Using floor-to-ceiling pricing for your agency

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Chip Griffin: Hello and welcome to the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And today we’re going to talk about floors and ceilings and walls. We’re, we’re just turning into a construction business now. This is a construction podcast.

Gini Dietrich: Which I could actually talk about because as you know, when I have extra time, I become handy like my grandfather was.

Chip Griffin: Well, and, and, and I, I’ve got a nice little workshop and actually I did, I did some construction on, on studio two, just to where I’m at.

Gini Dietrich: So

Chip Griffin: I’ve built an electronics workbench there, but. Listeners to this podcast probably don’t care about that. So maybe we should talk about floor to ceiling pricing.

Gini Dietrich: I like that better instead.

Chip Griffin: Yes. Right after this.

So I think we need to hammer some points home here, Gini. Oh, geez. Can I, can I do? These horrible, horrible high ends to construction.

Gini Dietrich: Oh,

Chip Griffin: which I hadn’t even thought of. I, that was an on the fly.

Gini Dietrich: I’m surprised. I thought maybe you had,

Chip Griffin: you don’t think I actually planned these things out or think about them.

Do you? I

Gini Dietrich: actually thought you thought that one through.

Chip Griffin: Yeah. No,

Gini Dietrich: that was really bad

Chip Griffin: on the floor. I never know what’s going to come out of my mouth.

Gini Dietrich: That does not surprise me.

Chip Griffin: See, so it is what it is. But. So pricing is a favorite topic. We’ve talked about pricing many, many times on this show and elsewhere.

And I still get asked about pricing all the time. And I recently did a webinar for Cloudways, uh, which is a web hosting provider, uh, about floor to ceiling pricing for agencies. And so. Why not talk about it here too, because I think that it’s a, I like it as a framework when I work with my clients to help them understand, um, how not to get in trouble with pricing and how to maximize profitability.

Right? So, cause you, you first have to do no harm. I think that’s, that’s the first rule of most things that you decide in business, but particularly on pricing and too often my experience is, and I’m, I’m sure you’ve seen this too. Agencies price too low. And get themselves into trouble where they’re not making the profits that they should, or even losing money.

Gini Dietrich: Yeah. I mean, I I’m guilty of that. I definitely did that early in my agency life for sure. Yeah. It’s, and it’s hard because I think most of us go into business. Because we’re really good at our craft. We don’t go into business because we’re really good at business. So understanding that whole pricing and profit and profit by client and profit by employee, like all of that.

It’s, it’s a lot for some for right brain creative people like us.

Chip Griffin: And, you know, we’ve talked previously about how most agency people are people pleasers, you want people to be happy, you’re afraid that you’re going to lose business or that you’re going to lose a client. So you over service and all those kinds of things.

And so, you know, as, as you know, one of the things I harp on is the importance of knowing your actual project profitability and. You know, having a budget and tracking against it and figuring out how to do better estimations and all that for future projects. So you really need to start by understanding that.

And if you do that, that’s what will give you your pricing floor. Because if you know what it costs to do the work, then you know what you have to charge to make sure you’re not losing money.

Gini Dietrich: Yeah, and I think that’s a really good point from the perspective of, you know, I will do friends and family discounts.

I will do nonprofit discounts. Um, and so it gives me an idea of what the floor is and where I can discount to the point that, you know, people will feel like they’re getting a deal because they’re friends and family. Um, but that my team is still, you know, Getting paid and making money and getting their bonuses and getting the races and all those kinds of things, too,

Chip Griffin: right?

And, and to do that, you need to make sure that you’re, you’re setting your standard pricing such that you have that room, right? Go lower, right? So, and that’s one of the reasons why, and as, as we’ll talk about this more, you don’t really want to use the floor as your actual pricing,

Gini Dietrich: right? So, you

Chip Griffin: know, so, you

Gini Dietrich: know, so, you

Chip Griffin: know where it is, right?

So, and. You know, and, and we’ve talked about, you know, how to do project budgeting. We’re not going to do that here, but if you, if you look at what it costs to do the work that you’re proposing. And then you at least double it. That’s a pretty good starting point for your floor because that doubling gives you room for profit margin for a mistake in the estimation of the amount of time it will take for the general overhead that you have as an agency, right?

