How to increase your prices.
How to Increase Your Prices – Stuff We Love 001 – Peter Czapp
Here is a new thing – if you have spent time looking at the content on this site you will have seen that we are on a mission to provide you with the information that you need to be successful in your business.
Originally that was Martin breaking down marketing jargon; then reeling in other marketing experts whose opinions and insights will be useful to you and now we are guest posting brilliant content that we love.
This first post is by the brilliant Peter Czapp who founded The Wow Company which would be my recommendation for an accountancy specialising in marketing agencies.
I met Peter 12 or 15 years ago and his data informed insights and ideas were hugely influential on the way I presented my business and delivered marketing services for my customers.
Peter’s business provides specialist services for Marketing Agencies and the data in this presentation is of course specific to that industry – but the ideas and the message are applicable to all service businesses.
If you are a service business you deserve to be paid what you are worth, in this presentation Peter will show you how.
How to increase your prices.
We all want to be paid what we are worth and today I’m going to show you exactly how you can do that.
For those of you who don’t know me, my name is Peter Czapp. And this presentation is 17 years in the making, because 17 years ago, myself and my business partner, Paul, co-founded The Wow Company. We are an accountancy practice that specialises in working with agencies. If you are wondering what it is like to work with an accounting practice that specialises in working with agencies the next hour is going to give you some really interesting insights into what that is like. In fact, I’d love for you to spend the next hour wondering whether your accountant talks to you about these sorts of things, thinking about whether your accountant really understands agencies like we understand agencies? And if the answer is no, then we’d love to chat with you after this. I said this presentation is 17 years in the making because I’m taking all of the experiences from the last 17 years of working with some incredible agencies, and seeing their accounts, seeing the numbers behind these businesses, and also talking to them and talking to agencies in a community that I set up.
Seven or eight years ago, the agency collective now this has grown to become the most wonderful community, we’ve got over 600 agency owners in that, and is the best peer-to-peer support community in the world. These agency owners get together to help solve each other’s challenges, listen to some incredible content, and come together to win your business, support each other in this wonderful challenge of running an agency. I’m also going to be sharing insights from BenchPress. BenchPress started off in 2012 as a humble survey of 100 agency owners, and that’s now grown into the largest survey of independent agency owners in the UK. We have some incredible data, data that has powered a lot of the insights I’ll be sharing with you today. And thanks to these guys, MailChimp and co., we have now taken BenchPress global so this year 2021 was the first year that we took BenchPress global. We have insights from agencies all over the world 2000 of them. And for those of you not familiar with MailChimp and co., it’s a wonderful community set up by the guys of MailChimp to help you get more from your email marketing, it’s free to join.
And by joining, you’ll be able to access a load of great content and events and tips and tools as well as other people who are also trying to get more from their email marketing, whether that’s for yourself or for your clients, I definitely encourage you to take a look at it. Now, the theme that has run through all of our work is profitability and sustainability. And if you’d like to get access to some of those insights, you can download this year’s report, if you go to wowco.uk/benchpress2021. And that link is going to appear in the chat, then you’ll be able to access this year’s reports both the UK ones and the global ones. And I’m really excited to be able to bring those to you. I know it’s inspired lots of people to change things in their agencies. And I hope it inspires you to change some things positively in your agency too.
Now, I said that link would appear in the chat and the Q&A. In fact, let’s put all questions in the Q&A. If you’ve got any questions, then please go to the Q&A. And Rory will be joining me later, Rory Spencer, I work with at well and I’ll be covering all of the questions. So, this is a live event. It’s interactive. And as we say every time we will stay right to the very end, in order to answer all of your questions. I said the theme that runs through all of our work is helping you build profitable and sustainable agencies. And that’s really important to me because profitability as often or profit has often been a dirty word. It’s been associated with big businesses making big profits so that fat cat executives can take home huge bonuses. And that’s not what profits about for us. And for all of us listening here today, profit is about being able to sleep well at night. Profit is about being able to invest in your team. It’s being able to take a long-term approach to the growth of your business. It’s about building a sustainable business, and profit has to be right at the center of that.
