Stop trying to keep up with the Joneses

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Chip Griffin: Welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: Today, Gini, I wanna know how much you charge so I know how much I should charge. Okay.

Gini Dietrich: Okay. Sounds good.

Chip Griffin: Right after this.

So today we’re gonna talk about a favorite topic that many of you have, which is pricing . Everybody wants to know how much should I charge? And sometimes they even want to know what you charge so they can figure out what they should charge.

Gini Dietrich: Yes. So there was actually a question in the Spin Sucks community on this very thing, asking for a great benchmark report for average PR agency retainers and hourly rates for team members, so that they could make sure in a new business pitch that they’re in the ballpark for industry standards.

Chip Griffin: Do you have any thoughts on that, Gini?

Gini Dietrich: I do. Do you?

Chip Griffin: I have many. There will be no shortage of thoughts for the next twenty minutes.

Gini Dietrich: No, there will not be. My first thought was when I read that was who cares what anybody else charges? What does it cost you to do the work? How much do your team members cost you to employ them?

How much do you pay them? How much are their benefits? How much are their paid time off? How much is their insurance? How much taxes are you paying? Like figure all of that out. And then base it on that. You do not base it on industry standards or what other people are charging.

Chip Griffin: But Gini, I might be leaving money on the table or I might charge so much that I can’t actually win the business.

Gini Dietrich: Okay. So what? You can’t charge what other people charge. People say this to me all the time. They’re like, well, Gini, you can charge more because you live in Chicago. I hate, hate, hate that excuse because that’s what it is. An excuse. I charge what it costs us to run the business with the employees and their benefits and their taxes and everything combined with a, I mean, a decent profit margin on top of it.

And that’s what we charge. We do not charge what other people in the industry charge. Some people in our industry charge a thousand dollars an hour. That would be great if I could get that, but that’s not what it costs. So we really look at, and we’ve had this conversation a thousand times. You have to understand how much it costs you to run your business.

What kind of profit you need to be making to sustain the business and then figure out how to charge.

Chip Griffin: Right. And people do say all the time that, you know, if you are in Chicago or New York or LA, you have the ability to charge more. It’s not that you have the ability to charge more, it’s you must charge more, in order to cover your cost.

Gini Dietrich: Right. Because it costs me more.

Chip Griffin: Because if you are renting space in New York, that is way more than renting space in Concord, New Hampshire. It just is. I’ve rented space in both places. I can tell you, there is a wild difference in those prices. And so what you have to charge in order to make what you believe to be a fair profit is going to necessarily be different. And the staff that you hire, you’re gonna end up hiring, if they’re in the office – and this is sort of, you know, pre remote times – if they’re in the office, you’re gonna have to pay them more, because their rents are more.

Gini Dietrich: Right. Right.

Chip Griffin: And, and so if someone is living in San Francisco, the same salary they get in San Francisco, if they live there is not, doesn’t have the same buying power as if they live in Concord, New Hampshire.

Gini Dietrich: That’s exactly right. And so, yes, I can charge more because I live in Chicago, but it also costs me more to have employees, an office, all of the stuff.

Right. So, yes, that is true. Also we work with clients around the globe, not just in the United States of America, but around the globe. And I also have to take into account that somebody in Concord, New Hampshire may not be able to pay the same that somebody in Chicago would have to pay. So I have to take all of that into account.

So I never look at it from the perspective of what are industry standards or what are other people charging? I look at it from the perspective of how much does it cost for me to run this business? How much do I want to make in profit? And then figure out what I’m gonna charge.

Chip Griffin: Right. And mean, I see this, it’s pervasive across all sorts of different industries.

It’s not just the agency world, but far too many people worry too much about what their perceived competitors are doing, how much they’re charging, what they’re offering. And you need to start by looking at yourself. Do those things matter at some point? Yes, absolutely. But you need to, to first get your own house in order, and you need to understand, as we’ve talked about, what does it cost you to provide the service?

