99% of agency owners choose to adjust their prices once or twice a year (often more rarely than that), and the one thing that stops them from increasing their prices…fear!
Fear of losing clients or repelling customers that you've yet to close. The reality is that 99% of the time price is never the real objection.
Where many agency owners struggle is in having the ability to articulate their value to a potential customer with confidence. What I mean by that is that they will turn to selling the “features” around the thing that they do, as opposed to putting themselves into the shoes of their ideal client and selling the “dream outcome” that their clients want.
Imagine if you had a superpower where your client already knew how amazing you were, what results you got for your customers, and whatever price you gave them they simply said, "Yes!" without hesitation.
The Upside to Confidently Charging More
Many agencies fall into the category of being busy fools.
Don’t get me wrong, they are:
- brilliant at what they do
- get remarkable results for their clients
- love the process of creating
But they also:
- spend every hour under the sun working for their clients
- don’t earn a good income commensurate to the hours they put in
- spend a lot of time fire-fighting needy clients’ demands
This compromises the reasons why they started an agency in the first place; freedom, satisfaction, and income.
The ideal outcome from charging more is to have an agency where you have double the income with half the clients (you think you need). This means you are:
- Making more profit
- Working fewer hours
- Not worrying about where your next client is coming from
What are the Common Pricing Mistakes?
Mistake #1: Charging by the hour
Most agencies when they start up will typically begin by charging either an hourly rate or day rate for the services they offer. This is a good way to start out in terms of working out how much to charge for your products or services, however there are a few fundamental problems when it comes to charging by the hour.
During the typical year, there are 2,000 hours available for one person to work. This is worked out on the basis of a 40-hour week multiplied by 48 hours in the year excluding holidays, sick leave, and other absences. Imagine your goal is to reach $100k revenue and you charge $50/hr. Then you could achieve your goal but this would be using up all of the 2000 hours available to you purely on client fulfillment.
This doesn't take into consideration the time required for admin, finance, marketing, sales, or any of the other functions required to run a business. Therefore you're limiting your earnings potential by charging an hourly rate because you're limited by the number of hours that you can work. In this scenario there are three ways to earn more money:
- By working evenings and weekends and squeezing out more chargeable hours.
- By increasing your hourly rate.
- By hiring more people to do the work
All are possible but have negative consequences:
- Eventually, you’ll burn out working too many hours.
- Your own internal value system will stop you from raising your hourly rate by any more than $10-$20/hr in any given year and you’ll have the same problem again soon enough.
- Hiring people comes at a cost; it can be expensive and $50/hr doesn’t leave enough of a gross margin to afford to be able to hire more people.
I hold a somewhat controversial view, going so far as to say that hourly rate charging is unethical.
Imagine you have two web designers. Both are charging $50/hr for their work.
Designer A is a novice designer who has just started out, green at running an agency but good at business development. The website they build takes several weeks/months of tinkering and comes back without a blog and doesn’t look fantastic due to their lack of experience. Yet they bill for 20 hours of work totaling $1,000. Their client is unhappy and asks them to complete the project. Designer A reluctantly agrees to do the work despite the "scope creep", but is now resentful as they think they’re doing work and not being paid for it. Their client is resentful and wondering whether they made a sound decision in the first place.
This is our first clue that an hourly rate model is a broken agency pricing model and the client relationship can easily be soured.
However, Designer B is more experienced. They completed the project within two weeks. They overdeliver and provide a CMS and Shopping Cart as well, because…well, why not?! And as it only took them 10 hours they only bill 10 hours (they don’t yet know what you’re about to learn about pricing your ongoing services). Their final bill is $500.
Our second clue is that hourly pricing models are a flawed agency pricing model in so much that our more experienced Designer B gets paid LESS than the less experienced Designer A.
There is a third clue...later on in this lesson which shows a better alternative to hourly rate charging for agencies.
Mistake #2: Offering discounts to attract new customers
Many agency owners believe, when they're just starting out, that offering discounts is a great way to attract new customers into their business. This comes with a number of consequences:
- Firstly, discounting your agency fees reduces the amount of net profit which you make when you bring in new clients. A simple 10% discount can reduce your net profit by as much as 25%...imagine having to work 25% harder just to make the same amount of money.
