Six pricing tips to make your agency more profitable
Our annual BenchPress report provides insight into the pricing strategies of hundreds of independent agencies across the UK. We’ve learned how agencies price their work and what sets the most profitable agencies apart from the rest.
We’ve compiled six pricing tips that will get you thinking about how you price your work and ultimately help boost your agency’s bottom line.
You’ll learn how to:
- Introduce tiered and value-based pricing
- Create a discount strategy that provides value in return
- Manage out-of-scope work and keep clients satisfied
- Six tips for more profitable pricing
1. Increase your prices regularly
When was the last time you raised your prices? It’s an obvious place to start, but most agencies fail to increase their rates regularly. When doing this, it’s prudent to treat each service you offer differently. Some services may be price sensitive - increasing the fees for these might impact demand. However, there are likely to be others that would withstand significant price increases without impacting demand - these are the ones to focus on.
In addition to raising prices for new clients, you also need to be able to bite the bullet and increase your prices for existing clients. Wider business costs have risen over the last few years, putting a squeeze on margins - if you don’t raise prices, there’s a risk that profit will simply disappear.
2. Introduce tiered pricing rates
A tiered pricing rate is where you charge different rates based on the level of expertise within your business and the value that each person brings to the table. For example, you might charge £100 an hour for junior staff, £150 for a senior employee and £200 for a director.
Historically, those using tiered rates have made between 4% - 8% more gross profit than those using a single blended rate. Although recent challenging economic conditions have reduced this advantage, those using tiered rates remain more profitable.
If you’re already using tiered rates, look at whether there’s a particular tier that you’re undercharging for and see if you can tweak the rates. For example, your senior team might have received a particularly high pay rise recently, in which case you’d need to adjust the rate to maintain a healthy profit margin.
If you’re not using tiered pricing, don’t miss out on the opportunity to unlock some profit. While it’s more complicated than charging a flat or blended rate, the rewards will be worth the effort.
You also don’t need to dive straight into a four-tier pricing system either. Start with a single premium tiered rate that you charge for directors or your senior team and go from there.
3. Review your discounting strategy
As an agency, there are times when discounting is inevitable. Negotiating with procurement departments is part and parcel of working with larger companies, and agencies often find themselves in situations where there’s no choice but to give a discount.That said, it’s important to have a clear strategy. What increments will you give away, and, crucially, what will you get in return? Even if you’re reducing prices, there are many things you can get in return that will have significant value – and could even be worth giving a discount away in the first place.
One option is only to provide price discounts when you improve commercial terms. This could be:
- Increased volume of work. If your client is committed to spending £50k, let them know that raising spend to £100k unlocks a higher level of discount
- Higher amount payable upfront. Provide a discount if 75% or even 100% of the work is paid upfront – the reward for you is time saved on chasing invoices at the end of the project
- Improved payment terms. If you usually deal with 60-day payment terms, negotiate so that you only offer discounts if you’re paid within seven days
- Commitment to a longer-term contract. Rather than work going out to tender each year, offer a discount if clients can commit to three years. You’ll get peace of mind and save the effort of re-tendering each year
Another option is to set up marketing opportunities in exchange for price discounts. If you can get a referral to other areas of the business, these referrals can ultimately be worth much more than the discount you give away. Alternatively, ask for a recommendation on social media or a video testimonial.
Whichever direction you take, be careful how much you give away. Percentages like 5 or 10% might sound small, but no amount given away is insignificant, so the value exchange needs to be worthwhile.
4. Provide more than one price
Many agencies only include one pricing option in proposals, but a good tip is to include three options in your quotes.
Giving a wider range of prices allows you to position different options favourably and, most importantly, avoids the situation where clients need to get a quote from another agency to compare.
As Win Without Pitching founder Blair Enns puts it in this article, providing three options “changes the closing conversation dynamics from a zero-sum ‘win/lose’ to a more collaborative ‘let’s figure out what’s best for you’”.
Data from BenchPress backs up this approach. Agencies that offer three pricing options are twice as likely to have high conversion rates (above 60%) and tend to win much bigger deals than those that give just one option.
5. Agree an approach for out-of-scope work
For projects of any significant size or complexity that will run over a long period, it’s almost impossible for them to remain within scope. Clients might change the brief or ask for extra work, or you could discover an opportunity to do things differently that you want to present to them.
It’s normal to want to keep clients happy and not rock the boat, but ultimately it will be hard to be profitable if you’re doing extra work for free.
The solution is to agree on how you’ll handle out-of-scope work at the point you engage with the client – not when the work goes out of scope. It might involve putting a contingency budget in place, which you can draw from later on if your client decides that other work is needed.
As part of this process, be clear about what’s in and out of scope for the project. Most agencies will include simple things like rounds of amends, but it helps to think about past projects you’ve worked on, too. What were the pain points? What things usually go out of scope, and how can you address them in your pricing strategy?
6. Use value-based pricing
Even if you’re pricing based on deliverables or time spent, don't underestimate the additional value you can build into your offering. Most agencies know this as value-based pricing, but it can be more useful to see it as value-based selling.
Look for ways to bring value to your conversations with prospective clients, from initial discussions to your sales pitch. The value you offer needs to be meaningful, so build up a deeper understanding of a prospect’s business first and know what they will value the most.
This approach means that by the time a prospect sees the price, they can make a decision with all the extra value in mind. We explore how to sell value, not time, in more detail in this video.
Get more expert tips from Wow
Want more insights on improving your agency’s pricing strategy and boosting profitability? We’d love to chat about how we can help you on your journey. Get in touch with us here.
