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Hello and welcome to today’s SAGA Webinar on pricing strategy for your agency. I’m your host, Chip Griffin, and I am the founder of SAGA, the Small Agency Growth Alliance. We have a very ambitious schedule ahead of us today, but before we do that, we’ll go ahead and jump into some of the housekeeping items that I usually cover at the start of a webinar while we’ve got folks continuing to trickle into the actual attendance mode.
First of all, the full replay will be available for SAGA Pro members, as it always is on the SAGA website itself. So you can check it out there. You have the option if you are attending this live, to use the q and a function that’s built into Zoom to be able to ask questions. It should be at the bottom of your screen.
Can submit your question at any time throughout the course of today’s webinar. We will wait to take the questions until the end of the presentation. If you are watching this on replay, feel free to drop me an email at firstname.lastname@example.org and I’d be happy to try to answer your questions there.
And of course, if you’re attending live, you can also use that email address if you have a question that you’d prefer to direct to me that perhaps you do not want to share publicly. If you’re talking about this webinar on social media, I would encourage you to use the hashtag agencyleadership to make it easy for others to discover the content.
And if you would like additional resources or you want to tap into any of the things that I may have mentioned in the course of today’s webinar, you can find them all at smallagencygrowth.com. So, as I said, we have a very ambitious set of things we’re going to cover today. As it relates to pricing. It is by no means a a full gamut of everything pricing related for your agency, but as you can see here from the agenda, it is quite a lot.
We’ll start by talking about my overall pricing philosophy, my floor to ceiling approach to pricing. We’ll talk about why you need to price for profit and how to do it effectively. We’ll talk about how you need to involve your team in the pricing process. We’ll talk a little bit about how you need to understand your value and how you’re perceive your value is perceived by your clients, because that’s an important part of pricing as well.
We’ll talk about how positioning and price are related. We’ll talk about risk because that’s a fundamental underpinning of price in any environment, but particularly in agency-client relationships. We’ll talk about how you actually present your price to your client when, how, format, all that kind of thing.
We’ll talk about the negotiation process that inevitably takes place, and finally we’ll talk about the process for reviewing your pricing on a regular basis to make sure that you are earning all that you deserve in your agency. So with that, let’s jump right in and start talking about my overall approach to pricing.
And so this is how I think about pricing. I have a, a set of statements that I believe to be true. So this is a, a good introduction to the topic. And they’re things that some of these are, are simple and obvious and everybody will agree with. Some of these are perhaps not controversial, but not uniformly held by all advisors or all agency owners.
But let me walk you through how I’m coming at this. First and foremost, I think it’s absolutely essential that I make a fair profit in my business. And so you need to accept that, I think, as you’re thinking about pricing, because pricing and profitability are inextricably tied together. And most often when I see pricing go wrong, it’s because the pricing isn’t tied into a clear understanding of the profit on the work that’s being done.
And we’ll talk about both why that’s important and how to make sure that you are not undercutting yourself on your own profit margins because that leads to a lot of other potential issues in your agency. At the same time, it’s not all about you because in order to have a good pricing model, a good pricing system in place, you need to have your client believing that they are receiving a fair deal in the process and that they are getting the right level of value for the amount of money that they are spending with you.
So that needs to be factored in as well. You can’t simply charge any amount you want. It needs to be something that works both for you and your client. I’m also not afraid to share my pricing, and anyone who has worked with me at SAGA knows that I publish the pricing for my current consulting right on the website itself.
And while not every agency should be quite that transparent, you should be ready to early and often share any minimums or general ranges that you have with your prospects so that you can head off conversations that are headed in a direction where they can’t afford you, or accelerate the conversations when they are a good fit.
I believe that the pricing that I set makes a statement about the kind of clients that I want to serve. And as an agency it does for you as well. So if you set a particularly high price, then you are signaling that you are looking for more enterprise style clients. If you have a lower price, you’re signaling that you are looking for perhaps more of the small to mid-sized client, or at least small to mid-sized projects if that’s the kind of work that you’re doing.