Now, we’ve been doing research for nearly a decade that has shown us that there is a correlation between the price that we all charge and the profit that we make, this has never gone away. It’s always been the case, the more you charge, generally speaking, the more profit that you’re going to make. And that’s why today, it’s so important. I’m going to show you exactly how you can increase your prices that will lead to greater profitability and therefore greater sustainability for your agency. I’ll be taking you through seven strategies to help you do this. Now. Some of these will be new. Some of these you will have heard before and some of which you will already be doing but I promise you, I promise you that every single one of these seven strategies, there is the next level for, and I want you to discover or challenge yourself is what the next level is for you. So, for each strategy that I’ll be presenting, I’ll be sharing examples and case studies. And I just want you to think, okay, am I doing this, am I not doing this, and if I am doing this, what’s the next level, and if I can help you get to that next level, then all of our businesses will be more profitable.
So, the first strategy actually, before I take you through the first strategy, just to remind us of the ladderscape of how we will price at the moment, this is a slide taken from 2021, BenchPress report that looks at exactly how agencies price and you’ll see that the majority of agencies 87%, use fixed pricing, so agree a scope of work upfront, including a fixed fee. And all seven of the strategies that we’ll be talking about today apply to fixed pricing, but they also apply to varying degrees to the other ones. So, whether you use time and materials, or an agile approach, or even really encouraging you, as the 23% of agencies are doing using a value-based approach, or even performance or licensing models. These seven strategies apply to all of these but particularly apply to those who use fixed pricing. So, let’s get cracking.
The very first strategy is this, if you want to increase your prices, just increase your prices. Now, if you’re expecting innovative thinking and the latest research and groundbreaking thoughts, well, that’s coming later on. But I want to start with the basics here because every single person, and I mean this sincerely, every single person listening to this, you can increase your prices today, right this moment, and it will have little or no impact on your conversion rate. Now how much you can increase your prices without changing anything else will depend on a few factors. And I’ll come to those later. But I’ve seen so many examples of agencies who have just simply gone on a journey of increasing their prices from an hourly rate that’s currently below average, moving it to average and then above average, and as a starting point for you. And I want you to think about this. The reason this is important to increase your prices, and to do it regularly, is because of two things, first of all, your costs are going up in a typical year, you’re going to be increasing the salaries of your team, your other costs, your supply costs, if you have offices, those are going to be going up as well. And in a typical year, your costs are going up, if you don’t increase prices, your margins are going to get squeezed, you’re going to be doing working just as hard for less money.
The other reason to do this is, you’re better now than you were six months ago, and certainly better than you were three years ago, just think about how much you have improved individually, how much your team has improved, how much better people that you now have, you are so much better at what you do now than you were a year ago. And therefore, you should charge more for it. How much more you can get away with? Well, that depends on certainly strategies two and three that are coming up in a second. But just as a rough guide, I just want to show you where you sit, if you use a blended hourly rate.
So, we publish results for agencies over and under a million here. And for agencies under a million, the average hourly rate is 86 pounds an hour for agencies above a million-pound fee income is 103. Now, if you are below those without question, you can increase your hourly rates to at least get up to average and have literally no impact on your conversion rate. If you’re above these, there’s no reason why you can’t do this anyway. Because I’ve seen basically, especially if you start with your prospects, right? Think about your prospects for a second and think about your conversion rate, right? These are the conversion rates for agencies. So, conversion rates from proposal to client. And on the left-hand side, you can see the conversion rates between one and 20% 21 and 40% or so and so on all the way up to, you know, 99% conversion rate. And on the right, I’m just going to be sharing the percentages of agencies that fall into each of these categories.
So, you can see, you know, there’s a few agencies that have low, very low conversion rates under 20%. A big chunk set between 21 and 40. But I’d say for the rest of you guys, anyone that’s above 40% conversion rate, you have the ability to increase your prices significantly. And certainly, I’d say if you’re above 60% conversion rate, so 26% of agencies, you’re too cheap, you’re too cheap. I remember chatting to someone at a networking event when we could do networking events. It was an agency collective event, him and his business partner, and one of the business partners where he was just really proud of the fact that he had an 80% conversion rate. And I remember and his business partner was saying that look, we’re too cheap, and he was right, they were too cheap. If you’ve got a really high conversion rate, and certainly that applies to 26% of people. You should definitely be increasing your rates with without fail, but I think should be increasing your rates anyway.