So that’s a good starting point. And that’s, that’s where you hopefully will be able to keep yourself out of trouble if you set that. Marker in place and you use that in creating your, your pricing and proposals and those kinds of things.

Gini Dietrich: Okay, so let’s back out for a second and put this in black and white numbers for people.

So let’s say just for argument’s sake, that your floor is 10 grand a month. You’re saying if you say. You have to charge at least 20, 000 a month between one client or two clients or four clients, whatever it happens to be that, then that you, you’re pretty safe in knowing that you’ll, you’ll be profitable and makes money,

Chip Griffin: right?

So if you’re, if your costs are 10, 000 a month, then your floor is 20, 000. Right. Got it. Okay. Fair. Okay. So you take your cost and then you double it and that’s, that’s what your floor number is. And so you would, you would then never propose to do that scope of work that costs you 10, 000. You would never propose less than 20, even with discounts and all that kind of stuff.

Because if you do, then that’s where you start to get into trouble and you’re either going to make far less than you should, or potentially even lose money.

Gini Dietrich: Yeah. And I think. So I think a couple of things. Number one is when you hire contractors to help you do, uh, certain things, certain things, you know, you have to pay them regardless.

And if you are, if your cost is 10 grand to do the project and you’re paying, and that’s because you’re paying contractors to do, to do the work, if you’re charging less, less than that, if you’re charging less than 20, you don’t have the money to pay them. So I think that helps number one, when you actually have to, you’re actually paying.

Somebody external to help you do the work that helps. Um, the other thing that helps is experience. I have noticed that as I have aged, um, it’s easier for me to say no. And, and, you know, part of that might be just in your forties. You’re like, yeah, I don’t give a shit anymore. Oh, I probably can’t say that. I don’t care anymore.

Um, but I think it’s a really important thing to remember because. To your point, if you’re not making money. Where does, it’s coming from somewhere and it’s almost always your own pocket. Right, right. Almost always.

Chip Griffin: Yeah. It’s a hundred percent of the time. It’s from your pocket as the owner, because there’s, there’s no other place for it to come from.

Right, right, right. You know, you, you can’t go back to a contractor and employee and say, Oh, you know, I screwed up. Yeah. I know that, that I would, you know, that your salary is this, or that, that, that your contract says this, I’m just going to, I’m going to take a little bit of it back.

Gini Dietrich: Yeah. You can’t do that.

You can’t do it. Yeah.

Chip Griffin: And, and, and this is, you know, I, I know that people hate it when I say this, but this is also. When you’re coming up with your project costs, you need to be including the time that your team is spending and that you are spending your time costs something too.

I hate it when I’m talking with an agency owner and they say, Oh, well, you know, it’s just, it was just my time.

It was just my time. So it was pure profit. No, no, no, you misunderstand the whole notion of what profit is at that point. So you need to make sure that you’re including all of that. And, and if you, if you wrap all that into your cost and, and you double it. You’re probably at a good floor. You may need to make some tweaks, you know, based on your own model in your business.

And so, you know, maybe it’s, you know, 1. 9 times or 2. 3 times or whatever. You’ll, you know, you’ll develop this over time to figure out where your safety margin is to make sure that you’re, you know, safe, good place for a profit. But, but that’s, you know, if you start with the floor, Hopefully you’ll stay out of trouble.

Gini Dietrich: I like that. I like that. Okay. So then let’s talk about the ceiling.

Chip Griffin: Right. Cause you don’t want to leave money on the table. Right? Right. And that’s the challenge. No, I do not. You know, but the floor is relatively simple to calculate. Yes. It takes, you know, you got to do some legwork to get the costs and all that kind of stuff and track it.

But, but that’s, it’s much more straightforward than the ceiling, the ceiling, you kind of got to feel it’s like, it’s like being in a room in the dark and you’ve got to, you know, put your hands out and kind of feel around until you, you solve it. And so there’s a few different things that you can do to try to figure out where the ceiling is for the work that you’re doing for the kinds of clients you’re doing it for.

