s great to work with. So we’ve been able to salvage that relationship just from that perspective. But I don’t have the monthly retainer from him.
Chip Griffin: Yeah. And look, I’ve, I’ve had those conversations many times over the years with clients that just, it’s no longer a fit either because of the size or maybe the kind of work is not what we’re doing, whatever it is. And, and honestly, I’ve never had one of those go poorly because…
Gini Dietrich: No, I haven’t either.
Chip Griffin: Most clients understand that. When you sit down and have this conversation with ’em, like, yeah, okay.
You know, I, I kind of know that. This is not…I’ve seen, I’ve seen what’s going on here.
Gini Dietrich: They know. They know exactly.
Chip Griffin: You know, I, I notice you’ve got the fancy new office building, you know, and I, I figured my, you know, $200 a month account was probably not a good fit anymore. All right. You know, and it’s just, and, and frankly, you do the a disservice if you’ve got clients who are super small and not consistent with the rest of the work that you’re doing because you will always neglect them.
And, and so if you don’t deal with that at the right time, it will turn into a reputational problem because they will start to badmouth you, even though they understand they are a small fry. Nobody likes to be treated like small fry. Right. Right. If you say, look, it’s just not, you’re not the right size fry for us.
Okay. That’s a different conversation than you just get ignored. Don’t do that.
Gini Dietrich: Yeah. No, I totally agree. So don’t raise your, your rates just to raise your rates. Find creative ways to embrace the opportunity with them, and you’ll be able to make money that way.
Chip Griffin: Absolutely. And, and remember, it’s not always about raising rates.
Sometimes it’s reducing the amount of work. They both, they both go to the same bottom line.
Gini Dietrich: Does go to the same, the same thing.
Chip Griffin: All right, so there are some ideas for how you can keep making money despite the recession and inflation, and whatever else we get.
Gini Dietrich: Elon Musk. Donald Trump. Kanye West.
Chip Griffin: And that brings to an end this episode of the Agency Leadership Podcast.
I’m Chip Griffin.
Gini Dietrich: I’m Gini Dietrich.
Chip Griffin: And it depends.