And it might be that if you can’t increase them across the board, you can focus on an underpriced service. So, they will almost certainly be something that you do that is disproportionately highly valued by your clients. So just think about what that might be for a second. What is it amongst your services that you offer that you could increase the price on, and it have almost no impact on your conversion rate? I’d be really interested for you to explore that. If nothing, just hopefully, something’s just popped into your head, you think? Well, actually, yeah, there is this thing that we do we do really, really well, our clients really value it. That’s the thing that we’re going to do to increase, or that’s the area that we’re going to increase our hourly rates on. And when you do this, I said before, start with prospects because they have no knowledge of what you’ve charged previously, you can charge what you want. I’ve honestly, I’ve got so many case studies of people starting off, I remember chats to one agency.
I mean, this was a while back, and it’s an extreme example, I’ll accept that but their hourly rate was 40 pounds an hour. I said, Look, this is ridiculous. You guys are really talented and managed to persuade and to increase it to 50. That’s as high as I could get them to go. And they came back a month later and said, no one batted an eyelid. So, we increase it to 60 pounds an hour, month later. Yeah, everyone’s accepted it, no one’s batted an eyelid. And that phrase, no one’s batted an eyelid is repeated time and time again, every time we tried it, we took their hourly rate from 40 pounds to 100 pounds an hour without changing a single thing in there. But sorry, it was 90, it was 40 to 90 pounds an hour without changing a single thing in their business. To get from 90 to 120 we had to change some stuff. And I’ll tell you about the two specific things, we changed they’re coming up in a second to help them go from 90 to 220 pounds an hour. But your prospects right now they have no knowledge of what you charged last week, last month, last year. So, you can charge whatever you want. I’ve got so many other examples of agencies, increasing the pricing, and what always makes me smile and please share your stories if this happens to you. If you do this, and quote to your clients, what I love is that people are surprised when they the clients don’t bat an eyelid. And they come back and say oh, my goodness, they didn’t bat an eyelid. And I say, Yeah, I told you so. And that makes me smile. And I’d love for you to run these experiments, go in, pitch these higher prices to your prospects and come and tell me what happens because I promise you, they will not bat an eyelid.
So, start with prospects. But don’t forget your existing customers. Because if you’re good at this, right, you’re going to be increasing your process prices for your prospects, but your existing clients could potentially get left behind. And so, it’s important that you review your pricing few existing clients regularly as well and seek to edge that up. A lot of agencies forget to do this. Now, lots of ways you can do it. So, I remember speaking to one agency owner, who had 20 clients, and she just emailed them all and said, Look, she did something quite clever. She said our prices are going up, she did it towards the end of the year from the first of January haven’t increased them for a while they’re going up to this, if you would like to buy a block of any projects at the current rate, you’ve got three months to do that. So, she gave them three months. Few of those clients came back and said actually, can we squeeze in a project to the old rate. So that was quite nice. She got a load of work brought forward. And one out of the 20 said I’m not working with the new rates. And she was really happy about that, because they were a pain in the neck. But 19 accepted that she gave her notice.
And I think you know, that was quite brave emailing 20 clients, another way of doing it, you know, you’re able to do a personal touch, I do favor the conversation that goes something like this, where you sit down with a client say, Look, you’re currently paying this, if you’re a new client, now you’d be paying this, how would you feel about closing that gap? And by saying that, how would you feel about closing that gap? You’re not forcing it upon them? You’re not telling them that you’re going to do this, you’re just exploring together? Look, we’re here, we should be there. How would you feel about closing that gap? And you can have a conversation around it let the worst that happens is the client says look, we can’t budge, we’ve got to stick with what we’ve got. And then you’ve got a decision to make. Do you want to keep with that client? Or are you going to say goodbye to them and free up space. And eventually, if you’re really good at increasing your prices, you’re going to get some old legacy clients on really old fees, you’re going to be really happy to say goodbye to because it frees up space for new clients.
