Tag Archives for " value pricing "

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…

[1:13] 

Why should agencies increase their price every year? 

[2:02] 

The importance of having the right mindset in pricing  

[2:34] 

Different pricing models

[3:08] 

Reasons why you shouldn’t sell your time to clients

[4:06] 

Understanding transformation of pricing from being in pain to not being in pain

[5:13] 

An overview of value-based pricing 

[5:43] 

Difference between value-based and time-based pricing

[6:55] 

Tips in positioning yourself with clients 

[8:06] 

The importance of having a niche

Quotations

“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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 Full Episode Transcription

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.

A Pricing Mistake We Can All Learn From

In this episode of The Agency Accelerator Podcast, I revisit the topic of pricing. So often agencies focus early sales conversations on time to complete a task or the output of a project (e.g., a website or some copy) rather than the outcome the client is looking for (e.g., improved online presence)

This episode was inspired by a recent story a client shared with me so I share that with you in this episode.

[01:37] Copywriter anecdote; how NOT to deal with a client when you feel you have gone the extra mile?

I share the story of a client who tasked a copywriter to create a new report. They faced an impasse because the copywriter invested an additional ½ day of work from the original 3 days of what was agreed upon. She thought she was going the extra mile by not charging for this half-day whilst the client was disappointed with the quality of the copy!

[04:11] Supplier vs partnership relationships

Starting a relationship by focusing on the outcome of what the client is looking for will create a partnership relationship. Often the supplier might be focused on selling time while the client is focused on the quality of the work, no matter how long it takes to complete. Entering the relationship with a clear vision can then help you price accordingly. 

[04:55] The 4 things we sell to our clients:

Inputs, outputs, outcomes, and the long-term impact we have on our client; are the four aspects that must be considered to form a lasting, happy relationship with a client.

[06:23] Long term relationships with clients

Creating long-term relationships with clients means having transparency from the beginning. Have a conversation on what the client is expecting and remember that you are not selling time to the client, you are selling outcomes.

[08:50] Value selling and selling on outcomes

Whilst you need to sell outcomes to clients you still need to manage capacity internally and that means measuring time and efficiency.

[11:05] Why value pricing and value selling is important

A simple message: Whether the time of a procedure takes 30 minutes or 3 hours, the value is contingent on the outcome, not the amount of time it takes to complete.

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Useful links mentioned in this episode:

How to avoid unhappy clients!

value pricing

One of my private coaching clients is currently working with a copywriter to create some of their blogs and web copy.  They asked the copywriter to create a more in-depth piece of copy for a guide. The copywriter quoted a price of 3 days of their time to complete the work and the client accepted (mistake #1). 

The writer was given a detailed brief including who the guide is aimed at.

The first draft was less than stellar, and the client was disappointed.  It was too waffly, missing key points and too long.

Meanwhile, the copywriter explained that she had spent 3.5 days working on the project but wasn’t going to charge them for the extra 1/2 day.  She clearly felt she was going the extra mile.  She then sent in her invoice.

Now here’s the problem:

The quality of the copy was poor, and the brief hadn’t been met but because everyone was focused on time (mistake #2), the writer felt they were in their rights to send the invoice and indeed felt like they were doing the client a favour because they hadn’t charged them for the extra half day! 

Was this the writer’s fault? 

Well yes and no!

After all, the writer had quoted three days to do the work, charged a daily rate and the client had signed off on this.

Yet the client was frustrated because the piece needed extensive rewrites and it sounds like the writer wants to charge extra time to do that.  All a bit of a mess!

Can you see how everyone was focused on completely the wrong thing (mistake #3)?

Now, this is a pretty simple (but real) example to highlight what happens when we (and the client) don’t focus on the right thing (the thing the client really cares about).

So, what should we be focusing on?

The outcome the client is looking for.…in this case, a piece of copy that meets the brief and is written in a way that appeals to the target audience.

This is what value pricing is all about.

This is the classic example of the copywriter selling an INPUT (time) and OUTPUT (the copy) and not focusing on the OUTCOME the client was looking for (a quality guide that will appeal to the audience).

As I say, this is a simple example but highlights the reasons why we should never sell time and more importantly, we must recognise the client is never buying time (after all if you gave me a great guide I don’t care if it took you 3 hours or 3 weeks!).

Now I don’t know how this story ends (because it’s still ongoing) but the client has got to have an awkward conversation with the copywriter and one that potentially damages their relationship, puts the invoice in dispute and could well result in the client having to rewrite the copy and find a new copywriter!