- Secondly, it presents you with a discount warehouse and trains your clients to think that they're going to get good deals all of the time.
- Finally, if something goes wrong resentment builds between you and your client because you've got no margins to be able to put things right.
I suppose the question we need to ask is why do businesses offer discounts in the first place?
We see other businesses like supermarkets and large online retailers offering discounts for physical products, but there are two things going on here:
- They are struggling to offload stock, which is costing them money in storage so it’s easier to discount the products and offload them
- Retailers have something called “latent demand”. They have shoppers walking through their aisles looking for basics; bread and milk, who then spot an offer on baked beans. So shoppers buy their bread, milk and a 2-for-1 on beans. Supermarkets don’t need to stimulate demand with a discount because it’s already there in the form of latent demand. However agencies don’t have lots of latent demand.
What discounts do is signal to the market that you've got lots of widgets that you're trying to sell off in a hurry in order to bring cash into the business. I.e. It signals desperation to the market and devalues your offer.
So it’s a misnomer to think that discounts stimulate demand, in fact it signals the complete opposite, that there’s a LACK OF DEMAND for a certain product.
During the recession in 2008/09 we were charging similar amounts for Website Care Plans as many of our local competitors. At the time there were about 25 local web design agencies all vying for the work.
I noticed that after the financial crash happened all of our competitors started lowering their prices, whereas we went the other way and increased our care plan fees by 400%. Our revenue immediately went up by 2.5x within 45 days. By the time the economy had recovered in 2012 there were only 5 of the original 25 agencies still in business and we were one of them.
I believe many of them struggled financially because they reduced their fees instead of raising them within this critical time period.
Mistake #3: Charging what everyone else charges
It's really important when you're starting out in an agency that you go and check out your competitors so that you can learn about what's working for them and get ideas about things that you could potentially bring into your agency in order to make it better. However, when it comes to pricing there's a danger that if you're looking at a competitor’s pricing and they're not charging enough, you could be about to copy a flawed business model.
For example, they could be undercharging and therefore not making enough profit and so if you copy their prices it could mean that you're about to build a business that's not profitable.
When looking at your competitor’s pricing you have three choices:
- Be the cheapest - Similar to discounting you believe that in order to get agency clients you need to be the cheapest in the marketing in order to attract those clients. Business owners don’t often choose suppliers based solely on price. They will also be looking at reputation, reviews, testimonials, case studies, time to deliver, availability, or even whether they like you. Price is just one of dozens of factors.
- Price based on the average of your competitors - This is playing it safe, you don’t want to be seen as the cheapest. Maybe you’ve even done some rough maths and worked out it’s not economical for you to charge low rates. But also you don’t want to be the most expensive as you think people won’t buy from you if you’re the most expensive.
- Be the most expensive - If you look at the most expensive in every niche, you will see that they have likely been around the longest, have lots of reviews, and have a fantastic reputation (based on word-of-mouth marketing). However, there is a clue here; they are still able to attract and service clients. Someone has to be the most expensive, so why can’t it be you?
Often when I speak with digital marketing agency owners about their pricing and being the most expensive, they have reservations about the value they deliver or the fact that their reputation isn’t there yet to charge those rates.
If you are struggling to see how to compete with the most expensive agencies in your niche, take the time to look at what they are doing in order to command the fees that they are achieving.
What can you then build into your own agency to emulate the most expensive in your industry? Start building towards that:
- Get case studies of successful projects you've worked on.
- Ask for reviews from happy clients.
- Add video testimonials to your website.
- Build marketing assets that demonstrate the remarkable value you deliver.
- Improve your services so that you get better results for clients than your competitors.
- Build systems and processes so you can deliver predictable outcomes and results with every client you work with.
- Is your branding on par with the best of the best in your industry?
- Are you a Key Person of Influence in your niche and recognized as an industry expert by your peers? I’d recommend reading Key Person of Influence by Daniel Priestley if you feel you could improve in this area.
How to Price Your Services Confidently:
1. Productize Your Services
When productizing a service there are 3 very simple questions that you need to ask yourself as an agency owner:
- Performance-Based Pricing Model: What is the dream outcome you provide for your customers?
- Duration: Over what period of time?
- Fixed-Rate Pricing Model: Can it be delivered for a fixed fee?