So have a think about your strategy for existing clients, whether you’re going to be emailing them, giving them notice or whether you’re gonna be having those personal conversations. But I promise you it’s a no-lose gamble. The worst that comes out of it is that you’ve had a conversation with a client, you stick on the current rate, that’s the worst that can happen. Everything else is a bonus. Either they go to the full rate or you meet somewhere in the middle, those are the conversations we need to be having with our clients. And we need to do this regularly. Every six months, we need to be reviewing our prices and making sure that we’re edging them up and edging them up. It’s really important to do if you’re a young agency in the first Two years, you probably need to do this every three month, because you’re going to be learning and growing and changing and hiring, hopefully, and improving your capability. And so, every three months, but certainly for the more mature businesses every six, six months, we should be doing this regularly.
So, the other thing that will help, by the way is the benchmark report, particularly if you have to negotiate with procurement departments. So, I get loads of emails from agency owners just prior to the reports’ publication in March, saying, I’ve got a meeting with the procurement department can I have the latest stats, I’m sorry, you’re gonna have to wait till the report come comes out. But I know when it does come out, they go to these procurement departments with the benchmarks and say, hey, let’s have a look at how we’re performing. And in this year’s report, we looked at hourly rates for each level of expertise for juniors, mid-level, seniors and directors. And we published rates for the top 10%, top 25, average and bottom 25. And you can access this, hand this to your procurement department negotiator and say, hey, these are the rates that the agencies are charging out there. And here’s the thing, here’s what you need to focus on. This is what the top 10% are charging anything from 99 pounds an hour for juniors to 240. For directors, we are a top 10% agency. So instead of benchmarking ourselves against the average, I want you to benchmark ourselves against this. And they’re using this as a weapon against procurement departments. So, my gift to all of you agencies out there go and download this report, and take it to your procurement department, the next time they’re talking to you about your rates and this will really, really help. So, to be in that top 10%, there’s a couple of things that you will need to do.
The second strategy to increase your pricing coupled with the first one is you will need to win bigger clients, there’s absolutely no question about this and by bigger clients, what I actually really mean is you need bigger clients with bigger budgets, because when we’ve done our research into the top 10% of agencies by profitability, this is what we discovered. The traits of the top 10%, the first thing we noticed was this, 65% of this top 10% by profitability had won projects in excess of a quarter million versus a 19% average. So just let you digest that stat for a second. So, on average, roughly one in five agencies has won a project in excess of a quarter of a million. But amongst the most profitable, that rises to nearly two thirds have won a project. I think that’s really interesting. The other trait around the top percent by profitability is they had a minimum project value of greater than 10 grand. So, they didn’t get out of bed pretty much for less than 10 grand because here’s the thing, they understood that faffing around at the small end, the small projects is really hard to make money, it’s really hard to make money. An agency owner described it to me beautifully. She said, look, a quarter million-pound project for us, it’s not 10 times the amount of work at 25 grand projects. And a 25 grand project isn’t 10 times the amount of work about two and a half grand projects. It gets easier with scale. And if you are scrapping around at the two and a half grand project end, and oh my goodness, by the time you’ve even pitched or written a proposal to win the work and done the initial meeting, got to know the client and done the scope and issued the invoices and chase the invoices. You can’t make any money on that. And you’ve not really done any work.
So, we all need to raise our game here. And I talked to you about the agency that went for 40 pounds in 90 pounds an hour without changing a single thing. They didn’t change a single thing. The bit that took them from 90 to 120 was their focus on clients. And another thing that’s coming up in a minute, but they focused on bigger clients, they went from designing local websites for local people to working with brands. And that’s what propelled them to the next level in terms of their pricing. And that’s the only way to get there. You will hit a ceiling when you’re working with smaller people or smaller businesses with smaller budgets, there’s absolutely no question about it, you need to find a way to win those step-change deals to work with bigger clients on bigger budgets. And there is one weak caveat to this. In that there will come a point for some of you that bigger isn’t necessarily better. Okay.
And it’s probably best illustrated by a conversation I had with an agency owner who had worked out their sweet spot when it came to project size. And what this agency owner discovered was, they were best at digital transformation projects between 20 and 50 grand they said anything less than 20 grand wasn’t worth the hassle, but actually anything more. I think they did 100 grand project and it was really technical and they got found out they didn’t have the technical expertise. They didn’t want to build a team of that technical expertise. And so they rejected it, actually cost them a lot of money. They learned their lesson and they said, Look, this is what we’re awesome at. This is where we can really add value, we can charge disproportionately for that value, and make the most profit. So, they found their sweet spot. I guess my question to you is, where is your sweet spot? Now what I can promise you this is it’s not going to be in amongst those low value ones.
