How To Increase Your Prices
Why do so many agency owners struggle to increase their prices?
Every January, I get a letter in the post from my utility companies telling me that their prices are increasing. We are used to receiving this kind of increase. In fact, we expect it, so we don't question it and we just move on.
What can agencies learn from this?
In this latest episode of The Agency Accelerated Podcast, I explore strategies to increase your prices in a way that you feel comfortable with and the client is more than happy to pay for (because they continue to see the value in what you're delivering). This applies to both existing clients and new clients.
I explore the different pricing models agencies use as well as some tips and strategies to ensure your clients value what you do.
Finally I discuss why mindset is the key to increasing your prices and charging a fair fee for the work you deliver.
Here’s a glance at this episode…
Why should agencies increase their price every year?
The importance of having the right mindset in pricing
Different pricing models
Reasons why you shouldn’t sell your time to clients
Understanding transformation of pricing from being in pain to not being in pain
An overview of value-based pricing
Difference between value-based and time-based pricing
Tips in positioning yourself with clients
The importance of having a niche
“You need to focus on the thing that the client really cares about - which is the outcome and the transformation from being in pain to not being in pain.” - Rob Da Costa
“..you all know that a niched agency is always gonna be able to charge more than a generalist. So having a clear niche will also help you increase your prices because you will be seen as a specialist, not a generalist.” - Rob Da Costa
“50% of getting your pricing right is getting your mindset right.” - Rob Da Costa
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Every January, I get a letter in the post from my utility companies telling me that their prices are increasing that year and the price increases almost always above inflation rates. Now we are really used to receiving this kind of correspondence, and we just assume that it's the norm. So we don't question it and we just move on.
So why do we struggle so much in our agency to do the same thing? That's what I want to talk about in this episode of The Agency Accelerated Podcast and explore ways to increase your prices in a way that you feel comfortable with and the client is more than happy to pay the price because they really see the value in what you're delivering.
Now, this applies to both existing clients and new clients. So if you struggled with increasing your prices or indeed you have increased your prices for a number of years, then this episode is one that you won't want to miss. So grab a pen and paper and let's get going.
Accelerate your agency's profitable growth with tools, tips, and value-added interviews with your host agency owner and coach, Rob Da Costa.
So based on my introduction, you'll understand that. I believe all agencies should be increasing their prices on an annual basis. This is something that they need to sow the seed with new clients, that they understand how it works and then have the courage to implement this with existing clients as well.
Why? Well, firstly, your costs are constantly going up, and secondly, you'll also be investing in people, systems and software to continually improve the service that you provide your clients. So, just like utility companies, you should be implementing a price increase every year. Now I can feel some of your heckles raising as I say this, and it's worth stating that yes, you can increase your prices to half. The battle of getting your pricing right is having the right mindset. So for some of us, that means changing our mindset and focusing on the value that we deliver to our clients and really believing that we do a great job rather than believing the stories that we tell ourselves, such as ‘The climb will never agree to this,’ or ‘if I increase my prices, they’ll probably fire us.’
This just isn't true, and you need to recognise that these are stories that you're just telling yourself and they're not facts. You know, ask yourself what evidence do I have to support this belief? Usually, you'll find you don't have any.
If you're constantly promoting the value of what you deliver to your clients, that they won't have any kind of issue with the price increase now, talking of value, it's worth reminding ourselves of some of the pricing models that agencies currently use. And to be honest, this stat really drives me crazy. According to a recent benchmark report, 60% of agencies still are pricing on time and materials. If you listen to this podcast before or you read any of my content, you'll know that I am not a fan of this approach, and it really makes it way harder to increase your prices. So let's just take a moment to dig into that.
The issue about selling time to clients, i.e. hours or daily rates is that a client isn't really buying your time and you’re encouraging them to focus on the wrong thing, i.e your hourly or daily rate, rather than the thing that they're buying, which is the outcome of what you do for them now. The problem about selling hourly or daily rate is it really commoditise is your service and encourages your client to compare one hourly rate, for example, to another. So there might be two agencies pitching for this piece of work. It wants you and one other, and the other agencies charging £20 an hour less than you. But of course, the reality is that the quality of their work is nowhere near as good as yours.
Now the client is comparing your hourly rate against the cheaper hourly rates. So they either go with a cheaper rate or they ask you for a discount before you've even started. And this is a fundamental reason why selling time is the wrong thing. Clients are buying a transformation now that transformation is from being in pain to not being in pain. So, for example, if you go to the dentist and you've got a toothache, then you were literally in pain and you want them to get rid of your pain and you don't care how long it takes. In fact, you want them to do as quickly as possible because you're not buying their time. You're buying the value of getting the outcome, which is not being in pain.
But if you're buying a bottle of water, then the transformation you are buying is from being thirsty to not being thirsty or being dehydrated to being hydrated. So if you are pricing against the transformation, then it becomes much harder for the client to ask you for a discount, and you've certainly no longer look commoditised. You're focusing on the thing that the client really cares about, which is the outcome and the transformation from being in pain to not being in pain.
So, what you need to do is really dig into this in your prospecting conversations or with an existing client when you're setting the next cycle of objectives, you need to dig into understanding what that transformation is and understanding how much it's worth that clients not being in pain anymore. That's kind of a quick overview of value pricing, and I believe everybody should be using that. I think a lot of people don't use it because they get confused. In fact, the benchmark report states that only 23% of agencies are taking this approach and using a value-based pricing approach.