If you find yourself saying, “It depends!” to any of these questions then it means there are too many variables in your business.
Too many variables = unpredictable results.
Unpredictable results = unhappy clients.
Things which introduce variables into a business include:
- Having too broad a niche - where there are lots of different types of potential clients in a business they typically require different marketing strategies to attract those potential clients and different processes to deliver your service to them
- Having too many service offerings - where there are lots of different services being delivered you have to have different people fulfilling those services. It’s hard to systemize something with lots of different people doing lots of different things. You can be an expert in 10 things, so don’t try to be!
- Lack of systems - there may simply be too many things to systemize so agency owners simply don’t do it. Also…systems take away an agency’s desire to be creative. I often hear digital marketing agency owners tell me, “I like the variety in the projects/clients/work!” but then complain about how hard it is to run an agency.
- Random billing/lack of tracking - I asked my team to tot up the sundries in my agency where clients asked for extras on a monthly basis from projects where clients asked, “Oh…while you’re doing this, could you do that!” - when we started tracking these and billing the extras it raised an extra $2,500/mth on average in additional billing!
- Lots of proposals - Money is created in sales and fulfillment, not writing proposals. In my 12 years of running an agency and having sent out hundreds of proposals during that time, there wasn’t a single proposal I wrote where we hit the exact number of hours that we quoted. When I realized this I stopped writing proposals and started selling fixed-fee projects. As my confidence grew I increased the fixed fee per project. People still bought. People buy outcomes not hours.
It is your job as an agency owner to remove as many of these variables from your business as possible.
Then you can be specific about:
- Your ideal client’s dream outcome
- Systemize it and create a dream team so it can be delivered repeatedly within a fixed time period for EVERY client.
- And charge your client based on the outcome it produces for them versus the number of hours it takes you to deliver.
In essence, you need to refine your agency so that you do ONE THING really well for ONE SPECIFIC client:
Define your Market Niche, so it is super specific. Sell a super specific product; the one product where you get the BEST results for your customers. And be the most expensive among your competition because someone has got to. This is what makes your agency an Expert Agency.
80/20 the Agency Products, Clients, and Operations
The Pareto Principle is always applicable to agencies. I've yet to find one where you can't 80:20 something in an agency. Here are some examples:
- 20% of your clients take up 80% of your time.
- 20% of your projects contribute 80% towards your revenue/profit.
- 80% of your clients buy just 20% of your products.
- 20% of your team works on 80% of your projects (or vice versa).
In all of these examples, you can remove wastage and any unused or rarely utilized resources in your agency, making it more profitable, easier to run and so you get better results for your clients.
2. Shift from an Hourly Pricing Structure
I have created a very simple calculation to work out how much to charge when you productize your services. Contentious because I will use hourly pricing to START the calculation!
Imagine you are an Event Videographer and your agency fees are normally $60/hr for filming and $40/hr for editing. On a particular event you’ve been tasked with a day of filming (8 hours) and you think editing it will take a further 20 hours.
Therefore the total cost will be $60*8 + $40+20 = $1,280.
If you’re unsure of what you might charge yourself, do a similar calculation for your ongoing agency services and see what numbers come out.
Now, you could simply quote $1,280 on a project basis to the event organizer but from my experience many digital marketing agency owners balk at saying the big number…it’s a lot easier to sell “lots of the smaller amounts” and certainly easier to say $60 rather than $1,280.
Does saying a big number give you the “ick”?
For many people, the answer is, “Yes!”
However, the price is the same whether it is $1,280 or on an hourly basis - the combination of the number of hours multiplied by the hour rate - so what’s going on there?
It’s caused by a conflict between the conscious mind trying to solve a pricing problem intellectually versus your subconscious which is better at solving the pricing problem based on emotions and feelings.
Nearly all buying decisions are based on emotion and usually confirmed intellectually AFTER the buying decision has been made. When someone buys from you they are deciding whether they like you, whether you can get the results, they’re taking a look into the future to see whether it will work for them, they need proof through testimonials and case studies. All of which are driven by emotions.
My first lesson here is to GET COMFORTABLE SAYING THE BIG NUMBER.
