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What Are You Worth? 5 Fundamentals of Agency Pricing

One of the hardest decisions when setting up your agency is deciding on how to price your services. Too high and you risk pricing yourself out of your target customer’s range; too low and you won’t make any profit.

Because it is subjective, pricing a service is a lot more complex than pricing a product. And there is much more to it than simply deciding how much money you want to make.

Here are 5 pricing fundamentals to consider that will help you find that sweet spot between profit and client satisfaction:

1. Calculate your costs

It goes without saying that you need to set a price that covers your costs. This includes fixed costs - the overheads that exist regardless of how much or how little you sell, as well as variable costs, which depend on labour, time and materials.

Use an online business calculator to help you understand the monthly costs of running your agency. The important part is to actually then monitor these overhead costs every month to see where you may be able bring expenses down and ensure that your rates are still on point. To do that, online accounting software, Xero, produces simple, accurate reports that allow you to easily understand where your money is being spent.

2. Understand the perceived value of your service

Determining how much a client is willing to pay for a service shouldn’t necessarily be based on how much time it takes. Rather, you should understand what the perceived value of your service and expertise is to them, and the impact it has on their business.

After all, you are not selling time, you are selling a solution. As part of your onboarding process, conduct value discussions to identify what your service is worth to your customers.

For example, let’s say you’re a web designer and you’ve been charging out your services at $100 an hour. A new client asks you to design a website for them, and you spend 40 hours on their project. This website has the potential to bring your client $100,000 worth of new sales a year. The value of your service to them is therefore quite significant. If you think of it that way, your $4000 invoice is a total bargain - maybe even too cheap? If your website produced the expected results, your clients would no doubt gladly hand over double that amount as they would earn that back in a matter of months.

Over time as you gain experience and demonstrable results, you should have the confidence to offer fee proposals based on the value and benefits they bring to your clients.

Want to know more about value-based pricing? Sign up for this webinar that will show you how you can start charging clients what you’re worth!

3. Consider how pricing affects your perceived market positioning

Think about how you want to position yourself in the industry and whether your pricing is consistent with this positioning. Do you want to be seen as a boutique agency who works with high-end clientele? Are you hoping to work with start-ups and solo-preneurs?

Your pricing needs to reflect the purchasing power of your intended customers. A higher price contributes to the perception that your service is of premium value but may also discourage your target audience from engaging your agency. On the flipside, price yourself too low and you’ll give the impression that your services are amateur or basic. To get an idea about where you should sit, then consider the next point...

4. Look to your competitors

Unless you are offering your customers something that they simply cannot get anywhere else, then you need to be aware of what your competitors are charging for similar services.

Do your research - audit your competitors' websites (how do they position themselves? What kind of language do they use to sell their services? Look at their case studies and client listings – are these the kind of clients you want to be attracting? Or do they specialise in a slightly different industry?) or talk to associates who may have recently used the services of an agency.

That being said, you shouldn’t try to compete on price. Instead, compete on service or other factors that set you apart in the industry. You may think the best way to get new clients onboard is to offer lower prices than competitors, but establishing relationships based on price alone will not set you up for long-term client relationships. Clients who go for the cheapest option will likely jump ship when the next budget option comes along.

5. Where can you add value?

You don’t have to just charge for the time of your creative services, but also for the entire experience of engaging with your agency. When you add value through a beneficial client experience, you can justify a higher rate. Consider ways that you can design an awesome client experience that your clients will be happy to pay for:

  • be efficient and deliver work before deadlines
  • offer access to additional client-only resources that will help their business development
  • offer a professional on-boarding process
  • deliver regular progress reports or review meetings
  • provide referrals or offer introductions with potential clients or suppliers
  • recognise and celebrate milestones
  • follow-up - implement a system to regularly touch-base with clients
  • offer webinars, seminars or keep clients up-to-date on industry news

Don’t forget to test the market - try new prices, new offers and new combinations of services and benefits, and see what generates the most leads and achieves the most profitable results.

Be confident!

If you’re new to the creative game, it can be hard to know what you’re worth - and then have the confidence to charge it. No doubt you’ve been sending out quotes with a knot in your stomach, wondering if the potential customer is going to baulk at your inflated sense of worth, or whether you’ve just severely undersold yourself.

But if you’ve taken the steps above to understand the true value of your services then you should feel comfortable to stand by your pricing and justify your rates if a customer starts to question your value.

Want to know more about establishing a strategic pricing strategy for your agency? Sign up for Jason Blumer's webinar.