This is a value-selling and pricing conversation.  If you want to read more about how you can implement this in your agency then download a copy of my free eBook on value-pricing and selling (just click here, no need to re-enter any details, and I will send it right over).  It explains the traditional ways agencies price and things to consider if you want to move towards selling and pricing based on the outcomes rather than outputs.

Value Selling

Download your FREE "Do you sell on VALUE or Time?" ebook

Enter your details below to get instant access to my 10-step value pricing and selling system eBook for agencies

How To Get Clients To Pay More For Your Services

In this episode of The Agency Accelerator Podcast, I discuss why, when you're buying a software or a product online, you are offered three price points, with the middle one being highlighted as the most popular one.


I unpack that and help you increase your prices to get your clients to pay what you are truly worth.


Here's a glance at this episode.

[00:48] Frustrations

Many agencies struggle to get their pricing right. They are frustrated that they are not as profitable as they would like to be and are not constantly hitting their margin targets.

 
[01:31] Three Typical Ways Agencies Charge You

  1. Selling your time. This is where you are exchanging money for your time, usually through charging by the hour or day. The flaw in this approach is that it encourages the client to focus on the wrong thing i.e., how you spent the hour rather than the outcome of the work you are delivering!
  2. Having a fixed project fee. This is where you estimate the project's cost at the beginning based on the scope of work agreed with the client and consequently the number of hours you estimate it will take to deliver the scope of work. You agree to a fixed fee based on these hours. The potential flaw with this approach is that the product's brief and scope can change and evolve. To please the client, you end up over-servicing them - cutting your margins.
  3. The retainer concept. This is where you agree on a set fee for each month and agree on the scope of work included within that fee. The potential challenge is that the client believes they have unlimited access to you because you are on the retainer. 


[8:43] Focusing on the Right Things


I share three pieces of advice when it comes to pricing a project.
Ensure that you understand the ultimate goal and price against the outcomes and impacts and not the bits and bytes you do for your client. 
Use three price points in your proposal. The high price point sets the higher anchor point; the lowest price sets the negative anchor point, which leads to the client buying the middle price point (and that leads you to achieve the price for the service you hope for).


Put a contingency pot in place with your clients when you are setting the project's scope. If you have a £10,000 project, ask the client to put aside an additional 15% as a contingency pot. Then if you are asked to do something outside the agreed scope, you can call upon this money.


[15:30] Having the Right Mindset


Having the right mindset is crucial and can be the most significant battle you have around pricing! If you think this does not work for you, it does. We often tell ourselves stories about how the client will react to a certain price point or price increase and this stops us from changing our pricing. We just need to realise that they are stories and not facts!

Want to learn more about how to

grow a successful agency? Sign up for my 

FREE Sales Pipeline Masterclass 

business development

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“I really enjoy listening to The Agency Accelerator Podcast. I always learn something from every episode”<– If that sounds like you, please consider rating and reviewing my show! This helps me support more people — just like you — move towards a Self-Running Agency. Click here, scroll to the bottom, tap to rate with five stars, and select “Write a Review.” Then be sure to let me know what you loved most about the episode!

Also, if you haven’t done so already, subscribe to the podcast. I’m adding a bunch of bonus episodes to the feed and, if you’re not subscribed, there’s a good chance you’ll miss out. Subscribe now!

Links mentioned in this episode:

Website: https://www.dacostacoaching.co.uk/

Grab a copy of my book (for free): The Self-Running Agency

Download my book on value pricing & selling 

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2 useful podcasts that feature Rob Da Costa!!!

Niching

 I want to share with you 2 recent podcasts that I have been interviewed on. I know you will find them really useful (& get to know me a little!) since they cover two of the biggest topics I frequently talk with clients about:

Value selling

Unpacking value-based pricing

(interview with Lee Jackson from Agency Trailblazers)

  • Trading time for money may be our comfort zone as an agency owner but it is likely holding us back, trapping us in our business and not even doing your clients any favours either!
  • In this week’s episode we talk with Rob Da Costa who shares the concept of VALUE based pricing and answers standard objections  
Niching

Are you selling vitamins when your clients want painkillers

(Interview with Bob Gentle from Amplify)

  • Focused on selling clients what they need rather than what you think they need! A discussion around what we sell and how to niche
  • This was a fascinating interview and I’m really excited to share it with you.

I know you will find them useful and I love to hear from readers so please leave a comment below and let me know whether these are challenges for you too?