Work out the prices for your packages. Notice I said packageS there. You may need 3-5 different packages to satisfy different clients. 3-5 core products is enough to satisfy 80-90% of your clients’ needs if you have niched down to a specific audience.
Conscious versus unconscious pricing
Remember I said that so far you have tried to solve the pricing problem intellectually and come to the conclusion that $1,280 is what you’re going to charge?
You can charge more. In fact, you may be starting to realize that $1,280 and you’ve got to shoot 9 events if you want to make $10k per month.
Not only that but you’ve looked at other videographers and they are charging upwards of $5-10k per event that they are shooting.
“But I couldn’t possibly charge $10k to shoot an event!” I hear you saying to yourself.
Well…no, not at the moment.
But how about in a year? Two years? Three years? Could you see yourself charging that much for shooting an event then?
Most people see pricing as “binary” as in:
- It’s either too cheap or too expensive
- It’s a “yes” or a “no”
- I’m “in” or I’m “out”
However, pricing has a “bandwidth”. This means that right now your bandwidth for your event videography business sits between $1,280 and $10,000. And believe it or not, the more expensive you are the less competition there is in EVERY niche (see the red line below):
To establish where you sit on your own personal pricing bandwidth between what you charge now and what your unconscious mind wants you to charge we need to do an auction.
Start with your base price for your product; whatever the number was that you had in your head and gradually increase the number. When your body gives you a physical reaction (think “poker tell” here, everyone has one).
$1280, $1500, $1800, $2200, $2500…GAH!!
That’s the price you should charge. That price is the price your unconscious mind wants you to charge. The price is just a tiny bit outside of your comfort zone.
How to test and validate your new price point
The key to testing any price point for your products is something called Statistical Significance. Most people pitch their offer to one person, and get told, “You’re too expensive!”. Then lose their confidence and put the price back down again.
When you break this down it’s actually a bit dumb.
A prospect came to you because you are an expert. You have a great conversation. Explain the amazing value you deliver. So, they’re now an expert in your business and so quibble about your prices…hang on. Are they the experts or are you?
Not only that but they are a straw poll of just one prospect.
Your job is to pitch your new product at your new price point to AT LEAST 20 prospective buyers who are your ideal customers.
An industry average for a good conversion rate for an agency business (from consultation to client) is between 1:5 and 1:3. Let’s round the numbers to keep it simple; 20-40%.
This means that of your 20 prospects, 4-8 are going to say, “Yes!” and 12-16 are going to say, “No!”. These are good conversion metrics.
Yes, that means you will be turning away more business that you are taking on. This is a good thing. Double the income and half the clients. Meaning you have more time to deliver a better quality product to your clients.
The reason I believe this to be true is because it means you have bandwidth above and below the optimum close rate to thoroughly test your prices. If you’re closing above 40% of your deals then it’s likely you’re too cheap, and below 20% of your deals it’s likely you’ve met resistance in the marketplace and demand is starting to outstrip supply.
And I’d be so bold as to make you a bet.
If you pitch 20 people and they all say, “No!” then I will buy your newly designed product from you at the full price you’ve been pitching it at.
There are two rules to the bet:
- You have to show me that these are ideal clients for your business and that you did everything within your power to close them.
- If you get to 10 pitches and still haven’t had a “Yes!” then you will call/email me and let me coach you through the sales conversations with the other 10 pitches.
3. Goal Focused Pricing
Goal-focused pricing requires you to do a backward calculation based on the financial goals you have set for your agency business.
For example, if you want to make $100k revenue per year and your products sell for $2,500 on average then you know you've got to sell 40 units per year to achieve your financial goal.
You can then interrogate the numbers:
- Do you have the marketing and sales experience and enough leads to sell 40 units per year?
- Do you have the capacity and resources to DELIVER 40 units per year?
- Can your marketing reach 200 or more prospective buyers during the next 12 months? This is assuming you have a 1:5 conversion rate on new inquiries turning into paying clients.
- What partnerships do you need to build in order to sell more products if you can’t reach 200 prospects?
- And most importantly, what profit margins would sell 40 products at $2,500 each produce for your business?
It is so important to dig into the numbers and know them inside and out.
Many agency owners profess to “not getting the numbers”, this is irresponsible. You have to know your numbers in ANY business to make well-informed decisions.