And so the, the first and easiest thing to do, and just about every small agency ought to do this is on your next proposal. Increase your prices, right? Because I can guarantee you that 90 some percent of the people listening to our voices right now, at least are undercharging for the work they’re doing

Gini Dietrich: 100%.

Chip Griffin: And so the first thing you should do is go out and the next proposal that you have for a new prospect. I mean, honestly, I’d say 50 percent increase on your, your usual pricing. So to say, this is what I would normally charge at 50%. See what happens. See what happens.

Gini Dietrich: Because I think, I think that’s a, that’s really good advice because one of two things will happen.

Either there’ll be like, okay, and you’ll, you’ll go, shoot, I should have done it by 75 percent or a hundred percent. Or they’ll say, or they won’t be able to do it. It’ll be too expensive. Right. For the most part, I would, I am willing to bet that nearly, probably nine out of 10 are going to say, great, let’s do it.

Chip Griffin: Not a problem. Yep. And it’s, and, and so you start to, as you continue to do that, you start to, to see what the market’s reaction is because ultimately price is all about the, the reaction of the prospects. And if people are saying yes, then you can keep increasing prices. Like when I talk to an agency owner, they say, Oh my, we’re, we’re so busy.

I don’t even know how to handle it all. Well, Yeah. I mean, that’s a clear signal that you ought to be increasing your prices, right? If you’re, if you’re just inundated with people who want to work with you, you know, have them sort themselves out by charging more, right? This is, it’s like, it’s like the surge pricing that, that Uber hadn’t, you know, people like, Oh my God, I can’t believe Uber did this.

It’s so horrible. Well, but on, on New Year’s Eve, if everybody’s trying to get a car. Yeah, it’s perfectly. I mean, figure it out that the people who need it most are are the people who are willing to pay for it, right? So let the market speak. Now there’s there’s an extreme element of the way Uber did it, perhaps, but it is what it is.

You need to be making those same assessments in your own business and working to continue to increase prices because you are probably too low. You are probably leaving money on the table. But it’s not just testing the prices. You also have to really understand what the value of the work is that you’re doing.

And this is why if you’ve got a real focus to your agency, whether that’s in a particular industry or geography or specialty or whatever, You’re going to start to understand much better what the real value of the work is, because it’s not the blog post you create or the press release that you put out or the website that you build.

It’s what that is doing for the client’s organization. And so you need to really start to understand that because that starts to signal to you what the value of your work is. And that also helps you frame your pricing and set higher prices.

Gini Dietrich: So I’ll give a really good example. Um, we have a client who was purchased by a big conglomeration and the big conglomeration came in and said, great, we need you to do all of these things.

Boom, boom, boom, boom, boom, boom, boom. And we need it by tomorrow. I mean, it wasn’t quite that extreme, but it was pretty, and the client came to us and said, we’re supposed to deliver all this and our deadlines are, you know, are not doable. Can you help? And we were like, yeah, but it’s going to cost you. And, you know, so, and they were at that point, the value was exactly to your point.

The value is not in the email marketing and the content writing and the white papers and all that. It was in the fact that we could deliver. Before the deadline of that, this new owner hat was requiring and it made them look like heroes. So that was the value. It wasn’t in the actual work.

Chip Griffin: Well, and sometimes the way that you are structuring the work that you’re doing, whether that’s the speed with which you do it or the effectiveness with which you do it or the white glove touch that you give or whatever.

That can all help you to, you know, to increase your prices and get closer to that ceiling, right? So it’s not, it’s not simply like, you know, you just write a new price on the same thing. Sometimes you need to repackage or reposition things in order to maximize what you can take in for revenue for the same kind of work.

Gini Dietrich: So one of the things that I like to do to kind of figure out where my ceiling is, is I should not admit this out loud, but I’m going to, I add in the pain in the rear end tax. If it’s somebody I, you know, I’ve decided from the conversations that they’re going to be really high maintenance or there’s red flags, whatever it is, I try to price myself out of it.

And if they still come back and say, okay, no problem. I know it’s not high enough,

Chip Griffin: right? Well, so two things there. So, first of all, I’m, I’m a huge fan of the PITA tax. It is, it is really beneficial. The other thing is, you know, I and along those same lines, I had a business partner. Uh, years ago, who used to call it the pain per dollar ratio, uh, and he always wanted to make sure that, that he maintained a strong pain per dollar ratio.

