How To Get Clients To Pay More For Your Services

Have you ever wondered why when you're buying some software or another product online, you are offered three price points, with the middle price point being highlighted as the most popular? Well, I'm going to unpick that in today's episode of the Agency Accelerator podcast, and I'm going to help you increase your prices and get your clients to pay what you're truly worth. So another action packed episode of the Agency Accelerator podcast and let's get on with today's show. Accelerator your agency's profitable growth with tools, tips and value added interviews with your host agency owner and coach, Rob DaCosta. One of the most common conversations I have with my clients and perhaps one of their biggest frustrations is getting their pricing right. They're frustrated they're not as profitable as they would like to be, and they're not constantly hitting their margin numbers. So they know they need to do something differently. Yet what goes with getting your pricing strategy right is also the fact that you need to have a bit of a mindset shift. So that's some of the stuff I want to unpack in today's episode and I'm going to talk more about pricing in a future episode. But today I want to specifically talk about how to present your pricing in the early days of writing a proposal or talking with a new prospect. So let's first of all talk about the three typical ways agencies currently charge for their services. I'm going to outline all three of them and I'm also going to talk about what is the fundamental problem with each of these three approaches. So you will probably be able to relate to these, because you probably charge your clients in one of these three ways or in a combination of these three ways. So the first way is the simplest, which is selling your time. So this is all about exchanging money for your time, which typically means you're charging your client a day rate or an hourly rate. And this is perhaps the simplest to monitor, to measure, and to report back on, and is definitely the traditional way that many agencies charge. But there is a fundamental flaw with this, and that is that you're getting your client to focus on the wrong thing. You're getting them to focus on how you spent that hour of time rather than the outcome of the piece of work. And I want to use two examples of this. So first of all, I always tell this story, so you've probably heard it before. But if you had really bad toothache and you were in agony all weekend, and you managed to get an emergency appointment on Monday morning, and you went to the dentist in agony. You sat in the dentist's chair. In 15 minutes they've managed to get rid of your pain and there's this massive sense of relief as that pain has disappeared. And if any of you have had really bad toothache, you'll know exactly what I mean. Anyway, you get out the dentist chair, you're feeling much more chipper now, you walk up to reception and they say, that will be £300 please. And you say, blimey, £300 is a lot of money for just 15 minutes work. So the dentist turns around to you and says, well, if I took three hours to get rid of your pain, that is, I was charging you £100 an hour, would that make it more valuable to you? And you go, no, no, no, of course not. Because you weren't buying the dentist time. And in fact the shorter they spent the time, the better for you because it got rid of your pain. Now that is a good analogy in so many ways. One, because we can all relate to it, but two, because we are also getting rid of our clients pain. So we need to identify what that pain is and charge accordingly. And I'm going to talk more about that because that leads us into a value pricing conversation in a future episode. But back to my dentist story. You are buying several things from your dentist. You're buying their expertise to figure out how to get rid of your pain quickly. That's like their strategy. You're buying their creativity to find a way of getting rid of your pain in the most pain free way. And you're also buying the years of experience and training that's behind them in order to identify the pain and get rid of it quickly. And that's what you're paying for. You're not paying for your dentist time. So the next time you're having that conversation with a client or you're thinking about time and pricing against that, just bear the dentist story in mind. Now another example of that that's perhaps a little bit closer to home for us is one of my clients who is a PR agency. They want a new piece of business and one of the key goals that client said is that we want to be on radio, blah, blah, blah. Whatever their local radio station was, they would deem that as a big success. Now it just so happens that one of the people who is working on that account, that account is an ex journalist and used to work at that radio station. So of course knows people really well. So they were able to pick up the phone, call the radio station and set up the interview in a matter of 10 minutes. Now, if all they charge the client was 10 minutes of their time, they would be massively undervaluing the thing that they did for their client and the ability to secure that appointment so quickly and most importantly, hitting one of the client's key goals for the PR campaign. So fortunately, they didn't price against time, but they priced against outcomes. And that meant they could charge a fair fee, and they didn't feel like they were ripping off the client because they were able to do that thing so quickly. So that's all about the first way we can charge, which is selling time. The second way many agencies charge is by having fixed project fees. So what they do is they estimate the cost of the project at the beginning based on the kind of scope of work and the brief they got from the client, and they work out the number of hours that