A good GROSS PROFIT (GP) margin to aim for in agency business is at least 50% GP as a rough rule of thumb. i.e. if you use a freelancer to deliver some work and it costs you $250, you want to sell their time for at least $500.
This is a good benchmark which you can optimize the business around.
If a 50% GP is producing a decent level of NET PROFIT (NP) once all of your overheads are paid for then you know you are on target with your pricing strategy.
A sustainable NP margin to aim for is 20% once everything else in the business is paid, including your own salary.
If there's little or no net profit left at the end of the month, then you know you need to increase your prices and perhaps aim for 60-80% GP on your products.
What’s your average order value?
Quite often, when I ask the question of an agency owner, “What’s your average order value?” they immediately answer me with, “It depends!”
The key word in the question is the “average”. You may have some products which are cheaper and some which are more expensive. But it’s really important to know the average order value so you can begin to interrogate the numbers further.
In the example above we took the $100k dream income and if we divide this by the number of long-term projects delivered in a year, say 40, then the average order value would be $2,500. If you have three products which are, A - $1,000, B - $3,000, and C - $5,000 then we know that a majority of your clients are opting for one of the two cheaper products (A and B).
You can then 80:20 these numbers:
- 20% of the products contribute towards 80% of the revenue/profit
- 80% of your time is taken up delivering 20% of your clients
- 20% of your clients contribute towards 80% of your support request
Can you deliver that capacity?
Imagine the scenario, where a majority of your profit comes from selling Product C. However, most of your time is spent delivering Product A. So, while Product A is cheap and attracts the most customers, it takes a lot of time to deliver and doesn’t produce a lot of profit. And not only that but the clients buying Product A also require a lot of support once it’s delivered.
Adjust your prices according to your capacity:
Now you can make a decision; remove Product A from your suite of Core Products and introduce Product D which is $10k…increasing average order value and hopefully your profitability, while serving fewer customers.
4. Articulating your value to customers:
The engine fails in a large navy destroyer leaving it stranded in the ocean. The engineers on board the ship have tried everything they can to get it going again but to no avail.
Eventually, the Captain of the ship calls upon the services of a world-renowned naval engineer with 35 years of experience.
They helicopter her onto the ship, and she gets to work.
She spends several minutes walking around the engine, listening, tapping gently, and taking notes.
Eventually, she pulls a hammer out of her toolbox, walks around to the side of the engine, and hits it hard with the hammer.
“Fire it up!” She shouts.
They run through the firing process and lo and behold it fires up at the first time of asking.
A week later his invoice arrives; the Captain is angry, “It’s for $100,000. All she did was hit it with a hammer!” He sends an email to the engineer asking her to itemize her bill thinking there’s no way she can justify the price.
An email arrives back within minutes:
- Hitting the engine with a hammer - $100
- Knowing where to hit it - $99,900
The moral of the story; if you are not an expert there is no way you can justify high prices.
Stop justifying your prices, instead focus on your client’s “Dream Outcome”
Most agency owners, when challenged on their pricing, immediately switch to justifying the features their service offers, or how they deliver what they do.
In essence, they mostly make it about themselves.
However, in an agency, the most important person in any agency is going to be your clients.
When a prospective client challenges you on your prices then you need to start asking questions and establish the value of the work that you are going to be delivering for them. If you are in the B2B (Business to Business) world ultimately your digital marketing services will be geared around helping your clients to either make money or save them time/money.
By asking some well-thought-through questions it’s your responsibility to steer your prospective clients towards understanding the value you deliver.
Do they want more clients?
If so, how much is the value of each client?
What’s it going to be worth to the business if you can help them create 10 new clients?
How much time is your service going to save them?
How much is each hour saved worth to them?
How much of a cost saving will that create overall for their business?
It has to be driven by ROI (Return on Investment). You must be specific when it comes to the numbers and in an ideal world, your products must deliver at least a 10x ROI to your clients.
If your product costs $10,000 will this yield a $100,000 increase in revenue or reduction in costs for your client?
Value-Based Pricing Model
Do you remember Mistake #1: Charging by the hour in the Common Pricing Mistakes section?
Well here’s the third clue around the hourly-rate pricing model being unethical and provides an answer on how better to articulate the value around your offer:
Let me introduce you to Designer C.