And that, that has stuck with me. And so, you know, someone who’s easy to work with, you know, that’s where you, you know, you may be willing to go closer to your floor because. It’s easy. It’s fun work. You know, maybe it lets you, you know, stretch yourself in certain ways. Who knows what? Um, but then you’ve got the, the client who comes along and, you know, they’re never satisfied with anything and everything has to be done yesterday.

It’s always a fire drill. They’re not given the feedback they need. Well, that’s, that’s a painful client. And so you need to have a premium in there because it’s really having an impact on the rest of your business. So it’s, it’s not really even a premium at that point. It’s really covering for, you know, probably lost productivity that you’re having elsewhere.

So I think that’s, that’s really important. But the second thing that you said, I think is, is the most important part there, which is that you have to be willing to hear no and say no.

Gini Dietrich: Yeah, for sure.

Chip Griffin: And, and if you are not willing to be on both sides of the no, you’re never going to find your ceiling effectively.

Because you need to get to the point where you actually have people say, I’m sorry, I can’t work with you. Your prices are too high. Right. And they have to not just say that because a lot of people will use that as cover for something else. They actually have to hire another agency that is actually cheaper, right?

Yeah. So when you start seeing that you’re losing business to other agencies based on price, That’s when you can start to think, have I hit my ceiling? Have I hit my ceiling with this type of client? Do I need to fish in a different pond? You’re, you’re starting to find a ceiling at that point. If the prospects are actually hiring someone else for less.

Gini Dietrich: I like that. And that one’s hard to figure out, I think, in some industries, but you know, you get to the point where you, you know, enough people and network enough that you’re able to figure those pieces out. I like that a lot.

Chip Griffin: Right. And at the same time, you have to be willing to say no, so that when they ask you, you know, that they want a discount, or they want better terms, or they want you to turn it around more quickly, or whatever, you need to be confident and comfortable.

In saying no to those so that you’re protecting your floor and you’re moving closer to that ceiling, right? So, so no on both sides of the equation is critical to actually getting the right price for the work that you’re doing.

Gini Dietrich: And I would say something that I’ve learned in the last year is quality of life, you know, if, if it’s going to disturb my quality of life.

You got to pay for that. There’s, there’s a premium for that. And, and, and I think that, that that’s a really big lesson that I have got taken from the pandemic is there are certain things that just aren’t worth it. And I’m willing to say no, or you’re going to, you’re going to pay a massive premium for it.

Chip Griffin: Well, and agencies need to be consistently looking to raise prices. For two reasons. One is because your costs are increasing, right? Sure. You know, you’re paying your employees more either because they’ve been with you and so they’re getting raises or because, you know, the market continues to evolve and so you have to pay more to get talent.

So your, your costs are going up. So your prices should be going up. But the second reason is because most agencies grow by getting larger client engagements by getting a larger number of absolute clients, right? So you don’t typically grow. I mean, in a retail business, you grow from having 10 customers to 20 customers.

Right. In an agency business, typically you grow from having, you know, 10 clients to maybe 12, but their, you know, their, their average monthly is much higher than it was a few years ago. Right? So that’s how you’re growing your business. So that means you have to be growing, um, your pricing in order to get there.

And so you always want to be thinking along those lines. How do I keep making those Transcribed Migrations of price. So your, your ceiling is constantly moving. Your floor is moving, but probably not quite as quickly. And if you’re not thinking that way, and this is by the way, this is not talking about these silly little things that some agencies like to put in their contract.

Like every year we go up by 1 percent contract. Right. Who cares? That’s a famous number. Right. Right. It’s just, it’s just, I mean, it’s nothing. It all really does is make the invoice more complicated to put out. Because instead of, you know, typing in 10 comma 0 0 0, you have to put in 10 comma 4 0 0 0. You know, one, six, four, I mean, it’s just dumb, and it just, it annoys clients.

So, so I’m, I’m not a fan of those, you know, micro escalators that, that some agencies like to put in their contracts instead, you know, find ways to, to rescope reposition and sell larger engagements with higher profit margins.