The Ultimate Guide To Agency Pricing Models (And Why Value Pricing Beats Them All)

value pricing

If you would like to learn more about value pricing & selling and specifically 3 strategies to increase profits then sign up for my FREE Workshop 

Introduction

When I reflect on the work I do as a business coach, I like to see if I can spot any similarities in the businesses of my highest performing clients. 

Success leaves clues, as they say – learning what one business does to win in their specific market often gives an insight into what it takes to win in general too. 

Last month, we talked about the power of establishing a clear niche for your business (you can read that here if you missed it). 

And yes – across time, I’ve seen well-niched agencies outperform their generalist competitors 9 times out of 10. But there’s more to running a high-performance agency than simply choosing a good niche – if only it was that simple!

As for the other commonalities…

I was preparing some case studies for my website recently and came across an interesting example I’d like to share with you. 

PR agency Pedroza Communications sought me out to assist with their business. They had been around for five years but were facing challenges around growing the agency sustainably

Bear in mind this was an agency that had defined their niche, won plenty of customers and established a respected position in the marketplace… 

But despite having these wins under their belt, they were still struggling to shift to the next level. 

I got to work, digging deep to find out into what was holding them back from achieving the results they sought. It quickly became apparent that their pricing model was a key issue. Upon review, we decided that the business needed to move from a time-based pricing model to a value-based one (more on that a little later). 

With some bravery on the part of the MD (to make this shift), this process – coupled with some other interventions on my part – helped the agency grow their profits by 66% in just over a year. 

We’ll return to this case study a little later in the article, but for now, just bear in mind that big improvements often come from taking small corrective actions, including shifting your mindset. 

As an agency coach, I’m used to helping clients deal with a variety of problems. Staffing, strategic planning, winning new business and client retention – I’ve had clients contact me to assist with all these areas and more. 

But hands down, one of the most valuable things I do as a coach is to help my clients get their pricing right.

Value pricing and selling is a huge part of building a successful agency, but most of the information floating around online doesn’t truly teach you how to implement a value-based pricing and selling strategy. 

In this article, we’ll be diving deep into the topic of value-based pricing and specifically HOW you can implement it in your agency.

Here’s what we’re going to cover: 

  • The standard pricing models you’ve probably heard of (and why they’re not a good choice for your agency)
  • Why value pricing is the best option for your business
  • The four things we sell to our clients – and which ones we should emphasise in our pitches 
  • What buying bottled water in a desert can teach you about selling your agency’s services
  • My personal experience with value pricing
  • The three truths of value pricing (and what this means for your agency)
  • An interesting case study of an agency just like yours that has successfully implemented these principles in their businesses
  • My favourite resources for simplifying the process of value pricing & selling 
  • The exact steps you can take to put value pricing to work in your agency immediately

So if you’re ready to break free of time-based pricing, start earning the fees you deserve and dramatically boost your agency’s profitability, read on!

Want to get an instantly actionable list of takeaways from this article?

Click here to download your One-Page Action Plan. 

 


Standard Agency Pricing Models (And Why They’re Not All They’re Cracked Up To Be)

Before we get onto the topic of value pricing, I think it’s important to first get clear on the standard agency pricing models you can choose from. Here are the three most common pricing strategies you could employ in your business: 

Time-Based Pricing

This is simply where you charge your clients based on the time you spend working on their account. You might have an hourly or daily rate, likely different hourly or daily rates for different team members that work on the account. The prices you quote to clients are based on:

  1. The time the job will take, and 
  2. Who will complete the work

Simply put, it’s a direct trade of resources (i.e. labour hours and materials used) for pay. It’s a standard model, one that many agencies employ when they’re still finding their feet in a market. 

There’s nothing wrong with it, per se – but tying your income to your time will hold you back as you try to scale your agency. 

There are only so many hours in the day that you can work. And depending on your market/niche, quoting high hourly rates can be a huge turnoff for prospects (when you’re selling based on time, at least).

Of course, charging higher hourly/daily rates is a viable strategy. That’s essentially what the next model allows you to do. 

“Cost Plus” Pricing (Fixed Fees)

On the face of it, this might look similar to value-based pricing… but the difference lies in where your focus is

With a “Cost Plus” or fixed fee pricing model, you focus on inputs and outputs i.e. the resources you use to complete work for the client. 

For instance, a web developer might figure out the price for a particular project by outlining the various components of a project. That could look like the following:

  1. Meeting with the client to develop the brief and outline the project 
  2. Developing the wireframes
  3. Initial page designs 
  4. Edits 

And so on. 