So we all need to raise our games to that minimum threshold. I guess the caveat around these larger quarter million-pound projects is they might not be for you, if you don’t have the expertise to fulfill them, you might drop down a bit, but I promise you, you’re not going to be in the top, top 10% by profitability if you’re faffing around with small projects that I can absolutely guarantee I’ve got the data to back it up. So, I said there was another thing that we need to do alongside increased prices to get into the real upper echelons of the pricing matrix. The first thing was, find bigger clients, the next thing is to specialize and get niche. And I talked about this a lot. And I’ve got a really interesting case study in the next slide that I’ve never shared before, that I think is really cool, and will really get you thinking about what the next level is for you. So just to just to talk a little bit about each of these.
So, specializing is making sure that you do something very, very specific very, very well. So rather than saying that we do all aspects of marketing, you can say like, we focus just on SEO, we focus on just on Facebook ads, or we focused on you know, this particular area of video production and the more specialized you can get, the higher price you can charge, there’s absolutely no question about it. All the data backs it up all the stories I’ve seen, the more specialized you can get, the more you can charge. Now niching is around focusing on a particular market sector so we work really well with this group of people, we work really well with insurance companies, we work really well with sports brands, we work really well with travel companies, whatever it is your niche, and there’s lots of them that specialize in a particular area and do that for a specific niche. And this next case study is an agency that do exactly that. And I want to take you through their journey, and with an interesting endpoint a really interesting endpoint, because not only were they able to charge more throughout their journey as they got more specialized and more niched, there was an interesting end to this journey, which I’ll tell you about in a second.
So let me take you through this case study. On the left-hand side, I’m going to talk you through their journey in terms of their specialism, on the right-hand side, I’ll take you through their journey in terms of the niche. So, they started off as a lot of people do, they first started off as a marketing agency. And they did that for pretty much anyone. And in the early days, this will sound familiar, by the way. They just took any jobs that they could when someone said, Can you do this? They’d say yes. And they do it for anyone, and they just took the jobs on to pay the bills. And we’ve all been there. You know, I started well from scratch. And there were plenty of times where someone would say in the early days, can you do this? And we think Crikey, that’s a bit of a stretch, but we’d say yes, and we’d find a way. And we soon learned that actually, that’s not the smartest thing to do. And like this agency, I think they naturally evolved into specialisms. So, they became well known for their PR and comms and started focusing on that. And they decided to start doing that for brands or larger businesses, they moved out of the small business community and up into brands. They then realized they were really good at internal comms. And so, they started focusing on internal comms. And what they noticed was, it was much easier for them if they worked on internal comms campaigns for brands that had 5000 plus employees.
So that was their minimum threshold, that sort of thing. They did internal comms for 5000 plus employee brands. They got even you thinking, well, that’s a pretty specialized agency, focusing on a very particular niche, it got even more interesting. In under a thread of internal comms, they discovered there was a wealth of opportunities around Employee Benefits columns, so brands having to communicate to their teams, all of the benefits that they get as part of being an employee and managing those schemes and all of that. And they discovered that they were particularly good at this. And there was a lot of comms required for highly regulated industries. So suddenly, they’re getting even more specialized. They’re doing Employee Benefit columns for highly regulated, regulated industries. You’re thinking well, that you can’t get any more specialists on this niche, nah? Well, they did. They then went into a strand of Employee Benefit columns, which is pension columns, and they did that for financial services companies, and that’s where they ended up. They ended up with a 6-million-pound fee income business, which was doing pension communications for financial services companies. They had a 1.2 million pound. Let’s get this right. No. So they had a 1.5-million-pound EBIT profit at the end of it. And they sold that business for an eight times multiple.
So they sold it for 12 million pounds, and as well as pricing at a higher level than all of their competitors. Because to be frank, they didn’t really have any competitors. When you’re a company that does, specializes in pension communications, internal pension communications for financial services company, you don’t have any competition, you can charge what you want, you are the best in the world at this. They chose what they want, they made a good profit, and they sold for an eight times multiple. Now they’re eight times smarter. This was a little while ago. Now. In the last six months, I’ve had agencies, one of our clients sell for nine and a half times multiple one of our clients sold for nine times multiple both those cases, they were specialist and they were niche, they do a certain thing for a certain market.