I believe that I shouldn’t worry about what my competitors are charging 99.9% of the time. I believe that my pricing is based on what it costs me to do the work and the value that I’m creating for my clients. Knowing what others charge may be interesting, and when you get to the ceiling portion of floor ceiling pricing, it does come into play, but we’ll talk about how to really understand that and make sure that you are not unfairly judging yourself against your own competitors.
I believe that when I negotiate, I will only give away something if I get something in return. It’s very common for agencies to end up negotiating against themselves, and that’s even true before the proposal or price is put in front of the client. We’ll talk about that tendency and how to overcome it. I believe that I need to consistently work to improve my pricing.
I know that historically I have undercharged just as most agencies have, and so I know that I always need to look and see, okay, am I getting a fair profit and how can I continue to push higher? And finally, I believe that I and others should only explore advanced pricing models – things like value pricing that you may have heard of, performance-based pricing = only after I make sure that I’m truly nailing the basics and getting a fair price using traditional pricing approaches.
So all of this comes together. All of these beliefs come together in what I call the floor to ceiling pricing model. And it’s exactly as it sounds. The price floor is really just understanding how much is the minimum I can charge for a certain set of work in order to make sure that I am generating a fair and reasonable profit for myself.
What is a fair and reasonable profit? Well, only you can define that. But typically agencies are looking for something on the order of a 20% profit margin after you factor in all of the project-based expenses and all of your overhead expenses. And I’ve done a webinar on project budgeting that goes into a lot more detail around these things.
But if you’re doing project budgeting, then you’ll be able to more accurately figure out what your true profit margin is on a particular project or client. It doesn’t mean that you won’t have clients or projects that are more profitable or less profitable, but you want to try to get them generally within a lane that allows you to have a price that gets you that 20% or so profit margin.
That’s your floor. That’s where you need to make sure you are not going below that, because if you are not generating a reasonable profit for the work that you’re doing, you’ll be frustrated. You’ll take out that frustration on your team. Many agencies, and the reason why a lot of agency employees complain about the agencies they work for is because the budgets there are being balanced on their backs because the pricing was not correct to begin with.
So make sure that you get this floor correct. Frankly, if that’s all you took away from this webinar, if all you did was come up with your price floor and stick to it, you’d be in good shape. But there’s more that you can do to make sure that you’re not leaving money on the table, and we’ll cover that today.
You need to understand how your value is being perceived by your clients, and this is something that you will gain more experience with as you’re working, as you’re taking a look at the price that you’re providing. But you need to understand the, the really specific reasons that you’re being hired for a particular project, and then make sure that you are communicating the results to them in a way that they understand it, in the terms that they were expecting to begin with.
As you do that, you come up with a situation where you’re able to increasingly raise your prices because the value is perceived to be higher and higher by the people you’re doing work for. It’s one of the reasons why it’s valuable to focus on a particular set of services, a particular industry, a particular problem, because you get, you tend to get better and better at it.
You can communicate those results better and better, and therefore you can charge a greater premium above your price floor. Once you’ve got that floor, once you know your value, once you start to understand how you can communicate these higher prices, you need to test those higher prices and you need to gradually go out there and keep offering higher and higher prices, typically to prospects first.
It’s always easier to to raise prices on someone who’s never seen your previous pricing than it is to raise prices on an existing client. And then you keep testing until you meet true resistance. And you’ll see on this deck I’ve mentioned twice now on this one slide. True resistance. The reason why I use the word true is because you can’t simply have a prospect say it’s too expensive.
They need to actually go with another agency who’s delivering a similar set of services at a lower price. It’s often very difficult to know for sure this has happened, but you can at least see if they’ve hired another agency. If so, chances are they did come in at or below your price, and so that is a potential indicator that that you may be nearing your ceiling.
But if it’s not true, if it’s not that true resistance, if they don’t hire anybody, it may be that they just told you you were too expensive because it was an easy way to end the conversation. Instead of saying they didn’t feel confident you could do the work or they didn’t like you, or they changed their mind about it being a priority or they were just kicking the tires to begin with, or any of the other true reasons that might exist for why that prospect ended up going away.