Once that’s done, you would then move to assign a cost to each part of the project. 

For instance, maybe you estimate that developing the wireframes will take two designers four workdays to complete. Perhaps the initial meeting requires two hours of preparation on behalf of the Creative Director, etc. Essentially, you’ll figure out how much time & resources the project will take, then assign a cost to each. 

When you have completed this step, you’ll have an estimated cost for the total project. And this is where “Cost Plus” pricing diverts from value pricing. 

In this case, the final price quoted to the client is dependent on the cost of time/materials used, plus some fixed percentage (e.g. 20%). 

For example, if you estimated it would take 10 hours of a designer’s time and their internal cost to you is £600 for this time, you would charge the client £600 + 20% mark up resulting in a total cost to the client of £720.  

(We’ll return to this web design example a little later on in the value pricing section, so keep an eye out for that!)

This “Cost Plus” approach can sometimes be used to negotiate a fixed fee for the project. This is a double-edged sword: if the project goes to plan, you’ll make as much profit as you forecasted (or even more if it goes well). But if it should happen to drag out longer than you planned for? You’re left with two choices… 

  1. Take the hit and complete the project (even if the work stops being profitable)
  2. Return to the client and renegotiate the fee (which is awkward and can make it harder to deliver a satisfying final result)

Neither scenario is great. When you also consider that the fee you quote could simply be based on a fixed hourly/daily rate + a fixed percentage, it’s easy to see how you can end up working on projects that aren’t beneficial for your agency. 

The next pricing model on our list is another common one that takes the idea of charging a fixed fee and improves upon it slightly. 

Retainers

A retainer is where you agree a fixed monthly fee and outline the work you will do for that fee. For example, say you run a PR firm. You could negotiate a fixed monthly PR retainer of £3,000 per month with a client. For that amount, you might agree to the following deliverables:

  • 2 press releases
  • 1 case study
  • Top 10 feature followup
  • Press office support
  • A monthly report and meeting to discuss your progress together

A retainer-based agency can often be more profitable than ones using the previous models. This is because their income is independent of their time. With this approach, you get paid the same whether it takes you 10 hours or 100 hours to complete the work required. 

The price you quote for a retainer is often derived from how long you estimate a standard deliverable will take to complete but allows some scope for variance depending on the client (which is good). 

However, while it’s a step in the right direction, it’s not the best option for your agency. It’s still an exchange of resources for money – just in this case, the resources in question are the various deliverables you’re obliged to work on (and not your time). 

Additionally, most agencies will still get sucked into quoting a retainer price that reflects the effort they have to put into the work (and not necessarily the value it creates – more on that shortly). 

When we look at these approaches presented so far, what’s the flaw common to each of them?

They focus on inputs and outputs… not outcomes and impact

Not sure of the difference between these terms? Read on to learn what they mean (and why you should care). 

Inputs, Outputs, Outcomes and Impact – The Key To Understanding Value Pricing

All of the pricing models we discussed in the previous section are acceptable choices, but they each share the same common flaw… 

They are based on YOUR agency and what YOU are doing i.e. your inputs and outputs. 

This is a problem because clients only really care about their own business. By this, I mean:

  • They don’t really care about how much it costs you to complete the work 
  • They don’t care what you have to do, or how much time & effort it requires on your end 
  • They don’t even care about how well-crafted the work is for its own sake

That’s not to say they don’t care about quality or deadlines (these things obviously matter), but what really matters are the OUTCOMES and the IMPACT of your work. 

Let’s take a second to define precisely what these terms mean. 

When we sell to clients, we sell four things: 

  • Inputs are the resources used to deliver a project – people, time, software etc. 
  • Outputs are the completed tasks & deliverables e.g. a logo design, a press release, or a new website 
  • Outcomes are the results the client gets from your work, typically characterised as a transformation e.g. unaware prospects start to notice their business or their branding goes from non-existent to some awareness 
  • Impact is the long-term benefit of the work you’ve done – e.g. securing a leading position in their niche, getting many new enquiries, increased sales & profits etc.

Inputs and outputs are easier to quantify, but they matter a lot less than outcomes and impact. 

Focusing on the former two is a hallmark of agencies focusing on the wrong thing and therefore likely to lead to misunderstandings and shorter-term relationships.  Rather than framing their work in terms of how it will benefit the client, they instead spend their time worrying about the stuff that’s easily measured. Sadly, this is one of those cases where choosing the simpler upfront option holds you back in the long run. 