they're going to spend on that project, and then they create a fixed fee for the project based on those hours. But of course, the problem with that is undoubtedly the brief and the scope of work will change. So those estimates that you gave your client early on become very out of date very quickly. And now you're in an awkward situation where you feel like you need to go back to the client, but you've already gone through that process and agreed a set fee. You don't want to look like jobsworths, and you want to do a great job for your client, so you end up over servicing them and you end up cutting down your margins consequently. And there's another big issue about this kind of fixed project fee approach, and that is that it really limits your creativity because it discourages you from going back to the client with new ideas or being more creative or suggesting alternatives, because you've already priced out a scope of work based on initial brief. And I'm sure all of you are shaking your heads here, because I'm pretty sure that it's very rare that you get a brief. You create a scope of work and nothing changes in the, you know, 3, 6, 9, 12 months it takes you to deliver that project. So that's the second approach to pricing, which is all about fixed project fees based on time. And then the third approach I want to talk about today is, which is the most common one with PR agencies and marketing agencies is the retainer concept. And this is where you agree a set fee for each month, and you agree a kind of scope of work that you would do within that fee. But again, similar to the sort of fixed project fee the issue with this is that the client sees like they have unlimited access to you because you're on this retainer and so they just throw everything at you. And if you don't have really strong client managers, then you will just be saying yes to that work and you will quickly end up cutting your margins because you really want to keep your client happy because you're running this belief that if I don't say yes to the request, then they will dislike me and they will leave. And like I say, this is especially true when we have younger, less experienced account managers working on accounts who think their sole job is to keep the client happy and do whatever the client asks. And so we quickly go into an over servicing mode. So those are the three approaches and there's nothing wrong with those approaches, but there is a better approach which is value pricing and value selling. And I'm going to talk more about how to do that in a future episode. But today I just wanted to give kind of a foundation of outlining how most agencies price and then talk to you a little bit about those early stages when you are writing a proposal and how you can get your client to pay the best fee and focus on the right things. So talking of focusing on the right things, I want to give you three pieces of advice when it comes to pricing a project for a new prospect. So the first thing is to make sure that you really understand what the ultimate goal is from the work that you're doing for your client. And you price against that outcome, not against the bits and bytes of things that you do. So we sell four things to our clients. Two of them are things that you do, and two of them are perceptions that the clients have. So inputs, these are the tasks that you do, the steps that you're going to take, the people that you're going to need. Then we have outputs and outputs are the output of the inputs, if you like. So these are like the deliverables. So it might be a press release, it might be a wireframe of a website, it might be an SEO a couple campaign outline, but those are the outputs and we tend to price against that. But that isn't really what the client's buying because the third thing we sell is outcomes. And outcomes are the results of the inputs and outputs, the results of the piece of work that you do. And that's where you want to start getting your price right. And then the fourth area is impact and this is like the longer term consequence of the piece of work that you're doing. So six months down the line, how would you assess this? So when you are talking to your prospect, make sure that you are really focused on the outcomes and impacts and you're asking questions about that. So what would success look like? How will you and your team measure the effectiveness of this piece of work? What would be the longer term impact that you would hope this piece of work has? You can capture that in those early conversations. And then when you're writing your proposal, you can price against those outcomes. You're most likely to win that business. And two things will happen here. First of all, the client will feel like you really understand them and you really understand what they're trying to achieve. And second of all, you'll be able to charge a higher fee because we all want that outcome. And it's like if I'm going to the dentist again and the outcome is you're no longer in pain. And I say, well, actually 300 pounds is a lot of money for that. So they say, okay, well let's just cut a bit of the outcome out. So let's say we won't give you any anesthetic so we can get it down to £250. So you're going to be in a lot of pain while we're doing things, but you'll save yourself £50 and you'll go, no, no, no, no, I don't want that. I don't want to be in pain while I'm doing it. So that's all about pricing against the outcome rather than pricing against the time and, you know, the hourly rate. Because if the dentist said he charged or she charged £100 an hour, I could easily say, well, look, there's another dentist around the road that only charges £80 an hour. So if you can match them, you, then I'll work with you. I'll, you know, I'll use your dentistry. And of course, what we're doing now is we're commoditizing our service. We're focusing on the