Once you get that true resistance, now is when you have to make a decision. Do you pull back that pricing? Do you say, okay, that last level I was at is about where the market is for my services right now and that’s where I should stay. Or you can also say, for the kinds of clients that I’ve been working with, that’s my ceiling.
But maybe I want to break through that ceiling by finding other clients who are perhaps maybe larger or see the problem as a bigger deal than the clients that I’m working with currently. So this is in a nutshell, the floor ceiling pricing model that I have, and we’ll talk now about some of the specifics of how you deal with all of this.
And the first thing that I would say to you, and this is a key part of my philosophy, it underpins everything that I say about pricing, is that you need to be transparent about your prices. And one of the things that I have always disliked about not just the agency world but other places, is this reluctance to say your number first.
And there’s a lot of conflicting research about whether or not you get the best deal if you say the first number, or if the person you’re negotiating with says the first number. Look, here’s the thing. Regardless of what all of the, the different conflicting research is, you can pick the one that you prefer and you can get the answer that you want.
My view is you can end unproductive conversations sooner, and you can focus on the productive ones if you’re simply willing to say, look, this is the minimum I will take a project for, or this is the, the typical range that most of our clients are coming on board with us for. And the reality is, every agency that I’ve ever seen, if I look at their books and I look at how much they charge, there tends to be a relatively narrow range for most of the work that they’re doing.
And there’s a fair amount of consistency in it. And so if you know that this is typically where your clients and projects land, why not share that information? Why hold it back? Avoid this tendency to try to drive through and focus so much on what’s your budget? How much do you have to spend? First of all, most prospects look at that and say, ah, you’re just trying to find this out so you can give me a proposal that matches that number.
And the reality is, a lot of times that’s what we do. If we know a client has five or $10,000 a month to spend, what are we gonna do? We’re probably gonna come in with a proposal that’s somewhere in that general neighborhood, maybe come in a little bit lower so that we, we feel like we’re giving them a good deal.
We want them to feel like they’re getting a good deal. But the reality is we are absolutely influenced by that budget number. I would much rather share information about my pricing system, my minimums, so that we can just be honest about whether this is a good fit. And it prevents me from not only wasting my time, but potentially getting far enough along in the process that perhaps I just agree to whatever they decide their budget is later on in the process simply to keep the ball moving forward.
And so now I’m taking on work that maybe I can’t deliver on the results that the client is expecting, or perhaps I have to overperform on my work, in which case I am now going to undercut my profitability. So try to get away from this budget oriented approach. Try to focus instead on, this is the kind of work we do.
This is what it costs. So if profitability is so important, how do we think about that profitability? How do we focus on making sure that we’re getting our price floor correct? And as I mentioned before, you really do need to zero in on this because the profitability is key, not just to making sure that you are actually making money because that’s important, but it also has a large impact on employee retention.
So you’re not balancing your books on their backs. Client satisfaction. If you are not charging the right price, then you start to resent the work that you’re doing for them, and you try to maybe find ways to cut corners in order to get the profitability that you’re looking for. What happens when that occurs? Usually it means that you’re producing fewer results for the client. And finally, if you are not pricing profitably, you hold back your own growth because those profits are what you can choose to not only put in your own pocket, but reinvest in the business and take some risks and try some new projects, offer some new services, bring in a new team member.
All of those things are dependent upon having a healthy stream of profits coming into your business. So never, ever, ever allow your pricing to get away from the profitability that you need in order to run a good agency. You also need to know what it costs so that you can figure out what you need to charge.
And so, Pricing is not just about setting that number. It’s also about all of the operational details that go into figuring out your cost of servicing a particular project. That means that you need to do things like time tracking. And I know none of us like time tracking, but believe me, you’ll make a huge difference in your business if you really understand how much labor is going into each project because labor is almost certainly your biggest expense.
And you would never think if you were a manufacturer of going out there and selling a widget if you didn’t know what it costs to make the widget. We need to know what it costs to make the projects that we do for our clients, and that comes down to time tracking, and that’s how we make sure we understand the cost.
And all of this comes down to looking at our past projects to estimate our future projects. So estimating is a key component of good pricing in the agency world. Usually when we start out, we’re okay at estimating, but we have a tendency to look at how much time it took us to do things when we were perhaps in an agency previously, or perhaps the work that we were doing when we were solo before we brought team members on.