So obviously this episode isn't just about value-based pricing, but I wanted to give you the context of value-based pricing versus time-based pricing and also explain why it's much harder to increase your prices when you are selling time. Because if you say to a client we want to increase our hourly rate from X to Y or a day rate from A to B. Then immediately the client's gonna start comparing you to other people and asking you not to do that because someone else is charging a cheaper rate. But as I say, they're not comparing the right thing when you do that. So that's why you shouldn't take that approach, and it makes it much harder to increase your prices.
So the first summary from this part of the conversation is you can increase your prices by taking a value-based pricing approach, and when you are talking to your prospects and you're writing proposals focused on the outcome you're delivering for the client and therefore charge the higher fee. Now, of course, internally, you're still going to want to work on ours because you need to make sure that your team is profitable, that people are not over-servicing clients and so on. The only way you can really do that is by doing time recording. But that's a whole different conversation compared to what you're selling the client.
Now, another way to think about this and ensure that you're getting your pricing right is to consider the things that the client is buying from you. Fundamentally, they're buying three things. They're buying your technical skill to deliver your product or service. So if your web developer, then it's your skill to develop the website or graphic designer or your copyrighting skills or your SEO, PPC skills, that is kind of a given and that's kind of commoditised because that's what everybody in your market will be doing. But you are also selling, and the client is also buying your strategic advice and your years of experience to make that transformation is pain-free and as fast as possible. And in my experience, too many agencies undervalue those second two points that your strategic advice and your creativity and years of experience to fish effectively get rid of the client's pain. So when you're talking to clients and you're quoting, make sure that you focus on those second two areas, and not just the commodities kind of delivery of your service, because that's where the value is to the client.
That's what starts to make you look different and more importantly, in the context of this conversation, that's what enables you to increase your prices. And, of course, you all know that a niche agency is always gonna be able to charge more than a generalist. So having a clear niche will also help you increase your prices in the market because you will be seen as a specialist, not a generalist. If you needed knee surgery, you would go to a knee surgeon specialist. You wouldn't go to your GP. And if you had to pay, guess which of those two would be charging more.
So a niche agency is always going to be able to charge more than a generalist. So that's some tips and ideas on how to position what you do with your clients in a way that they will really value it. So when you're talking to a new customer, you can get your pricing right from the start. And, of course, when they are signing a contract, you want to make sure in that contract that you state that you will be reviewing you're pricing with clients every single year.
Now I totally appreciate that. That's the easier way to get your pricing right. And the harder way is, well, if I'm underpricing with current clients or if I'm pricing on time and I can see now that I'm undervaluing what I do, how do I go about changing it? And I appreciate that's the much harder thing to do. So, first of all, I do think you need to get into the rhythm of increasing your prices every year. I think when you write to your clients while you discuss it with them, you need to focus on the value that you're giving to them, which is why you're increasing your prices rather than leaving it to them. To think that you're increasing your prices because you've got fancy new offices or you want to pay yourself more money, which, of course, we all know it's not true.
In the show notes, I am going to give you a link to grab a free download of a price increase letter. So if you want a template you can use, then head over to the show notes. Click on the link and grab a copy of the free price Increase letter.
Now with existing clients, you want to do it in more stealth-like ways. All that means is just changing the tone of your conversations to start focusing on the value and the outcomes more. And then when you are pricing up new projects or you are pricing up additional work on top of your retainer, then you can start pricing based on value and having that conversation with your clients, where you're asking them about the outcomes and understanding the wider impact that the work you're doing for the client will have on their business and price based on this.
As I said earlier if you're sitting here thinking, well, Rob, that just won't work for me, then I really want to challenge you and to challenge you to start changing your mindset because you don't know that is the case. Then, if a client is really arguing with you about a minor price increase, then, first of all, you've got to ask yourself, ‘Are they the right client?’ and second of all, you need to be asking yourself, “Have I got the way we position? What we do wrong?’ And, ‘Is the client perceiving my product or service in a very commoditised way, rather than seeing it as a strategic part of their marketing that will really help their business move forward?’ If it's the latter, it becomes much easier to increase your prices.
So you really want to challenge your mindset around this because, as I said, 50% of getting your pricing right is getting your mindset right.
Okay, so that's what I wanted to talk about in this episode of the podcast, short and sweet. It's a big topic, and I actually have a webinar that I run on this. So do look out on my homepage when I'll be running that webinar again and we dig into the whole pricing models and the way to understand what your clients buying and then strategies on increasing your pricing, getting your pricing right and some techniques that you can use that will make this much easier.
But I hope that the outcome of today's podcast is to get you thinking a little bit differently about your pricing to challenge you if you haven't increased your prices for a long time, and to start changing the conversation with your clients to focus on outcomes and impact rather than the time that you spend providing your product or service.
As I said, if you jump into the show notes, there is a link to a free download of a price increase letter that so please grab that and use that as a template for contacting your clients. But that hope you found it useful. Please hit the subscribe button. Share this with your colleagues and please consider leaving a review on Apple Podcasts because it helps me reach a wider audience. But other than that, have a brilliant weekend and I'll be back with you next Thursday with our next guest episode.