What kind of profit margin are you looking to achieve? Now you’ve got that floor, right? I talk all the time about floor to ceiling pricing. Yeah. Figure out what that floor is. That other intelligence might be helpful as you try to, to test for a ceiling, but it’s still not a, it’s not a replacement for actually doing the hard work of presenting numbers to prospects and clients and figuring out will they pay it.

Right. Right. And, and so there, lots of this data exists, but far too many people spend far too much time looking at it, worrying about it, asking about it, and instead focus on yourself first.

Gini Dietrich: 100%. So one of I was on Instagram a day or two ago, and I saw – I follow lots of food stuff and chefs, which I know will not surprise you.

And one, Bon Appetit actually just did a checklist of how much food has increased for a restaurant in the last 90 days. And they said, okay, butter 90 days ago cost this. And there’s been 141% increase in butter. Oil used to cost this, and now it cost this. Like they did a whole checklist and it was fascinating to see how much things, how much more things cost in just three months.

And their point was when you go to a restaurant and things cost more, this is why. It’s not because of inflation, and people saying, well, we have to pay more so you have to pay more. It’s because it’s actually costing them – the restaurant – significantly more money to provide the same food that they did 90 days ago.

And you have to do the same thing. You have to understand how much things are costing you now. And account for things like raises and bonuses and cost of living raises and all those kinds of things in the future. As you figure out what is going to cost to run your client’s business for them.

Chip Griffin: Right. And a lot of restaurants end up failing because they don’t pay attention to food costs.

Gini Dietrich: That’s exactly right.

Chip Griffin: I mean, I have a lot of friends who have worked in the, the restaurant industry, have owned restaurants over the years. It’s a particular passion of mine as it is of yours. And, and so I’ve gone through these exercises where I’ve talked to them and a lot of them just don’t have a good handle on food costs. That, that is why a lot of them fail. Same thing with agencies. If you don’t have a good handle on what it costs to deliver a service, you’re going to have a staff that you must overwork because that’s the only way that you can get the deliverables done that you’ve promised for what you charge, because you can’t afford to hire any more people.

So you just gotta burn out your staff. Or your other alternative, or maybe oftentimes in addition to that is you cut your own pay. Right. So you’re underpaying yourself. You’re overworking your team. Yep. Yep. What’s the point? Why are you doing that?

Gini Dietrich: Been there, done that.

Chip Griffin: And if your focus is primarily on what someone else is doing, you will never hit the targets that you want to have.

And it, this goes back to some advice that my grandfather gave me back, you know, not long after I graduated from college ahem a couple years ago. And, he said, just remember, don’t try to keep up with the Joneses. And, that’s good advice for agency leaders as well. Don’t worry about keeping up with all the other agencies.

Don’t worry about what Edelman charges. Don’t worry about the agency down the street. It doesn’t matter. It just doesn’t. You need to figure out what’s gonna work for you, getting you the clients that you want at the profit margin that you want and, and supporting the team that you have. If you do those things, you’ll be in good shape, no matter what all of this data says.

And I will say that data does exist, right? I mean, there is some of the, you know, Rick Gould does some great research that looks at what PR agencies charge. I, you know, I mean, if you want that data point it’s out there to be had. I just wouldn’t rely on it until after I had done like seven or eight other things. And now this is just one other thing I’m tossing into the mix of things I look at.

Gini Dietrich: Yeah. I 100% agree with you. And I mean, I don’t even pay attention to that stuff. And certainly when clients ask me, we work things backwards and I give them lots of examples. I say, okay, let’s say – a big thing that a big question I get a lot is how much should my minimum retainers be?

I don’t know. Like, well, our competition, their minimum retainer’s $2,500 a month. Great. Do you know if they’re making any money? Do you know what they’re paying their teams? Do you know if they’re about to go bankrupt? Like okay. That’s a terrible thing to look at. So we always work things backwards and I say, how much time do you think it’s going to take you to do this project or to do this work?

And then we say, okay, based on that, what, and we have a calculator that shows what it costs the team to run the business and what, you know, the cost for having the team. And then we add on the profitability margin on top of it. Okay. If it’s gonna take 10 hours and just for argument’s sake, it costs $500 an hour to run the business.