And we need to remember that when we’re doing this costing, we’re not looking just at that. And I’ll talk a little bit more about that in a little bit as well. We really need to work on this estimating, and we need to continuously improve our estimating because the better we get at it, the more projects that we can look back on and say, our true profit margin was this.
We can get much better at getting those prices in place so that we are at or above the floor that we’ve set. You’ll notice none of this has anything to do with what your competitors are charging. And I oftentimes we’ll talk with an agency owner who says, oh, well, so-and-so’s charging this, or, we used to charge this at our last agency.
The reality is how much you charge needs to be dependent upon your expenses because your competitors don’t have the same expense structure that you have. And you need to make a decision based on what it costs you to provide the work. And of course, doing pricing correctly is really a team effort. You need to have everybody who is working on the project or potentially will be working on the project contribute to at least the estimating portion of the pricing.
They don’t necessarily have to contribute on should we charge X or Y, but you need to consult with them on how long will it actually take to get the job done. And as I referenced earlier, we often have a misguided impression of these things as agency owners. We tend to do things faster and better than our team members because we have more experience.
And one of the reasons why we probably started the agency was because we were good, and because we were experienced, and because we could get things done quickly. But when we bring a team together, they may only be at 85% of that level. And while that’s good enough as far as results from a timing perspective, that 15% can make a massive difference. If you’re talking about a 15% difference on your labor costs that’s almost your profit margin. So you need to get much better at it. And that means truly asking your team members how long it’s gonna take to do something. But at the same time, you should be checking in with, in with them about the expectations that you’re setting with the client as far as deadlines.
Can they actually do that? Are they aware of other work that’s on their plate that may prevent them from getting there, perhaps that you’re not thinking about because you are focused on generating the revenue and you are focused just on the price. So think about these things as you’re working ahead on these issues, and bringing the team together so that you are doing this in the most effective way possible.
Again, you need to make sure that your team is helping you to track the time, helping you to understand what worked and what didn’t on previous projects. And if you do those things and if you’re listening to the feedback that you’re getting from your team members, you’ll get better and better at this pricing game.
And it, it really is absolutely vital that you do that because that’s how you will have happy, satisfied clients who are getting the results they expect while you’re still getting the business results that you need. Ultimately, if you’re going to push your prices above the floor though, you need to understand your value and you need to know how your clients are perceiving the value that you provide.
One of the things I always advise when I’m talking about business development with agency owners is the first time you talk with someone, make sure you understand why they’re talking to you. In fact, you might even just say, why are we here today? And typically they’ll say something like, well, I’m here because I’m looking for a new PR agency, or I’m looking for a new marketing agency.
That’s fine, but push, ask more whys. Really understand what is it that’s driving that? Is it because their CEO was saw a report on sales and was unhappy with it and is saying, okay, we need to do more. Is it because the CEO saw a competitor mentioned in the Wall Street Journal and so they want to be in the Wall Street Journal now. Understand what it is that’s driving them so that the more you understand about the true reason that you’re being brought in to work for them is something that you can account for in the work that you’re doing.
But then it can show up in your pricing. Because if you’re delivering, if you’re solving the pain point that the client has delivering the results that they’re looking for, that’s when you can start charging a premium. And if you understand those things, you can also make sure that you’re working with them to, to put together metrics for success at the start of a project.
All of that helps as you’re continue to climb that pricing ladder, not just with that client, but with others, because all of this information will help you build out the messaging that you’re using with prospects. The way that you talk about your value, the way that you understand and shape your value to those prospects and potential clients.
All of the perceived value that you have, or most of it, is related to how you set those expectations at the start. So make sure that you’re being really clear in all of the expectations that you’re setting: the timing, the amount of deliverables, the results that you expect to see in the media or on their website or elsewhere or in sales.
All of those things come together, and if you are able to meet those expectations, it increases the perceived value that the client has. It’ll make them happy, and they will share it with other people as well. Ultimately, if you want to keep raising your prices, you need to make sure that the perception of the value that you’re providing is increasing as well.
