Apr 21, 2021
Subtitle:
Understanding how to price your services is both complex and challenging, and there are a LOT of variables at play. Do you price based on effort or value? Do you prepare for haggling or give your final price upfront? Are you too expensive or not expensive enough? There are pros and cons with every decision and the lack of discussion around this topic makes for widely scattered strategies. Today we discuss how we price services and why.
Summary:
In today’s episode we talk about the psychological implications of pricing strategies and how those strategies impact client relationships. We discuss leveraging those initial sales pitch conversations to learn as much about the client’s vision as possible, agreeing on the lifetime value of a customer and how that lifespan plays out within your agency, billable hours versus man hours and how to price fairly according to both… and more. We’re digging deep in this one, and getting vulnerable about our experiences pricing clients of all sizes and stages of growth. Stay tuned!
Top 3 Curtain Pulls in this episode:
For more tips, discussion, and behind the scenes:
About The Guys:
Bob Hutchins: Founder of BuzzPlant, a digital agency that he ran from from 2000-2017. He is also the author of 3 books. More on Bob:
Brad Ayres: Founder of Anthem Republic, an award-winning ad agency. Brad’s knowledge has led some of the biggest brands in the world. Originally from Detroit, Brad is an OG in the ad agency world and has the wisdom and scars to prove it. Currently that knowledge is being applied to his boutique agency. More on Brad:
Ken Ott: Co-Founder and Chief Growth Rebel of Metacake, an Ecommerce Growth Team for some of the world’s most influential brands with a mission to Grow Brands That Matter. Ken is also an author, speaker, and was nominated for an Emmy for his acting on the Metacake Youtube Channel (not really). More on Ken:
Show Notes:
[1:41] Bob introduces today’s topic- pricing and pricing models. He and Ken discuss discounts and where they can be used as a strategy.
[2:10] Bob asks whether Brad or Ken have seen changes in their pricing over the last year.
[2:32] Brad says that they’ve had some clients as for reductions in specific areas but overall they’ve not changed their pricing as an agency.
[2:45] Ken “We’ve tried more and more to get out of the box pricing going.” This means more consistent pricing for a scoped project.
[3:40] Bob shares his experience over the last year, saying that although the agency he works for hasn’t moved to out of the box pricing they have developed more strategy sessions, assessments, audits, and other things that put parameters on a project. This helps to give a more accurate estimate and increases confidence that the client can trust you with their marketing dollar. This is especially important in the current climate when some companies may be tempted to hold back on their spending.
[5:25] Ken The goal is to make it an easy “yes” for your potential clients!
[5:59] Brad talks about the difference between selling the commodities side of your services versus things that can’t be price checked. This harkens back to the idea that in business you can be the Cheapest, the Best, or the Only- and if you’re the Only there is no price checking that is truly comparable.
[7:51] Brad continues, saying that the first step is taking a realistic look at your pricing model. Can you offer a reduced price for clients who make a long term commitment? How can you build new features into your pricing to offer a competitive advantage over other agencies?
[9:01] Ken talks about building extreme value into your pricing model, saying it doesn’t have to mean cheap. Instead, you want to provide an outcome that far outweighs the cost.
[9:31] Brad stresses the importance of making sure you understand the return on investment that you’re giving back to your clients. Because if they see that you’re making them 10X, they’re not going to leave- and they’re not going to call you expensive. They’re going to call you awesome!
[11:39] Brad shares a story about a client whose consumer product ads are getting high as far as cost of acquisition. While from one perspective, some may say this is the time to pull back because of cost, Brad knows that they are gaining 1000s and 1000s of people’s awareness of their product. This is an example of how keeping your clients up to date about their real time ROI is so important!
[12:52] Bob stresses the importance of having a clear understanding of how the client defines success. If you’re already not speaking the same language with a client as far as this goes, then there is likely to be a lot of miscommunication down the line.