So we’re looking at $5,000 a month. I can’t charge that! No one will pay that. And you’re just like, okay, so we have some choices. We can let some people go. We can move to, you know, some pulled full-time some part-time some contractors, like we have choices here. But the cost of running your business is $500 an hour.

Right? That’s the cost.

Chip Griffin: Well, and that’s where it can be helpful to, to sort of once you calculate those things, now you can look at those other data points to figure out does this make sense, or do I need to change up what I’m offering or who I’m targeting or those kinds of things. So, you know, when it comes to things like minimum retainers, I’ll tell you that, that generally speaking your minimum retainers should be about four to 5% of your revenue target.

Right. Right. So, you know, because my rule of thumb is that you should target all clients to have somewhere between four and 20% of your total revenue as an agency in any given time period, whether that’s monthly or annually or however you wanna look at it. And so, you know, if you sit down and say, okay, here’s the minimum project that I would do.

Here’s what it costs me to do it. And so here’s what I would charge to do it. If that’s not four or 5% of your revenue target, then you need to make an adjustment somewhere. You either need to adjust your revenue target up or down, or you need to change the service that you’re offering in some fashion in order to build something that is both sellable, profitable, and also sustainable for the scale of an agency that you’re trying to build.

Gini Dietrich: Yeah, I know this is really hard for people, and I know that numbers tend to get people really upset and that these are not, this is not, does not come to us naturally, but these are the things you have to understand if you’re going to run and grow an agency. And if you don’t get help from somebody who does, like, I have recommended a woman to many of our clients who runs all of the accounting for them. She’s sort of like, Uh, what’s the word I want?

Chip Griffin: Fractional CFO?

Gini Dietrich: Thank you. Thank you. I couldn’t come up with fractional. Thank you. And she does that. She and I actually, because they’re clients that I work with, she and I will sit down once a month and go, okay, this is where things are. Here’s where they’re over servicing. And then I can have a really intelligent conversation with my clients to say, here are some things that we need to do, and here are some things that we need to change, and then it becomes less aggressive to the agency owner.

All of it’s been figured out. And then they’re being told, these are the things that we have to do and here’s why. Versus you have to figure out what it is and go beyond your way. And that always intimidates agency owners, because it’s not our forte. It’s not what we do.

Right.

Chip Griffin: And, and that’s why I think it’s, it’s important to, to look at this in terms of, of what are you trying to build.

And the more that more time you spend on competitive research of any kind, whether that’s, you know, pricing or services or those kinds of things, you end up building someone else’s agency.

Gini Dietrich: Right. Yes.

Chip Griffin: And, and you know, that I harp on, you should be building the agency that you want. Correct. And I guarantee you there’s a place for that agency out there.

There are so many different clients out there. There are very few agencies that you could structure that couldn’t make a go of it if executed properly, right? No matter how obscure your targeting may be or the service offerings, because you don’t need to find that many clients, right? You only need to find 10 people who agree with you that this is what the agency should be doing.

Yep. That’s how much it should cost. If you can find those 10 people anywhere in any corner of the world, you’ll be fine. So focus on what you are trying to build. When you do competitive research, you’re simply imitating other people. It would be like if I decided that I’m gonna open a burger restaurant and I just went to McDonald’s and I wrote down everything that they did and I just copied it.

Right. Guess what? People have tried that it doesn’t work.

Gini Dietrich: Wendy’s tried it. Didn’t work.

Chip Griffin: You gotta come up with a different angle, right? Come up with your own angle, your own idea.

Gini Dietrich: Right. That’s exactly right. And it comes down to marketing. It comes down to having a target niche. It comes down to having a target industry.

It comes down to having target services. You can’t be all things to all people. And I know that that’s really scary for some, and I actually just had a conversation where the person said, well, I have to work, so I don’t even care what the work is. And I was like, yes, let’s not do that.

Because six months from now, you’re gonna be unhappy. But let’s start to figure out the work that you want to do and how to go after the clients that will hire you to do that kind of work.