And you’ll notice here that I’ve said perceived value quite a bit here. The reason is because you may know that you’re creating value, but you need to make sure that the client is seeing it. Sometimes the client will see value in things that we don’t see value in. Sometimes we’ll be creating what we believe is real value and they won’t see it. We need to focus on what they see, and if they don’t see something that is of value, we need to help them to see it.
Pricing as positioning. That’s something that I referenced in my early, in the early part of today’s presentation. How you price is important. We see this all the time in the retail space.
There are luxury retailers and there are budget retailers, discount retailers, and as we think about that, we immediately can think up the brands that might fall into those buckets. And a lot of it comes down to the prices that we see on the shelves or on their clothing or on their electronics or other products that they’re, they’re selling.
We are doing the same thing when we set our pricing as an agency. There are agencies that go out there and try to be top of the market, the highest price out there, and they wanna say, we are the Cadillac of services. There are others who are out there and they’re saying, look, we are the affordable solution.
We want to try to, to come in here and undercut other agencies that you may be talking with. How you price is a key part of your positioning. The vast majority of small agencies will probably fall somewhere in the middle. They won’t be the most premium. They won’t be the cheapest. Either way you need to understand how this positioning speaks to your prospects about the work that you’re doing, because it helps to make sure that your ideal clients see themselves in that pricing.
When you share your minimums or your typical price ranges with an ideal client, they should really react positively to that. At the same time, some of your clients who perhaps don’t have the budget for the work that you do, or perhaps who are too big for you, we need to admit that there are clients who are too big for us at times.
We can use that pricing as an effective way of communicating that to them so that we can accelerate the good conversations and eliminate the bad one. As you think about this pricing, it’s also conveying that value we talked about. It’s helping to position yourself amongst your competitors. And if you’re thinking about your pricing in that way, we’ve got a profitable pricing, we’re going above the floor.
How far above the floor do we go? Do we stay near the bottom so that we’re that value oriented solution? Do we go to the top of the ceiling because we want to be the Cadillac? All of those things are important to consider, and all of those are things that we need to look at as we’re setting our pricing.
I just lost my controls here on my screen. There we go. In order to understand pricing correctly, you also need to understand that risk is an important part of it. Risk is inherently involved in price. Let’s think about this. If I go to you and I tell you that there’s a one in a million chance that I will be able to get a story in the Wall Street Journal for you.
You’re not likely to pay a lot for it. If I come to you and say, I’m guaranteeing you, you’ll be in the Wall Street Journal tomorrow, a hundred percent guarantee you’re likely to sign up. That risk needs to be factored into the equation. That’s obviously the risk on the client side. Are they gonna get the results they looking for?
What are the chances that they see those results? But you need to think about the risk to yourself as an agency as well. A lot of times we end up proposing something to a prospect before we really understand how they work. Before we really understand how much it’s going to take to do the work. We can’t really put together that accurate estimate.
In those cases, we are shouldering much more of the risk. And in those cases, we need to make sure that there’s a price premium to account for that uncertainty so that we have some wiggle room, we have a cushion if it takes us more time to produce something than we thought it would. So risk is absolutely something you need to consider because the more uncertainty that either side has, the more that the, the needle tends to shift in their direction, either in the form of a discount or a premium. You need to think about how you’re framing this risk too, particularly with your initial engagements. If you think about initial engagements with prospects, the more that you can make it a sure thing, a slam dunk, this is an easy layup for them, then they’re much more likely to say yes.
And it’s much easier to get an existing client to continue working with you or to take on a new project than it is to bring someone brand new into the fold. So you should think about whether you have an initial service offering, an initial project that you can do with clients that’s pretty low risk for them, pretty low risk for you.
You know what it’s gonna take to do it. And that then allows you to get the foot in the door to establish your credibility, to establish your value, and, and to really understand the risk on both sides of the equation going forward so that you can price larger, longer term projects more effectively. So now that you’ve thought about your price, now that you’ve come up with your, your floor and you’ve figured out, okay, here’s my value and, and here’s how I, I want to accelerate my growth by raising those prices, how do you actually present it?