A press release might take five hours’ worth of labour to complete. The inputs and outputs, in this case, are easy to measure (‘research’, ‘time to write’ and ‘the press release’). But how do you go about articulating the outcomes & impact of that positive press release? Of coverage achieved (outcomes) Of a stronger brand? Or a more receptive market (impact), thanks to your efforts?

I’ve lost count of the number of agencies I’ve encountered over the years who fail to spot the mismatch between what they’re selling (inputs & outputs) and what the client is truly buying (outcomes & impact). This lack of alignment costs them new opportunities, profits and a chance to build a much bigger business…

And rectifying this mismatch is where value pricing and selling comes in. 

Why Value Pricing Is The Best Choice for Your Agency

As we just discussed, there’s a variety of standard pricing models you can employ in your business, but in my experience, the best pricing model for agencies is a value-based one

There are many reasons this is your best approach. Consider these two quick stats: 

  • According to Hubspot, taking a value-based approach to pricing can boost profits as much as 50% over a traditional market-based approach 
  • Small changes to your pricing models can have a big impact – studies by pricing experts out of McKinsey & Company found that a 1% bump in prices can result in an 11.1% increase in profits – a 10x return! (HBR)

So the facts are clear – value pricing is the way to go if you’re running an agency. But what exactly is value pricing?

Simply put, it’s buyer-centric (not supplier-centric like the other methods). 

The price you quote is based on the value delivered to the buyer (the outputs & outcomes), and is not based on how expensive it is for you to deliver (i.e. the inputs). It’s often referred to as outcome-based pricing for this very reason. 

Value pricing allows you to get paid based on the value you create for clients (and not just on the resources you expend in creating deliverables for them). 

Consider a web design agency. If they employ a time-based pricing model in quoting a project to a prospect, they might find it hard to justify more than £5,000 based on the hours it will take.

This might feel frustrating for the agency owner, but that’s because we’re still trapped in a limited paradigm (i.e. time-based or “Cost Plus” pricing). By shifting to a value pricing approach, we can begin to charge more than £5,000. 

Let’s say that you’ve worked with similar clients in the past, and were able to increase their on-site conversion rates to the point where they were earning an average of £200,000 more per year directly from their websites.

That’s £200,000 in profit directly attributable to your interventions. In this case, it would be very reasonable to charge say 10% of that as the project fee (i.e. £20,000). 

By learning to frame the project in terms of value for the client (and not just simple inputs and outputs), this web design agency could earn four times as much from a single project. 

(Note that this £200,000 figure doesn’t have to be an average or even a figure you’ve personally produced for a client. Ultimately, your goal is to get the prospect to tell you the value of your proposition by exploring with them the goals of the project and what ‘success looks like’. If you do this, you’ll be framing a value-based price).

Hypothetical web design agency aside – how well does this approach work for real businesses?

You’ve already read about the success of Pedroza Communications above (who boosted profits 66% in a year after implementing a value pricing model).  This experience isn’t unusual – I’ve seen other clients snap out of slumps and boost their profits by double-digit amounts in a matter of months

And even as a coach, I know that the day I shifted towards value-based pricing was the day I started getting paid the fees my work deserved.

You’ll read more about my personal (hard-won) experience with value pricing later in this article. For now, let’s address the question that’s been at the front of your mind since you started reading this article… 

How can you put value pricing to work in your agency?

How To Use Value Pricing In Your Agency

Now, you might have read the previous section and thought, “There’s no way I could justify charging x% of my client’s earnings as the project price”. 

And yes, sometimes that’s true…

But when you think about it, value pricing is everywhere

It’s more obvious in some sectors than others, of course. For instance, consider the fashion industry. The same basic material is used to manufacture Primark shoes and Nike ones – but Nike shoes can retail for 5-10 x the cost of their cheaper equivalent. All that separates the two is belief in the value of the brand. 

Another example is seen in the construction industry. No one prices based on the cost to build + a margin of profit… it’s all down to what people are willing to pay. In a way, that’s the ultimate value sell!

Selling clients based on value requires you to take a different approach. Rather than focusing on yourself, you need to become intimately aware of what your client is hoping to achieve. 

You can’t possibly hope to deliver value to them without first understanding what they value. How can you succeed if you don’t know what success is? More importantly, how can you create value for their business if they don’t truly know what they want themselves?

This process starts with asking better questions.