Gini Dietrich: Yeah, I like it. I think there, there’s definitely, to your point, a level of confidence that has to come with it.

You have to be willing to hear and say no, and you have to be willing to walk away.

Chip Griffin: And I, and I think, you know, so, so all of this comes down to, you have to arm yourself with information, you know, that, that gets you your floor. You have to, to be willing to take some risks, right? Raising prices, hearing no.

Yeah. Um, and, and you have to kind of keep testing to, to find, you know, what that band is that you can offer your services in and, and we’re in that band, you’re going to fall because it is, it is legitimate to say, I want to be on the lower end of that band because competitively that’s working for me, you may decide I want to be as close to the ceiling as possible because I want to, I want to be viewed as a premium priced agency.

There’s room for all different kinds of players in the market. You need to figure out what’s right for you. And if you can figure out where that floor and ceiling is for your business and the work you’re doing for the clients that you do it for, then you start to be able to make some strategic decisions about it as opposed to, you know, just accidentally figuring out at the end of the year, Oh, this is what I made for profit because, you know, I just have random pricing and I didn’t track my costs.

Gini Dietrich: Right, right, right, right. But I think understanding what the, what your costs are, understanding what costs are with expenses and time and salaries and contractors and all of that bundled in. If you can’t, if you don’t know what that is, hire somebody to help you figure it out because that is one of the most important things that you can do for your business.

And like we said at the beginning, Totally understandable if it’s not your kit and caboodle because it’s pretty left brained and we tend to be very right brained, but You have to figure out what that is and then be able to grow it from there.

Chip Griffin: Right. And if, if something in the market is telling you that there’s a problem with your floor or your ceiling.

So for example, I’ve had some agencies calculate their floor and tell me, I can never sell for this. I just, I can tell you that it’s impossible. Wow. You’re either selling to the wrong people or you’ve got something wrong. Right.

Gini Dietrich: Right.

Chip Griffin: Delivery process, it’s inefficient and you need to figure out a different approach.

But you know, it’s the solution is never to cut into your floor, right? Right. Because all you’re going to do is then fall through to the next level.

Gini Dietrich: Yeah. Been there, done that.

Chip Griffin: You’ve actually, you’ve managed to like crash through an actual physical floor during your handiwork?

Gini Dietrich: Uh, no, I have not done that.

Chip Griffin: Oh, oh, you’re talking on the business side.

Gini Dietrich: I get confused what’s a

Chip Griffin: metaphor and what’s real. It’s so confusing to me.

Gini Dietrich: I’m pretty good at my handiwork. I am definitely my grandfather.

Chip Griffin: I mean, it’s, uh, I find it therapeutic to be bringing out saws and making sawdust and all that kind of stuff. I probably do too much of it.

But what are you going to do? In any case, I think we may have just about done too much of this episode. So maybe so. I think I think we’ll wrap up with, you know, the words of wisdom that you should have a blueprint so that you can figure out your floor to ceiling pricing. And if you have any questions, get an engineer.

Or a coach, something like that. There’s, there’s someone who can help you somewhere along the

Gini Dietrich: way. A handyman, somebody.

Chip Griffin: Right.

Gini Dietrich: Not an actual, that,

Chip Griffin: that would be a metaphor, right? Don’t, don’t actual handyman to help you figure out your agency pricing. That’s not likely to end well, even if it is Tim, the tool man, Taylor or whomever.

But in any case, we’re off the rails here. All

Gini Dietrich: right.

Chip Griffin: We are, we are wrapping up here. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And it depends. Thank you for listening to the Agency Leadership Podcast. You can watch or listen to every episode by visiting agency, leadership, podcast. com or subscribing on your favorite podcast player.

We would also love it if you would leave a rating review at iTunes or wherever you go to find podcasts, be sure to check out Gini Dietrich at Spin Sucks. com and join the Spin Sucks community at Spin Sucks. com slash spin dash sucks dash community. You can learn more about me. smallagencygrowth.com. com, . The Agency Leadership Podcast is distributed on the FIR Podcast Network, where you can find lots of other communications oriented podcasts. Just visit www. firpodcastnetwork. com. We welcome your feedback and suggestions, and look forward to being back with you again next week.