And so, as I said before, right up front, I would suggest sharing minimums or ranges. That’s a, a really important thing to do. Keep in mind that clients will, will hear the low end of the range. So if I say, typically our projects are between 10 and $20,000, the client hears $10,000. So make sure that, that whatever that low number of the range is, is something that you think is likely to be able to be something that you can work within for that particular prospect.
Otherwise, they’ve heard the small number and you put it in there just to sort of make them feel good. So minimums or the low end of the range, absolutely critical to get those numbers correct. And make sure that they are truly numbers that will allow you to produce results for that particular client.
You need to make sure before you waste any time, putting together detailed proposals and all that, that you really have buy-in from the prospect on the work that you’re about to do. And not just on the solution, but also on the price that it’s likely to cost them, at least a rough estimate. Walk through the, the general guideposts of the proposal that you’re going to put together.
Make sure that they’re agreed that that is the right approach in their mind, that they’re on board with that. And then also say you believe it’s gonna cost between this and this, or about this much. And make sure that they nod their heads and say, yeah, that sounds, that sounds good. In fact, you should even say to them, if we were to come to you with a proposal that says this and that has this price attached, do you think that’s something that you would say yes to?
And ideally you want them to say, absolutely. And if it’s not that, then keep working at it until you get there. That way you don’t waste a lot of time putting together estimates and proposals and all of these things behind the scenes until you have that pretty good idea that what you send across to them is going to be accepted.
When you’re presenting it to them. You should think about, do you want to provide high, medium, and low prices? Right? That’s something that’s pretty typical, the classic three price model, where the middle is what you’re trying to steer them towards, but you also offer a high priced anchor and a low price, you know, just in case sort of show that you could do something at a lower price.
First of all, if you’re gonna do that, I think it’s fine. And I think three prices can work. You need to make sure that all three are ones that you would be happy to live with. One of the mistakes I see made by some agencies is that they will offer a low priced option or a high priced option that they’re either not prepared to deliver or that they don’t believe will produce the results that they’re looking for on the low end, or the value that would need to be perceived on the high end.
So make sure that any options you provide are ones that you are happy to have out there and you’re happy for the prospect to say yes to. You also wanna make sure when you’re presenting prices to a client, that you don’t break it down in such a way that you offer a lot of different things and it adds up to a particular number unless every number that you show is an intermediate step that you’re willing to allow them to take out or to add more of at that fixed price.
You also wanna be really careful because sometimes they’ll come to you and say, well, you propose three things that total up to $20,000. I want to take just the second one for the price that you listed there. And that then forces you into a position where you are now saying, well, that’s the price only as part of a package.
If that’s true, make sure that that’s clear upfront and put in, here’s our base price and here are the add-ons that you can select from. So menus can work, but you need to be really careful about it and you need to make sure that you are truly happy with selling anything that you have itemized as a standalone or as a standalone add-on. If anything is dependent upon something else, make that crystal clear when you’re presenting your pricing, because otherwise you get into very uncomfortable conversations with prospects, because when people see a menu, they like to add and remove things, it’s sort of like, you know, if you are told, well, you’re getting your entree and it comes with a side of mashed potatoes, well, someone may say, well, instead of mashed potatoes, can I get green beans or can I get asparagus?
If you’re happy to do that, fine. List them. If you’re not happy to do that, then just say, comes with mashed potatoes, period. No substitutions. So really be clear about what you’re willing to accept when you’re communicating your prices. The other mistake that I sometimes see made in presenting price is that it says it takes so many hours to do particular portions of the work.
The only time you ever wanna show the amount of hours that you’re estimating something will take is if you are putting a specific cap on it. In other words, you’re saying we will provide up to 10 hours of service for this, for this price, or if you’re explicitly charging by the hour, and you can find plenty of discussion on the SAGA website.
I am not opposed to hourly pricing. I don’t necessarily think it’s the best solution in all cases, but I’m not adamantly opposed to it. There are times and places for it. But if you are going to show hours, you need to be either explicitly capping and by the way, sticking to that cap when you actually start doing the work or charging by the hour.