wrong thing, which is time and hourly rates, rather than the outcome, which is getting rid of the pain. So that's my first bit of advice, which is understand the outcomes that your client is trying to achieve by engaging with you. Now, the second thing I wanted to talk about was using three price points in your proposal. And like I said earlier in the introduction, if you see software that you can buy online, you will always see them offering three price points and they will always highlight the middle price point as saying our most popular one, because that's the one they want you to buy. And they are using the high price point as an anchor point and the low price point as a negative anchor point in that you don't want to be the cheapest. And I'll give you a really good example of how this works from a psychological perspective. So I was listening some training where they talked about the fact that they had a bunch of marketing agencies together and they split them into two groups and they asked the first group what do you think the typical hourly rate of a marketing agency is? And that group discussed it amongst themselves and they came back with a price of £85 an hour. Then he went to the second group and he asked the same question, but he started off by saying this design company charges 150 pounds an hour. What do you think the typical average hourly rate of an agency is? And they came back and they said £120 an hour. And the reason why they came back with a higher hourly rate is because the tutor had created an anchor point of pound 150 an hour to start with and therefore that got them to pick a higher rate. And that's exactly what happens when you give three price points. Your high price point is setting that anchor point and most likely your client will buy the mid price. Now this isn't just some theory that I'm sharing with you. I've proven this time and time again. Members of the self running agency group and my agency selling system program have all been taught to put this three price point strategy in place. And time and time again they come back to me and say they that the client ended up picking a higher fee than they would have charged if they were just going in at one price point. So I challenge you to try this the next time you are putting a proposal together. Just include three price points, high, mid and low. With the mid one being the one that you really want them to take. Another third piece of advice again is advice that I share with my self running agency group members. And that is you don't want to have an awkward conversation at some point in the future where you kind of go back to your client with a begging bowl and say please sir, can I have some more? Because. Because they're asking you to do something that's outside of the scope but you feel a bit uncomfortable constantly saying to them look, we need to have a higher fee and some more money to pay for this project. So one of the things I encourage my clients to do is to put a contingency pot in place with clients when you are setting out the pricing and the scope of a project. So let's keep this simple. For example sake, if you have a 10,000 pound project, you might ask a client to put a 15% contingency pot in place, so another 1500 pounds a size. And if they ask you to do something that's outside of the agreed scope of work, you will call upon that contingency pot. And of course the flip side of that is if you don't do work outside of the scope, you won't call upon that pot of money. Now first of all, they've already earmarked that money in their budget, so it's not difficult to have that conversation. And second of all, you've already sown the seed with them that if they want you to do work outside of the scope, you will call upon this pot of money. And that makes having that type of conversation so much easier. Easier because we've already set an anchor point early on. Now if you're listening to this and you are thinking, Rob, this sounds great, but you don't really understand my clients or my unique situation, then I kind of want to call you out because this comes back to the thing I said earlier on, that we have to have the right mindset around pricing. And having the right mindset is almost as big a battle as putting a pricing increase strategy or the right pricing strategy in place in in the first place. So as I say, if you're listening to this, thinking this won't work for me, well, the message I want to give you is yes, it will. You just have to get over yourself and you have to put a strategy in place to start implementing these three specific things I talked about today. My three pieces of advice, but also thinking about how to implement a pricing strategy that's focused on the outcomes rather than the inputs and outputs. Now I'm going to be talking more about value selling in a couple of episodes time, so make sure you check back on that. And I'm going to be digging into some more specifics around what value pricing and value selling is and how to weave that into your sales conversations when you are talking to your prospects. But we'll dig into that more next time. In the meantime, I've put together a short ebook called the 10 Step Selling System that digs into all that we've spoken about in today in more detail. Plus the concept of value pricing and value selling. And you can grab your copy of that in the show notes today connected to this episode. But other than that, I hope you found this really practical. I really hope you've made some notes that you can go and start implementing, and if you found it useful, please hit that subscribe button. Please share it with your colleagues, and as ever, please consider leaving a review. But other than that, I will see you next Thursday for our next guest interview on the Agency Accelerator podcast. And meantime, have a fantastic Thursday Friday and a brilliant weekend.