The quality of the questions you put to your prospects will determine how much value you can add to their business. Your goal is not to figure out how much you can charge them – it’s all about determining what a valuable solution is worth to them. 

Inputs and outputs are secondary. Outcomes and impact are what you need to be worrying about. Getting a crystal-clear picture of how they will gauge success is of the utmost importance. 

Once you’ve figured out: 

  • What success would look like to them (i.e. what outcomes and impact they’re after)
  • How they’ll measure this success
  • How important this success is to them (it’s better to solve big problems than minor ones)

You’ll naturally be able to align your proposal with their desires. That goes for pricing, too – once you know what they need & how much value that can bring to them (financially), you’ll be able to give them a price that works for both of you. 

In our web design example, the agency in question had experience and a track record of delivering results to similar businesses. That made it easy for them to pitch their value – they had evidence to point to their impact, and a compelling story to tell about their value proposition. 

If you’re in an industry where it’s harder to quantify these things, there are two other methods you can employ. 

  1. You can make reasonable estimates as to your impact. E.g. if you’re a PR firm, you can conservatively guess that no (or even worse, bad) publicity for their business could cost them x% of their sales (say 5%). Once you have an idea of their annual revenues, you can base the value of your intervention based on this figure. If you’re solving a big problem, even conservative estimates will still allow you to deliver massive value to prospects
  2. You can discuss value based on the results enjoyed by businesses in similar industries (e.g. a case study detailing a dentist’s increase in bookings thanks to a well-integrated website & advertising campaign could be of great interest to lawyers, physiotherapists, or other professionals)

Whatever the case may be, remember that figuring out the true impact you can have on their business is what will enable you to get paid value-based fees…

And the process starts with asking better questions. 

Don’t take their stated goal of wanting more website traffic as their definitive goal. Dig deeper: look for the true impact you can deliver for them (keep asking ‘why’ questions so you can align your project to their business goals). 

If you’re interested in learning more about having effective (value-based!) sales meetings, check out the resources section below for a free copy of my Value Selling eBook. Additionally, you’ll also find a link to a webinar I recorded on the topic. 

Using this material, you’ll find it easier than ever to figure out what clients really want – so you can be the one that supplies it to them. 

What Buying Bottled Water In The Desert Can Teach You About Selling Your Services

Let’s consider the realities of value pricing by changing tack for a minute. 

Consider one of the most widely available substances in any shop in the world – bottled water. 

If we apply the pricing models we’ve previously discussed, we can see how we could come to very different values for the same product depending on how it’s presented to us. 

Let’s take a simple 500 ml (16 oz for my American readers) bottle of store-brand water.

If you have a time-based pricing mindset, you might estimate how long it took to manufacture the bottle, and how long it took to locate the spring it was filled from. Say the end cost is 60p

If you were a little more generous and used a “Cost Plus” model, you’d add a margin of profit so the seller has an incentive to work with you. Let’s say the end cost is £1 in this case. 

Both fairly modest prices, but they’re quite in keeping with what you’d expect to see. However, what would happen if we applied a value pricing paradigm?

To consider how this could happen, imagine the following situation: 

You’re walking through the desert. With the sun beating down on you, the sand beneath your feet feels like it’s on fire. There’s nothing but dunes for miles around… 

But worse than the burning sand is your thirst. You’re desperate for a drink, and you’d pay any price for it right now. 

Then in the distance, you see a figure on the horizon. It’s another lost traveller, just like you – but they seem to be in much better condition. As they get closer, you see why: they’ve got a bag filled with little plastic bottles of water on their back!

In this moment, how much would you pay for one of those little bottles? 

As the sun beats down on you with no reprieve in sight, wouldn’t it be fair to say that a little bottle of water could be worth far more than 60p?

Odds are you’d pay whatever you could just to get your hands on it. £10, £20, £100 – it all depends on just how thirsty you are. 

And if you were thirsty enough to hand over £100 to this well-stocked traveller but they only charged you £20, how happy would you be?

Likely jumping out of your skin at the great deal you got!

That’s what value pricing is all about: figuring out how badly your client needs a drink, then giving them that drink at a cost that excites them (i.e. that makes working with you a no-brainer). 

Granted, the situations you face as an agency aren’t as life and death as a wander through the desert, but the moral of the story still applies: 

Clients don’t buy time, effort or input. 

Clients buy results. 

Once you internalise this lesson, you’ll be in a much better position to both deliver great results to clients and get paid much more attractive fees. 