If you’re simply showing it to show how much work it takes to do something, all you’ve done is given the prospect an easy way to do some math and try to figure out what they believe your effective hourly rate is. They may think that’s high, they may think that’s low, who knows? But it doesn’t matter. You don’t need to show what goes into it unless it actually is something that you’re going to be charging on or billing on in the future.
So once you’ve presented the price, now typically the prospect may come back and say, well, that’s a little rich for my blood. Is there some way that we can come up with something a little bit cheaper? You know, this is the first time in many cases that they may start to to balk at the prices that you’ve started to share or the ranges that you’ve started to share.
And so as you are thinking about negotiating, as I said before, my philosophy is never give something in that negotiation unless you are getting something in return. And we have to remember that this isn’t always directly related to dollars and time. Those are important considerations, but they’re not the only things.
We have a lot of levers that we can pull in a negotiation to get to a price that everybody believes -not believes – that does treat everybody fairly, and that does feel good for both sides. And so some of the things we might do if we’re asked, can you reduce the price of this by a thousand dollars?
You can certainly take out some deliverables. You could slide some deadlines, but one of the important things that you might think about are payment terms. Maybe if you pay upfront, we’ll give you that thousand dollars discount, or maybe we shorten the the pay cycle so that instead of paying invoices on 60 days, as is becoming more common with a lot of companies, you do pay on a 30 day cycle or you pay upfront and in the month if it’s a retainer.
There are all sorts of things that you can do in adjusting the terms of the agreement to make sure that anything that you give is not just a discount, right? You never want to be in a position where a client says, can you do this for a thousand dollars dollars less? And you kind of hem and haw and say, yeah, sure, yep, we can make it work.
Make sure that you are giving, making them give up something in the process. And there’s two reasons for that. One is to make sure that you are treating yourself fairly, but the second is if we agree to that discount, then what we’ve essentially told the client is we were overcharging them to some degree anyway to begin with.
And that’s not the foot that you want to get off on with a new prospect or that you want to end up on with an existing client. So make sure that there is some kind of trade off being made in this negotiation. But you also need to not just negotiate away everything. You need to know what your line in the sand is.
What is the minimum that you’re willing to do the work for? And this is where that good estimating, that good budgeting comes into play because now you know your floor. And so if, if you’ve got a floor for the price for the work that you’re doing, and you’ve managed to move above that by conveying your value effectively and by positioning your pricing well in the presentation, you know that you’ve got some wiggle room and you’ve got some, some areas that you can play with while still hitting that floor, that should be in your mind at all times.
And never allow yourself to have the inertia of the deal force you into taking something that is not a good deal for you financially. And you really need to be careful about negotiating with yourself. This is something that I see all the time. I have someone come to me and say, well, you know, I’m putting together this proposal for a prospect.
You know, it’s, I, I did the math and it’s gonna, you know, my floor is about $10,000. And geez, you know, I just, I know there’s no way they’re gonna accept that. I know they, they can’t afford that. Well, first of all, you don’t know that if you haven’t shared that number with them. And so stop negotiating with yourself before you’ve even brought a number to their attention. Before you’ve even talked about the results that you can produce.
Because perhaps they’ll look at it and they’ll see the results that you’re talking about and the work that you’re talking about doing and the price and say, yeah, that makes sense. Or, you know, it’s gonna be tight, but we can go find that budget from another department, or we can postpone another project or whatever.
So make sure that you are not negotiating with yourself upfront. That’s the worst time to do it. But don’t negotiate with yourself during the deal either. Even if they say, Hey, you know, this is a little bit rich. We need to, to cut somewhere. Wait for them to express where they would like to see you cut, or how much they would like to see you cut.
Because more often than not, you’re going to overestimate and you’re either gonna pull out too much value so that they’re not any longer getting what they want in order to close the deal. Or you’re gonna take too much price out, in which case you’re eating into your profit margin and making it so that it’s difficult for you to do the work profitably.
So be really careful. And finally, when you have these understandings of where your, your floors are, what your bottom line is, what your line in the sand is. You can use policies as a good shield in getting these things done with clients. You can say to a client, look, our policy is that we don’t take on projects under this amount, or we don’t take on projects of this kind that aren’t within this range.