She is a website ninja, very experienced, and confident in her ability to deliver remarkable results. She can build your website within 72 hours. It does absolutely everything you need and her promise to you is that it will be producing 10-15 solid leads a month to your business within 30 days or you will get a full refund. In fact not only do you get a full refund she will also give you $1,000 for wasting your time (which you could spend on Designer A or B!).
Designer C’s websites cost $10,000.
That’s 10 and 20 times the cost of Designer A & Bs’ websites however it comes with a value-backed guarantee.
This brings me to another contentious topic…Moneyback Guarantees
5. Could you offer a 100% money-back guarantee on your service?
The most common answer I get back to the question, when I ask an agency owner that is, “Could you offer a 100% money back guarantee on your service?” is, “No!” or, “It depends!”.
I talked about “it depends” earlier on in the article so I would recommend reviewing that section again as a reminder.
When an agency owner tells me they aren’t willing to offer a Moneyback Guarantee they will often point at their clients as the reason why. However, this is your business; are you really willing to allow your clients to dictate the success of your business? Or would you rather have full control over the success of your business?
I hope that the answer is the latter.
Your business’ results are 100% your responsibility and if you’re not 100% confident in your ability to deliver remarkable results to your clients then you must make it your mission to figure out what’s not working.
You can create more predictable outcomes/results for your clients by building standard operating procedures, narrowing your niche down to one specific type of client, and ensuring you are NOT “full-service”, instead doing one thing really well for your clients.
It’s not particularly sexy doing the same thing over and over again for similar clients. However, you’ll become great at doing that one thing and your clients will love you for it.
Let’s dig into it: What’s stopping you from offering a 100% money-back guarantee?
There may be multiple reasons that you take on clients where results are unpredictable:
- You haven't “Qualified” your prospective client - Sometimes results ARE hard to predict. Clients may be different sizes and get different results. You must select clients with whom you feel most comfortable that you will get the best results working with.
- You’re not paying attention to “Red Flags” - If a prospect shows up late to meetings/calls, is disrespectful to your team, doesn’t follow basic instructions or deliver things you request of them on time, maybe they try to dominate and control sales calls and meetings. It could be any number of things. Look out for these red flags and qualify OUT prospects when they reach three red flags.
- You take on clients “just for the money” - I see so many agency owners take on clients because they’re desperate to inject cash into the business, ignoring red flags and not qualifying their prospects. Is it any wonder the agency/client breaks down, maybe you start to resent your clients when they mistreat you and vice versa…and then you’re surprised when they delay payment or refuse to pay.
I’ll dispel two myths here. Firstly the client IS NOT always right, you are the expert after all. Secondly, there are definitely such things as BAD CLIENTS in an agency business.
A prosperous agency owner is willing to turn away prospects before they become difficult clients. They are willing to sacrifice short-term cashflow to work with only:
- Dream clients
- Who they get great results for
- And who can afford to work with them
When you have the trifecta above working for you then you can confidently offer a moneyback guarantee.
There are three types of guarantees, both are acceptable:
- Results-Based Guarantee - Once you have qualified your client and understood what their dream outcome is then you can position your offer and guarantee around delivering that outcome. The key thing is that you are able to MEASURE THE RESULT. For example, a website design and marketing agency promises to increase website visitors by 1,000 unique visitors per month and increase inquiries by 15% within 90 days. You can clearly measure both of these outcomes. Your guarantee is based on the balance of probability that you feel you can deliver these outcomes for your clients.
- A Perceived Value Guarantee - Sometimes specific results are hard to measure. What you can measure though is your client’s perceived value of the service you deliver for them. What this sounds like is this, “If we get to the end of the 90-day sprint and you’re not completely happy with the outcomes we’ve delivered then we’ll have a conversation about a full or partial refund!”
- Short-Term Guarantee - This is normally a happy medium between the two and often agency owners find this option more congruent. A short-term guarantee means acts like a cooling-off period, “If you join now and you think you’ve made a terrible mistake within the first 14 days, we’ll give you a full no-quibble refund.” Again, if you qualify your prospects well, and over-deliver during those first 14 days this will never be an issue.
