A pricing mistake we can all learn from

Hello and welcome to today's episode of the Agency Accelerator Podcast. Now today I want to revisit a topic that I've spoken about a few times before. But it is a super important topic for you if you want to make sure you are not a busy fool, but rather running a profitable and growing agency. And that is all about pricing. And I heard a fantastic story from one of my clients last week, so I thought I would use that as a sort of approach to this episode. So really interesting story. It's a story that you want to make sure you don't fall foul of. So let's dive into today's episode and I will tell you more. Accelerate your agency's profitable growth with tools, tips and value added interviews with your host agency owner and coach, Rob Da. Today's episode of the Agency Accelerator Podcast is sponsored by Cloudways. Cloudways is a managed cloud hosting platform that simplifies the web hosting experience for agencies. The platform offers complete peace of mind and allows agencies to focus on their growth with 24. 7 support and easy to use features. Now Cloudways is launching its Agency Partnership program that's designed to help agencies grow to new Heights. So visit cloudways.com enagency and join the program to get access to extended technical support, discounts and co marketing opportunities with Cloudways. Okay, on with today's show. So I was sitting with one of my clients last week and the MD was sharing with me their frustration about a piece of work that they'd outsourced to a copywriter. Now this copywriter has done quite a bit of work for them in the past and they've done a good job at writing blogs and writing emails. But on this occasion they were tasked with writing a more in depth guide that they were going to use with their audience. And the copywriter had quoted them three days of their time at a fixed daily rate to do that piece of work and the client had agreed with that. And then fast forward a week, the copywriter delivers the first version of the brief and they also send an email with that document and an invoice. And in the email the copywriter said that I know we agreed three days, but I've actually spent three and a half days working on this. But as a gesture of goodwill, I'm not going to charge you for the extra time. Please find enclosed the draft copy and a copy of my invoice. The client read the draft copy and was seriously disappointed with it. It was too awfully, it was missing some key points and it was too long. Now, an important Point to make here is that the client had given the copywriter a really clear brief about what they wanted in it, some of the key points, and perhaps importantly, exactly who the ideal target customer was. But they felt like the copywriter had really missed the point and hadn't really met the brief and had gone all over the place. Like I said, it was too waffly. And there was this mismatch now because the copywriter felt they'd gone the extra mile and done them a favor and therefore asked them to pay, whilst the client felt really disappointed because they actually hadn't met the brief. And of course now we're impasse where we're going to have to have a really difficult conversation with the copywriter because they haven't met the brief and they're not happy and yet the copywriter thinks they've gone the extra mile. So let's just unpack this a bit before we go on to talk about how they could have handled this. The biggest issue is that everybody is focused on the wrong thing. The copywriter is selling time to the client. That's what they think the client is buying. And the client has agreed to buy that time. So you can understand in a way why the copywriter feels, feels like they've gone the extra mile, whereas the client's unhappy. And so that was like the first mistake that neither the copywriter, which could be an agency like you, should be selling time and the client shouldn't be buying time. And they in this case perhaps should have been a bit wiser to say, well actually time isn't really what we're buying from you. You see, ultimately, even if you don't have this conversation at the beginning of a project, the client is focused on the outcomes. Even if they agree to buying 3 days of your time, what they really care about is have you delivered a good outcome. And this is that classic situation of the supplier focusing on one thing and the client focusing on something else. And of course this is going to lead to unhappy clients, short term relationships and in the end you're going to have to over service because you're going to have to try and keep the client happy. So it's much better to start a relationship on the same page and start a relationship really clear about what the client's trying to achieve and, and making sure you're pricing accordingly. So let's just remind ourselves that there are four things that we sell to our clients. And so those four areas are inputs. These are the things that you need. The access to people and systems the brief from the client, the access to a number of team members, time and all the rest of it. So that's sort of time and materials. Then the outputs are the things that you deliver. So in this case it would be like a draft of this particular ebook or guide. The but it could also be like the initial designs of a website or the audit that you've done for an SEO campaign and so on. So those are the outputs and those are the things that you do. But what the client is interested in is the outcomes. So this is the what is the result of the intervention that you've had with the client? What is the result when you have completed this piece of work? So it would be an amazing new website that really matches their brand, that engages with their audience. Or it could be a guide that is really compelling and the target audience is really keen to read it and they get great feedback. Or it could be a new brand that everybody loves. So that's outcomes and that is the thing that the client is really buying. And then the fourth area is what is the longer term impact of the intervention that you've had with the client? So this would be how many extra leads and how much extra revenue have they generated from the website? How is that brand gone down? Have they got better brand awareness now? Has the guide helped them generate more leads and so on and so on. Now, I'm not saying that you need to be doing some kind of payment by results where you get paid on that long term impact, but if you want to have long term relationships with your clients, you have to start talking about those longer term impacts. And it's really interesting because this all starts from the very first conversation you have with your prospective client and you need to manage them and you need to make sure that you are building a relationship of equals. So when the client says to you, well, what's your day rate? Because that's how they think and that's what they're used to. You probably tell them, well, we don't actually charge on day rates. What we need to do is understand the outcome that you're trying to achieve and then create a program that is going to deliver that outcome for you. And yes, of course, the outcome will take us three weeks to develop. But you're not selling the time to the client, you're selling the outcome to the client. And of course, having this consultative relationship right at the beginning of the sales process also helps you flesh out the client. Sometimes the client isn't clear about this stuff. They told that they need a new website, because they need a new website. So you might actually be helping