Right? Sometimes even if you’re the owner saying that you have a policy is a good way to convey to a, a prospect or a client that this just is, it’s beyond your line in the sand and because it’s a policy, it’s much less malleable than simply saying, yeah, I don’t want to do that, or, or I don’t think that’s a good idea.
Use a policy as your defense in those cases if it makes you more comfortable.
So you need to make sure as you’re going forward that you’re not just keeping your pricing static. There’s all sorts of reasons to be changing your pricing. Obviously, none of us are immune to the overall economy and inflation and all that, and we hear lots about that these days.
Most agencies are having pressure from their employees asking for raises, larger raises, more frequent raises. New hires are asking to come in at higher salary levels. The cost pressures are enormous on agencies today. Every day it seems we’re getting emails from vendors saying, the price of this software or that software is going up, or the price of your cell phone bill is going up, or all of these different things.
And you need to make sure that you are understanding how those costs impact the work that you’re doing and how that’s affecting your price floor. But you also need to be looking at the things I’ve talked about previously, how you estimate, how well you estimate, how your project budgets are, are tracking against the prices that you’ve been giving, and make sure that you’re factoring all of that in.
And all of that’s just to update the floor. To go beyond the floor that’s where you need to, to take a look at your pricing on a regular basis to see, okay, you know, can I start charging prospects an extra 10 or 20%? You know, I’m often asked by a client or an agency to, to say, can you take a look at our pricing and see if we need to increase it?
And I always just say, yes, increase it. And they say, well, I haven’t shown you anything yet. Don’t need to. Because 99% of the agencies that I’ve looked at their pricing, they’re undercharging. So if you’re in doubt, raise your prices. Keep raising your prices. Keep trying to get that number for your ceiling higher and higher, but only after you make sure you understand that floor, because there’s nothing worse than raising your prices and still being below that floor.
Make sure that you are generating reasonable profits, even with the minimum pricing that you charge. So as we tie this all together, When you’re thinking about pricing, you really need to think about what’s right for you, what’s right for your agency, what’s going to give you the compensation that your business needs in order to not just survive, but to thrive.
And that doesn’t mean that has to be an unreasonable number. We’re not talking about going out there and trying to take as much money as we possibly can from a client. You know, one of the things that always bugs me a bit is when I hear someone talk about leaving money on the table, and it’s in terms of just figuring out how much you can just scrape off into your own pockets.
It should be a fair and reasonable amount because that’s how you get ahead. If you’re able to charge a number that gets you to the profit margins you’re looking for, and perhaps nudge it up so that you’re getting even better profit margins than what you’re looking for, it doesn’t have to be unreasonable.
It doesn’t have to be every penny you could have extracted from that client because if it’s a more reasonable price, it’s easier to not just meet but exceed their expectations. If you exceed their expectations, they’ll tell other people about you. It makes growing so much easier. So think about your pricing.
Make sure you understand the floor. Keep pressing to get to your ceiling. Continue to review, your ability to estimate correctly. Continue to review your expenses, to make sure that your pricing remains not just competitive, but also productive for you. And if you’re doing all of those things, and if you’re sharing your numbers openly and honestly with your prospects, if you are presenting your solutions and you’re considering risk, when you’re putting those prices together, all of those things come together and will put you in a really good place for pricing.
Now, obviously as I’ve mentioned, this was not comprehensive. There’s all sorts of things about pricing we didn’t talk about. We didn’t talk about the different models that you can use. We didn’t talk about some of the really crazy stuff going on with pricing terms, these payment terms, these days with clients.
So there’s lots more to be discussed on pricing. We will continue to have webinars on the topic, creating podcast episodes on the topic, all sorts of other things. So I would encourage you to make sure that you are signed up for the SAGA Newsletter. You’re continuing to participate in the SAGA community on Slack and other places because there’s lots of pricing discussions to be had going forward.
At this point, if you’re watching us on replay, this will bring the replay itself to a conclusion. But for those of you who are attending live, we will move into q and a in just a moment. If you are watching on replay, feel free to drop me an email at email@example.com with any questions that you may have.