All three demonstrate confidence to your prospective clients that you mean business. And that you’re enrolling them as a client for the right ethical and moral reasons…i.e. That you truly, 100% believe you can create remarkable results for their business.
Now you have skin in the game.
It’s important your client ALSO has some skin in the game. This is where you set up The Agreement between you and your client, “We can produce those results, but here’s what we need from you…on X, Y & Z dates we will require specific deliverables to launch on Day 30. We will have 3 feedback sessions during the first 90 days which you MUST attend. If those two things don’t happen we will remove the guarantee as they WILL affect your results.”
Again…if there’s doubt it’s because you’re doubting your own ability to create knockout results for your clients. Fix the underlying issues causing this doubt first before introducing guarantees into your business.
Payment Plans and Cashflow Reduce Tension
Hopefully, now you are seeing the value in making your products expensive. As your prices increase and you confidently charge more there will be more tension in the sales process. The simplest way to diffuse this tension is to introduce payment plans for your clients.
There is a very common mistake I see agencies make with both deposits and payment plans.
It's commong for agencies to split their payments up based on a deposit and then the remainder on project completion. However, this ties up cashflow for several weeks or months while the project is completed. And any number of a wide range of problems could occur which delays project completion. Cash is king. If it's in someone else's bank account this will hinder your agency's growth.
With payment plans, agencies will take the package price for their offer and simply divide it by the number of months they expect it to take to deliver. i.e. you sell an $18,000 package to a client for a 6-month contract and charge them $3,000/mth during the lifespan of the contract period.
The problem with this is that your clients will treat that kind of payment plan like a Netflix subscription or a time-based retainer, and during the up/down cycles of business they will find excuses and reasons as to why they should cancel their subscription with you.
It’s not a subscription. Your contract/agreement should stipulate the outcome, deliverables, timeframe, and a fixed fee. i.e. your clients are paying for a specific outcome NOT to have you deliver and do things each month for them! Client retention now becomes the focus instead of more standard performance metrics.
Instead, you want to front-load the cash (there are likely some upfront costs which need covering anyway) by introducing an inflated enrolment fee, and slightly lower monthly retainer fees thereafter. For the $18k product above, I would look to take a deposit of $8k and then 5 monthly instalments of $2k/mth.
Your client will want to see the full 6 months through now because they’ve invested a majority of the fee upfront already. And this anchors your client to $2k per month should they wish to continue after month 6. If you want to increase the monthly retainer your clients typically pay to $3k per month you will need to adjust your up-front package fees. For example, you might need to raise your prices to $25,000 where the client pays $10k up front and then 5 instalments of $3k/mth.
Turnover is Vanity, Profit is Sanity and Cash is King!
This statement couldn’t be more true in an agency. Cash is absolutely king. If you create a project-based pricing model for your products and services as I’ve described above then it will stimulate cash flow in your business. You give yourself a realistic timeline to create the results for your clients. And, most importantly, you have the cash reserves and resources available to reinvest into your business and hire the right people to create those results.
6. How pricing prevents the Sales Cycle of Doom:
When an agency engine is not well optimized and you add more clients into the mix, they explode leaving tired, burnt out and confused agency owners in their wake.
Just like any other agency owner you too run the risk of getting stuck in the sales cycle of doom forever:
Sell -> Deliver -> Sell -> Deliver -> Sell -> Deliver
Does this seem familiar?
Then you or a family member gets ill or you take on too big a “custom” project that takes up all of your time. You’ve not got enough time to do marketing and sales, sales dry up and when you finish delivering the cycle starts all over again.
Meanwhile, you check your bank balance at the end of the month and can’t figure out why there’s never as much money as you’d hoped.
This leads to you thinking, “I just need one more sale and everything’s going to be okay, I can pay my bills, but that thing for my business, book that holiday...” - trust me you never get any of those things.
Because you never have enough resources (time or money) to break out of the sales cycle of doom.
I ran a study of the agencies I’ve worked with over the years; I noticed three stark facts:
- 87% charged by the hour or on a day rate.
- 92% based the future prosperity of their agency on being booked 20 days per month.
- 63% were booked for work only 4-5 days per month. Or worse still they were fully booked but couldn’t make ends meet because of points 1 & 2 above.
Think about it, Camilla charges £350 per day as a graphic designer. If she worked 20 days per month that would give her an income of £7,000 per month. Not bad.