Chip Griffin: Right. And it, and it’s fine to try things and then realize you don’t like them too, right? Yeah, for sure. Yep. And so I, I will often encourage clients to take a look and, and take on a project that they’re not sure about.

Right. Because it’s an opportunity to figure out is this a good fit or not? You might be surprised. There might be things that you didn’t think you would like that you actually like. Right. Right, right. I mean, we’ve talked on this show before about how I dabble in photography and I do mostly sports photography, but I experimented with doing some portraits lately.

I kind of like it.

Gini Dietrich: And you’re kind of good at it.

Chip Griffin: I didn’t think I was gonna like it. It turns out I like it. So I’ll do more portraits because of that. Right. But it’s, I wouldn’t have known that if I didn’t try. Right. Absolutely. Now I’ve tried some other kinds of photography, like event stuff. I don’t like that as much.

It’s just not as much fun. Yep. So I’m not gonna be pursuing that and that’s fine.

Gini Dietrich: It’s totally fine.

Chip Griffin: Yes. And it it’s good in fact, to sort of, you know, test yourself, try different things. Learn, but for God’s sakes, learn from it. Don’t just keep doing it over and over again, because that’s what you see someone else doing.

Or that’s what someone, some expert on YouTube told you, well, this is what needs to be in your package. And this is how much you need to charge. And here’s how you do business development. There are plenty of those people out there on YouTube. Don’t listen to them, listen to us, listen to us.

Gini Dietrich: You do watch all of them. It’s pretty funny, you do

Chip Griffin: I watch them because it’s, it’s great content fodder. And, and frankly, I want to know what agency owners are hearing. Yeah, because it really helps put in context a lot of the things that… In fact, before I started, you know, really following this stuff a couple years ago, I would hear agency owners, you know, use certain phrases or things and I’d be like, where are they getting that from? Now I know. I know exactly where this stuff is coming from. And it’s it’s putrid advice for the most part. It is. And, and I don’t understand why so many people get fascinated with it. Other than the presenters do a pretty good job of presenting it and look, it probably worked for them. It doesn’t mean that it will work for you.

And it’s the same thing when it comes to pricing or scoping or those kinds of things, feel free to learn, take this information in, but don’t try to copy it. Don’t try to figure out if you’re charging the right amount, because that’s what Joe Schmo is charging too.

Gini Dietrich: Yeah, you can’t, you can’t do it based on what the industry is charging. You can’t do it based on the competition. You really, you really, really, really have to do it based on how much it costs you to do business. What your profit profitability margin is, and then figure it out from there. Because if you don’t, you’re going to end up being unhappy, going bankrupt, going out of business.

Like there’s a thousand things that could go wrong. If you’re not charging the way, the appropriate amount for the way that you’re running your business at this moment.

Chip Griffin: Right. And it’s not just about pricing. It’s about every aspect of what you’re doing. There was a separate conversation recently in the Spin Sucks community about sharing media monitoring accounts between clients and agencies.

And, and is this what everybody does or they don’t do? Who cares whether it’s what everybody else does? Figure out what makes sense. Right, right. Figure out is this, is this a model that works for you and for your clients? If it does great. Go with it. If it doesn’t okay. Do something different. Just because it’s always been done that way either by you or where you used to work or someone you’ve heard about doesn’t mean it’s the way you should be doing it today.

Go ahead and innovate, try something different.

Gini Dietrich: Yeah. And, and by all means like, I love that advice. Stop trying to keep up with the Joneses. It never works. It never works.

Chip Griffin: It doesn’t. He had lots of great advice. Lived to be a hundred, actually have a video of his speech on his hundredth birthday. And it was interesting to sort of hear the, the evolution from 1906 to 2006.

Gini Dietrich: That’s crazy,

Chip Griffin: But that’s a piece that stuck with me that I think was useful for today’s episode.

Gini Dietrich: Yes, it was.

Chip Griffin: So hopefully you all found something useful in here, but don’t take any of it as gospel, learn for yourself, figure out your own ideas and solutions.

Gini Dietrich: For sure.

Chip Griffin: That will bring 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.