To drive home the importance of this shift in mindset, I’d like to share with you a story from the very early days of my coaching agency. 

Value Pricing – My Personal Experience

Let’s take a trip down memory lane together as I recount a tale from the early days of my coaching business. 

I remember it like it was yesterday… 

I had met a great prospect, and things were going well. They were receptive to my pitch – they were even interested enough to ask for a quote.

Without giving the matter much thought, I quoted them a day rate I felt was reasonable for both of us. I didn’t have much to base this on bar a little research I had done on some of my competitors.

The price didn’t seem to concern them (in hindsight, this was a red flag: I should have seen that I was clearly too cheap) – they said they’d think about it and let me know. 

A few days later, that prospect got back in touch with me. They were eager to work with me, totally sold on my proposition and offer to them… 

Except there was one little hitch. 

They had been in contact with another coach whose day rate was £100/day less than mine. And unless I was willing to price match, they were going to go with my competitor. 

Being new to the coaching game, I felt I had no choice but to discount my prices to win that first client. There was no escaping the Price-Match Trap in this instance… 

But as I established my business, the lessons I learned from that first encounter proved invaluable, namely: 

  1. Selling time to clients makes you into a commodity (so it’s easy for prospects to bargain you down by comparing you to your competitors)
  2. Your technical skills are a commodity (e.g. web design or SEO).  It’s your experience, strategic insights and creativity in generating great client results are what set you apart – so focus on selling these 
  3. Clients don’t really care about how long something takes you. If you can frame deliverables in terms of value (and not in terms of cost), you’ll earn far better fees for your work

Let’s expand on these three points now. 

Three Truths of Value Pricing

1. Time Is a Commodity 

Time is a commodity. When you quote a price to your client based on how long something will take you to complete, you leave yourself vulnerable in two ways: 

  1. Your competition could deliver the work faster than you 
  2. Your competition could charge a lower hourly/daily rate than you 

In either case, it’s very easy for prospects to compare your proposal to what other agencies are offering too. And not only is pricing based on time easy to compete against – it also fails to take the client’s true desires into account (i.e. the outcomes and impact they’re after).  

In my case, there was no discussion of the value my competitor and I could bring to the table – it was purely a matter of cost. Because I had chosen to quote a day rate (and hadn’t taken the time to properly articulate my value), I was bargained down.  

2. Skills Are a Commodity 

Being able to perform some technical task isn’t what sets you apart from the competition. Copywriting, web design, SEO, PR management – these skills are commodities. There are hundreds of other businesses out there that can do those same basic things. 

What sets you apart is your experience and your creativity in generating great results for your clients… but so often, agencies get bogged down in the technical side of their work. 

Your skills are a prerequisite but remember: the real value you can offer clients comes from your experience and creativity

A run-of-the-mill web design agency is competing with cheap freelancers in Eastern Europe & Asia, website building software such as Wix and GoDaddy, and a dozen other local firms all offering the same services. In this environment, it’s easy to see how competing based on price is a race to the bottom. 

However, if they can learn to use their experience serving a particular niche (or their creativity in delivering great results) to their advantage, they can more easily stand out from the crowd. Discussions of price will fade into the background in the face of the new reality: 

All your competitors could be cheaper upfront, sure – but what you’re offering is so much better

3. Clients Only Really Care About Outcomes

As we’ve already covered in this article, clients don’t really care how much the work costs you, how long it will take you, or if you’re proud of the final results. 

All they truly care about is the value you can create for their business. 

If you can learn to frame your relationship in terms of value (and not just how much you cost), then you’ll be in a position to earn far better fees for your work. 

These three truths were hard-won for me (to be honest, this wasn’t the only client I let talk me down to a lower rate!), but I’ve been able to spare my coaching clients plenty of headaches by passing these lessons on. 

If you find yourself competing based on price, bargaining with clients (and losing), and even losing out to other businesses that don’t deliver as much value as you do… 

Then consider how you could best sell your value to prospects. 

Develop systems for communicating your worth, and for figuring out precisely what your clients are looking for. 

If you can internalise these truths and use them in your dealings with clients, you’ll be in a much better position than your competitors. 

In the next section, we’ll look at a relevant case study that will show you how effective using a value pricing model could be for your agency. 

Client Case Study – Pedroza Communications

I’ve mentioned their name a few times throughout this article already. That’s because I think you can learn a lot from this case study if you’re currently trying to implement a value pricing structure in your agency. 