Camilla does a lot of networking, social media, and videos like all of the marketing “experts” suggest. She regularly books sales calls and spends time writing lots of proposals. Her close rate is about one in five. So for every five calls she makes and for every five proposals she writes and follows up she acquires one new individual client.
The five client fulfillment days a month Camilla books only brings in £1,850 per month. The other 15 days per month are spent carrying out all of the other activities in Camilla’s business.
Can Camilla afford to outsource some of that work? The short answer is simply no, she can’t. It’s just not practical.
The good news is that Camilla loves her work and she gets amazing results for her clients. There is bandwidth for her to increase her prices and break out of the sales cycle of doom.
Camilla does, however, need to be brave and potentially put her day rate up to £700 or even £950 per day.
If you look at the next diagram, when you increase your prices, you can make the same number of sales, but the extra revenue buys you more time to deliver a better quality product which produces more income in the backend from repeat business and more referrals from happy clients.
“Escaping the Sales Cycle of Doom gives more time to deliver a better quality product, which delivers better results and yields more income and leads to more referrals from happy clients.”
Camilla is now bringing in £3,700 per month in revenue. She could afford to appoint a bookkeeper, maybe a few Virtual Assistant hours to manage her diary, and an outsourced marketing manager/assistant who can book leads onto calls for her. Buying Camilla more time which she can use to deliver more design work to clients and so on.
This highlights the biggest challenge with traditional “done-for-you” agency work as it is very resource-hungry. Traditionally you need a few big clients in order to financially make it work and so you’re not spinning the wheels with marketing and sales all the time.
There are ways to innovate beyond this though which I’ll explain in a short case study now.
CASE STUDY: The Digital Fundraising Agency
A client, Robert, who has since become a good friend was a digital fundraising consultant for a large, international charity.
The charity was his only client buying 150 days of his time per year at £950/day. Not a bad gig really however Robert was concerned about having all his eggs in one basket and wanted to make an impact in the charity sector beyond one charity client. He’d worked with this charity for nine years and now it was time for something new.
Robert spoke as a keynote at various large international charity conferences and other international charities wanted Robert to come and work for them.
His expertise centered around the Giving Platform on Facebook using Facebook Advertising to raise money for the charity he worked at.
The results Robert got were amazing. For his $10m/yr advertising budget, Robert would typically bring in a 5x ROI meaning for every dollar he’d spend on advertising they would return six dollars. This was just for one local branch of the charity in Asia.
When we spoke I quizzed Robert about the Intellectual Property (IP) he owned and whether we could extract him, and his IP, from the charity he worked for. Once extracted we need to find a way to deliver his knowledge via a training programme to other charities.
This was a subtle shift from “done-for-you” marketing (DFY), where Robert was setting up and managing the ads for the charity, and done-with-you coaching (DWY).
Robert designed an 8-week program where any member of a marketing team could learn to set up and run their own digital fundraising schemes in-house. It was a mixture of blended learning, via an eLearning platform with regular coaching calls delivered via Zoom throughout the course.
We launched a pilot program and the results were great. Worse case participants were getting a 2-3x ROI. Some were achieving in excess of 10x ROI.
The beta program rolled out and Robert started selling seats on the program for $3,800 each. We validated this type of pricing model when a well-known environmental charity put their entire South American team onto the program. All ten of them.
Now $38,000 may seem like a lot of money for a charity to be spending. If just one of their team understood the principles that Robert was teaching them it would be worth millions of dollars in donations coming in.
Within six months Robert’s business had brought in $360,000 in sales and Robert hired his first employee to help deliver the content.
Robert can focus on being a Key Person of Influence, speaking at events, and raising the profile of his brand while his team delivers the DWY content to their clients. And if his clients get really stuck he can charge 5x the fee for DFY digital marketing services.
- Create 3-5 Core Products that satisfy 80-90% of your ideal clients’ needs.
- Charge based on the outcomes your service delivers and not by hourly/day rates.
- 80/20 every aspect of your business and services you offer to find those that produce the most revenue/profit and take the least time to deliver.
- Introduce a money-back guarantee on your service so that you have some skin in the game and produce remarkable results for your clients.
- Your business must not rely on your own internal value system.