them really set that brief so that we are all on the same page, so that when we get to that end result, we know people are going to be happy. And this is one of those slow down to speed up examples. It might be really easy for you to sell on days. Client buys days, they're really disappointed with what you've done. So now you've got to do even more days for free to try and keep them happy. And that's all because you didn't have these consultative conversations right back at the beginning. So if we just replay the story, I told you, I'm not quite sure what's happened, but the clients obviously had to go back to this copywriter and tell her that they're not happy and that they're not going to pay the invoice until they have got something that they're much happier with. And the copywriter might be unhappy about this because she feels she's already gone the extra mile. And it could be a very difficult conversation with what they should have done right back at the beginning is said to the copywriter, this is what we're trying to achieve. This is what good looks like. Can you price against delivering that, please? Now, the funny thing is that the client did give the copywriter a really solid brief, but they didn't have that conversation about, can you quote against delivering this outcome? And to be quite honest, we really don't care how long it takes. If you want to operate internally on day rates and you're going to estimate how long it's going to take in that time and materials thing, then absolutely. And in fact, that's how we do it. So when I talk about value selling and selling on outcomes, that doesn't mean you shouldn't work on time internally. And in fact, you have to do that in order to make sure that you are profitable and you are working out all the different resources, the time, the materials, the people that you need to deliver this piece of work. But that's not how you communicate it to the client. Now, in a forthcoming episode of the podcast, I'm really excited to have Marcel Pettiba from Parakeeto with me. And we really dig into some ways of measuring capacity and profitability and some of those key metrics that you need to be measuring in your agency. So that is a really dynamic episode and make sure you look out for that. We're going to dig into this in a lot more detail and it's action packed. So you would leave with loads of really valuable insights. But today I just wanted to share this story with you because I know that it's a story that will be familiar to many listeners. In fact, I posted something on LinkedIn about this today and it got loads of responses from people who were sort of saying, yeah, you know, we're still selling on time and this is a problem for us. Or I completely agree, you shouldn't be selling on time. And I know time is a comfort zone for a lot of people, and it's the default position that clients will often refer to. But you just have to know that it's setting you up for lots of challenges and potential problems further down the line. And if you can possibly avoid having those time conversations with the client, that doesn't mean you shouldn't talk about how long something is going to take. But you don't talk about hourly rates or day rates with the client. You focus on outcomes and defining what that outcome is and working out internally how you're going to deliver that outcome, how long it will take, and building in those refining iterations into your pricing. And then make sure that you are using your time recording to monitor that carefully internally to help you get future quotes and proposals right so that you can always be kind of using that feedback loop to help you inform future proposals. Meaning that you get those proposals right and that you are hitting the margin numbers and the profit numbers, which is the super important metric that you should be assessing in your agency. So let me end this episode by reminding you of why value pricing and value selling is so important. And this is a story that you will have heard me tell you before, both on the podcast and certainly in a lot of my written content. A couple of years back I woke up on a Saturday morning with a tooth that was starting to throb and by Sunday I was in loads of pain and taking painkillers which just didn't touch the side and didn't do anything. And I had a sleepless night on Sunday night and then phoned the dentist Monday morning, managed to get an emergency appointment, dashed over to the dentist, they could see that I had an infected tooth and they said to me, we need to remove that tooth. And I'm like, yeah, do whatever you need to do, just get rid of the pain. Because I don't know if any of you had toothache before, but you know, it is really, really painful. Anyway, sat in the dentist chair, gave me an injection and took the tooth out, which was surprisingly easy. And within probably 20 minutes I was wrapping up and getting ready to leave, and I was no longer in pain. And I went up to the dentist reception and they said to me, okay, Rob, that's £300, please. Now, at no point did I even think, and certainly didn't say, wow, £300 is a lot of money for 15 minutes work. Because if I did, the dentist would turn around to me and say, well, hey, if we took three hours to get rid of your pain, so that's £100 an hour, would that make it more valuable to you? And the answer, of course, is absolutely no. Because what I was buying was an outcome which was I was in pain and I'm no longer in pain. And I was paying the dentist for their skill, their strategic insight, their years of experience, their training, as well as the time and materials to actually get rid of that pain. And that's what value selling is all about. And there's certain industries, like dentistry, that we really get that right. But in the agency world, we get it wrong because we are either selling on time and materials or literally hourly rates and day rates. And that is not the best way to sell. And my story that I've shared with you today, which is a true client story, is just an example to highlight that and to highlight the potential problems that you can have both as the agency, or in this case, as the client, if you are selling time to your clients. So that's it for me today, another short episode, but I hope that's got you thinking a little bit differently. And next time you come to meet a potential client, start off by having a different conversation. Start off by having a consultative relationship of equals conversation and guiding the client on how this works, rather than letting them tell you and make sure that you are identifying exactly what their pain is and what not being in pain would look like. That is what's the outcome they're looking for, and then price against that. And then, of course, internally, you're going to work out what time and materials you need to to make sure that your quote is profitable and that you're building in all the buffers for those iterations and all the rest of it. So I hope that was useful. And as ever, join me next week for the next episode of the Agency Accelerator, where we'll have our next guest. But please do make sure you've hit the subscribe button. Share this episode with your colleagues and if you found it useful, please consider leaving a review. Because that just helps me reach more people, which means I can help more people. And that's what I'm really trying to do with this podcast. And other than that, have a great rest of your week, a relaxing weekend wherever you are. I hope the sun's shining and I'll see you next week for the next episode of the Agency Accelerator Podcast.