Pedroza Communications is a PR company working in the education sector. They took me on because, despite being pretty well-established in their niche, they felt they were not growing as much as they could. In fact, they felt as if they constantly taking one step forward and one backwards, never getting any closer to that endpoint they were aiming for. 

My work as an agency coach is rarely a simple “one and done” proposition. We dig deep and look to see what’s really going in the business. Oftentimes, the client is surprised when we find the real cause of their troubles. 

In this case, we made a few minor changes to the operational structure, workflows, and the like… but the single biggest area of concern was their pricing model

Like many other agencies, Perdoza Communications employed a time-based pricing model when pitching to new prospects. And while that helped them to secure plenty of business, the work they were doing wasn’t as profitable as it could be.  

We looked at their pricing model and identified a few key changes they could make (maybe you could use these too?):

  1. We stopped talking about time in proposals. This is the most important point. Note that it doesn’t mean you’ll never talk about timelines and delivery points – it simply means you don’t give a detailed breakdown of how long you will spend working on various parts of the campaign 
  2. We changed the structure of sales conversations they were having with new prospects, placing more emphasis on figuring out early on what success would look like for them
  3. We mapped out their services against these different outcomes (to ensure there would be no misunderstandings further down the line)
  4. We created a clear standard scope of work for their service offerings to show what was included (and what was not included). This is very important: spending time to get this right up front makes it much easier to deal with “scope creep” when it arises

With a little bravery, the MD committed to making these changes. We worked together on the next brief, and by using this approach, we came to a price that was substantially higher than they would have charged previously…

But despite this increase in price, they were still able to easily land the prospect as a new client. It was almost a no-brainer, considering the value they brought to the table. 

Just one year later, they had switched over to using this approach with all their prospects. And the results?

Their profits were 66% higher than they had been just 12 months prior. 

I’ve seen results just like these happen for agencies in many other markets too. The same rules apply, regardless of your niche: learn to sell based on value (and not just on time), and your business will reap the benefits. 

The Best Resources For Value Pricing & Selling

In this article, we’ve dug deep into the topic of value selling and pricing. 

Switching to a value-based pricing model can seem quite challenging with lots of questions and excuses including:

  • How can your agency possibly justify charging more than the competition? 
  • What will you say to prospects when they ask you for a discount?
  • How can you bring up the topic of increasing prices for existing clients?
  • How do we change our model from time or cost-based to value-based?

Answering these questions can be tough… 

But luckily, I’ve got some great resources to help you with the process. 

First off – you can get a free copy of my Value Selling eBook (click here), which outlines the 10 steps you can take to implement value selling and pricing in your business. Inside, you’ll get the exact steps for selling based on value, how and when to have the value conversation with prospects, and much more. 

Here is a more detailed 30-minute webinar I ran on value selling and pricing.

Additionally, Hubspot has some great content on value pricing frameworks. You can read more about that here

In case you’re sceptical about how well these techniques will work for your business, here’s a case study of a small design agency that revolutionised their business by switching to a value-based pricing model

Finally, here’s a link to a book called “Breaking the Time Barrier”. Published by FreshBooks, it’s a short read, but very valuable. And best of all, it’s free!

Your Action Plan

We’ve covered a lot of information in this article. At this stage, your head is probably spinning at the possibilities before you!

To help you get started with the process of value pricing, I’ve outlined the very next steps you should take in a handy One-Page Action Plan. 

To get your copy for free, fill in the form below to get instant access.

Conclusion

Switching to a value-based pricing model is one of the best things you can do to grow your agency sustainably and improve your profits…

And with the information shared in this article, you’ll be able to make this switch faster and easier than ever before. 

I guarantee you that taking this approach will have the biggest impact on your profits more than anything else you can do in your agency.

My aim with this article was to teach you everything you need to know to start implementing a value pricing model in your business today. And with everything we’ve discussed here, I’m confident that you can: 

  • Get your mindset right about choosing a pricing model for your business 
  • Confidently communicate the value of your services to prospects
  • Stand out from the competition by selling your creativity and experience (not just your skills)
  • Use the resources I’ve suggested to streamline the switch from your current model to value pricing 

I’d love to hear about your experiences with value pricing, so please reply in the comments below with your thoughts to these 2 questions: 

What pricing model do you use in your agency, and what do you think the advantages/disadvantages of doing so are?

If you don’t currently use a value pricing model in your business, what’s stopping you?

I look forward to reading your answers below!

If you would like to learn more about value pricing & selling and specifically 3 strategies to increase profits then sign up for my FREE Workshop 

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