[17:00] Ken talks about initial conversations with clients, saying that often the conversation gets cannibalized by talking about website design or details that don’t have anything to do with the end goal. Trying to talk about those small details during that first conversation “It’s like talking about all the turns you’re going to make in a trip, rather than talking about where you need to be.”
[20:12] Brad asks if Bob and Ken include the time it takes to provide estimates in their final pricing models. If so, is this something that they tell their clients?
[20:35] Ken says that Metacake tracks that time, but they don’t include it into their pricing. This is mostly because it can be so complicated to build in appropriately.
[24:41] Ken shares his experience working with clients who have internal chaos and constant turnover or change in leadership. It can make the strategy and long-term vision for the company as a whole very difficult to figure out. It also creates an innate power imbalance from the very start, and puts the agency in a defensive posture.
[27:37] Ken “If you don’t care enough to talk about it, you’re probably not gonna care about my time to talk about it… if you’re not willing to apply your effort into and focus just for a period of time… you’re probably not going to value my time either.”
[28:45] Bob asks if Ken or Brad provide hourly rates that help determine their retainer pricing.
[28:53] Ken asks another question- is pricing based on hours, or value, or results?
[29:03] Brad says their rate is based on hours, but also monthly man hours- or the actual number of people that will be working on the project and how much of their workload will actually be dedicated to that project.
[30:00] Brad continues, saying that they do special pricing for new projects, or things they haven’t done before and aren’t 100% sure of how they should be charging. In those situations they’ll typically give a range, so that clients have a ceiling expectation and you can work towards coming in under that estimate. Later down the line this is helpful as well, because if you come across a roadblock that means more money from the client, they already trust that you’re providing value.
[33:47] Ken talks about separating the things that you can control versus the things that you can’t, and leveraging those that you can control as a way to create predictable results. When you are able to peel those things back, you can build them as a flat fee service.
[36:14] Brad says that it is important to understand your billable multiplier is to your talent. When you have several different roles within your organization with all different experience levels and salaries, it’s more difficult to charge by man hours. But in the end, agencies are human resource companies. Humans are the resource that provide the excellence in work. It is worthwhile for you to take a good look at your billable multiplier and understand your profit center.
[39:48] Brad says that clients think in terms of hours- and so it’s on the agency to communicate in a way that the client will understand and is based on time in some way.
[45:08] Brad asks if Bob and Ken have clients that demand total transparency.
[45:32] Bob mentions that his agency builds a dashboard that clients can access at any given moment and see where they are in spending, the status of their deliverables, which parts of the project are outstanding, and more. At any given time, there is complete transparency.
[46:15] Ken “I think there’s a transparency that is unhealthy when that pierces through the projects into your business model,” he says. If clients are wanting to know about your profit margin or question your business model, that is a sign that your value may be undermined from the jump.
[47:40] Ken “Let's end with a question that I asked at the beginning, which is do you discount? Because I think that discounting conversation does tend to get into meddling with the model a little bit. He asks, “Would you discount for people when they say hey can you show me a little love here…”
[47:56] Bob says that he only offers discounts when it’s used to sell a project from a marketing perspective. Offering a discount for a year-long retainer versus a 6-month engagement is a sales tactic, ultimately. It comes down to being able to come up with creative marketing solutions- if you can continue to come up with these solutions past 6 months then it’s probably a client worth a longer contract.
[50:23] Brad explains that long story short, if you feel like the discount may not be adding to the long term value of your client relationship then it’s probably not going to be the best choice for your business.
[50:55] Ken “I think that the ultimate thing that you want to protect is having a balanced relationship in the future.” If there is more gameplay on the front end, that is a sign that the long term psychological impact may be detrimental to the relationship.
[52:47] Brad says you should have a strong awareness overall of where you stand in your pricing. At Anthem, if a client decides not to go with the RFP they’ve received, Anthem’s team will then reach out and ask where they compare as far as pricing goes. This will help you understand how to make adjustments to better serve your potential clients. Getting feedback from clients that decide not to work with you also serves as a reminder of you for the future.