Pricing has always been a difficult area for any agency. Are you concerned about setting fees that clients are okay to proceed with but you do not want to undervalue your business such that you’re making a loss.
Determining a one-size-fit-all pricing strategy is difficult and hard to implement. Therefore, I’ve provided a list of various pricing strategies available for agencies as well as some information on how to use them.
Customer-based Pricing
When to use it?
- If they are new clients: When you know their budget and they have approached you for costing. You will need to check if they were referred by someone else who may know your rates. Most of the time, clients will be obligated to tell since they will assume you will be giving them a discount for it.
- If they are existing clients: You should already have/engage a dedicated Account manager. The Account manager’s credentials and the value they bring to the client will be the deciding factor if you need to increase your prices. This helps to justify the increase of pricing when the need arises.
- If the company has a strong influence on their industry (the A-listers) and you do not know the competition that you are up against.
What's my basis?
Carl Sagan once said “extraordinary claims requires extraordinary evidence”. So here’s my evidence.
If they are new clients
We have always seen apps that offer credits or some value when you refer others.
Dropbox is one such example. When you refer a friend to use Dropbox you and your friend could get additional space. And Dropbox is just one example.
There are thousands out there and it has become a norm to believe that if am referred to by someone, I would get some sort of perk — especially if the person is a credible source.
If they are existing clients
I’ve received EDM mailers from insurance agents. Whenever they won an award for “Best Financial Advisor for the Year”, it gets sent to my inbox. — Why?
That very same agent will reach out to me to see how I am doing. Coincidence? I don’t think so. And, with the assistance of technology, a click is all it took for them to know I have read the email and blogpost.
When the agent calls, I am obligated to listen because that person has won an award. It’s got to be worth something. And that agent functions exactly like an Account manager in the agency setting.
Competitor-based Pricing
For example, if a competitor is pricing their services for $50, customers will not accept your business for $100. In order to attract customers and compete in the same space, you will need to price your services for the same $50 — or maybe even a little bit lower.
When to use it?
- If they are new clients: When you know your competitor’s proposed amount. If you don’t you can simply ask clients if they are okay to provide you a range to roughly know the competitor’s offer as they might not directly share the amount with you. From there, you can make a decision if the price point makes sense. Based on how the project goes and if the client becomes a repeat customer as you have met their KPIs, you can adjust your price point accordingly with data you have accumulated.
- If they are existing clients: Be firm with your pricing. If you have a good working relationship and have always been meeting their KPIs and/or if you know who the competitor is, chances are they will cave. Remember that if you give in to their demands once, they will put you in that spot again and again.
- If having that company in your portfolio is worth it for you to lower your cost and after you have done your assessment on the client and know their roadmap.
What's my basis?
Experience has shown me many times over that if you produce good results, clients will keep coming back for more.
If they are new clients
Insurance agents do this every time. Whenever I meet my agents, I will pit them against one other through various meetings with them.
For example, I will show my hospitalisation plan, life plans, amount I’m paying, etc. They on the other hand, will explain why theirs is better in an attempt to convert me if it truly is better. Otherwise, if theirs isn’t, or if they are simply uncertain about the competitor’s product, they will say things like: it’s great that you are well-covered and move on.
Do not waste your time negotiating unless the client is a keeper and can bring value and definite exposure to your company.
If they are existing clients
We lost a pitch to a website revamp. The reason was due to our price point being higher than the competitor. However, the client came back and highlighted the terrible execution of their website from our competitor.
They needed our help to fix what the other agency has failed to deliver.
In the end, the cost the client would have to pay is a lot more than they had planned previously. This is indeed very sad but also a good opportunity for us to showcase the reason behind our price point. It is the value that we provide that matters and hence why we are more expensive.
So the next time we place our costings, the client would then be willing to pay.
Cost-based Pricing
Using this model, agencies would charge by man hours or man days. This model works when processes are streamlined and standard. Everything works like clockwork and it compliments well with packages too.
However, if you don’t require a lot of hard materials or products to complete a job, this kind of strategy might not make sense for you.
When to use it?
- When your output is templatised and processes are the same for each website you do — e.g. choosing a WordPress theme and customising for the client.
- Less customisation and minimal creativity work.
- When you are focus on quantity and less on quality as your processes should already have taken care of that.
- When you offer packages — it’s normally derived from material and labour cost.
What's my basis?
This pricing strategy restricts or sometimes even kills creativity. I personally do not recommend this approach if Creativity is the heart of the business. It also punishes those who are competent.
How did I derive to this?
Creativity is deeply rooted to imagination. The ability to imagine differs with everyone. And Creative people tend to have more imagination than others which is why they are Creative.
I can say this because I was once a designer too. The moment you restrict Creativity, it dies and it becomes execution work. That will lead to the good Creatives leaving and the less adventurous ones staying.
Now, think of the Nike logo and how much it’s worth. Based on material cost, a tick would take 5 minutes to execute. Even if this is based on an hourly rate of $150 and you’re charging 1 hour, the value of that logo is worth $40,000. It just doesn’t add up.
I would suggest a value-based pricing if Creativity is the heart of the agency.
Why does material and labour cost punishes people? Say I take 20 minutes to do a full blown timeline or project plan. Others, may take an hour. But because of my competency I will end up having more on my plate and that creates an unbalance in the number of projects I’m handling unless someone is governing that, to provide fairness and fairplay.
If you see production floors such as car manufacturing plants, you will see that there is little creativity play. The only Creative work is the stock colour of the car. They don’t really design the car, they spray the colours on the car — and even this, is templatised.
Value-based Pricing
Value-based pricing doesn’t necessarily consider your costs or what your competitors are charging. Instead, it looks at how much value you’re bringing to your clients.
If your agency is spending one hour on a project but you’re delivering $40,000 worth of value to your client, you should not be charging for that one hour of time. Your pricing strategy should be based on the amount of value you’re bringing to the client. It is like the Nike logo I’ve mentioned above.
Value can be different from client to client. You would need to set your pricing according to your clients perceive abilities and skills of your work. By working with clients who really value your work, you can charge more.
When to use it?
- When Creative work and customisation is part of your processes.
- When you have data and recognition to back up your work.
- When you do not have a fixed package.
- When your focus is on quality rather than quantity as resources are limited and/or your team’s talent/status is well-known in the space.
- When you have good dedicated salesmen on your team to sell not just the work but the people too.