And my challenge to all of you listening to this is what is the next level for you? Right? So, I’m really hoping that there’s no one at the top level just doing marketing for anyone, right, I’m really hoping that we’ve moved beyond that. And everyone listening to this has a specialism and is starting to focus on a niche. But my challenge to you is what is the next level because each level that you go down is an opportunity for you to charge more. And the more you charge, the more profit you make, the more specialists at the niche you get, the more valuable your business becomes. These are the prizes that are available for those who are brave enough to make these moves. Now you can see that this is a journey, they didn’t jump from step one to you know, the final point on this at the bottom in one go, it was a journey. What is the next step on the journey for you? What can you do tomorrow? Or what can you start? Or where do you want to be by the end of this year? That is the next step on your journey. That is my challenge for you to think about. And I wish you well on your journey, it will lead to higher prices.
Now, I’ve taken you through three strategies so far, we have a few more, the next one is to encourage you to move to tiered pricing. So tiered pricing is I guess the alternative to a blended hourly rate. So with a blended hourly rate, you have a single rate for all the people in your business. So, you charge them all out at you know, at three pounds an hour, or 100 pounds an hour or whatever it is. When you move to tiered pricing, you charge each member of your team out at a different hourly rate. So if you think back to that matrix I had earlier you had juniors, mid-level, seniors and directors, they were all charged out a different hourly rates. That is what tiered pricing is. And not enough people are doing it. Let me tell you how many people are doing it 49% of million pound plus agencies are doing it. So just under half, and only 27% of agencies under a million are doing it now. I reckon that after you hear these stats coming up, a few more, we’ll do it. But I understand the reason why people don’t go for tiered pricing. Because a blend to see a single blended rate is easy, right? It’s easy to work out. It’s not too complicated. You work out the hours on the job, you times it by the hours, I’m sorry, by the hourly rate. And that gives you certainly a starting point, we’ll come on to value pricing in a second. But that certainly gives you a starting point to work out how much you should charge and how much this is going to cost you. But of course, each of those inputs each of those people, they don’t cost you the same amount of money, your juniors, you’re paying less than your senior people.
And in fact, let’s look at another way of seeing if people can add more value to clients, therefore they should be charged more. So I definitely see the appeal and certainly in the early days of having a single hourly rate because it’s simple. But when you see these stats, you will hopefully conclude that it is worth the effort to move to tiered pricing. So this is what the top 10% charge for each level of expertise. Now just think about that for a second. Think about what you charge if you’re on a blended hourly rate, think about your blended hourly rate, and then just look at what is available to you. If you can move to tiered pricing and move up to the top 10%. They don’t charge anyone out less than 99 pounds an hour and the directors are at 234. Unbelievable. What is also unbelievable is the impact that this will have on your gross profit percentage.
So we looked at our data from this year’s report. We split it into two groups and we said right let’s look at the gross profit percentage of those who use tiered pricing and those who use blended rates and here are the results. So if you use a blended hourly rate, the average gross profit percentage you make is 39%. Now I calculate and I encourage you to calculate gross profit percentage in a very particular way that I’ve explained in the report. And there’s a six-minute tutorial video in the report that you can check it out. So if you use that method, then the average for those that use blended rates is 39%. If you using tiered pricing, the average is 48%, gross profit. Do I need to say anymore? Do I really need to give you any more encouragement to move away from a blended rate? And to think about tiered pricing? Just look, it’s there in black and white, nine percentage points of additional profit that you can make. This is what is available. And it’s only marginal extra effort. I appreciate this extra effort. But I think those stats tell you it’s worth it. Now, if you’re sat there thinking well crikey, where do I start? You know, I’ve got a team of 20 or 30? How on earth do I start categorizing them? Well, look, a lot of these things are a journey, right? We’re not going to crack this overnight.
And a great way to start with this is just think about your very senior people and always having two rates if you like and saying look, we’re going to keep people at our standard rate, but we’re going to have a premium rate for either the premium work or where we’re charging our senior people out. And that is the way that you start with this. And you always move higher. And actually, when you’re cutting up your rates, this is a really good opportunity to maybe anchor your lowest rates, your junior rates to your current rates, everything is above that. So really, if you want a simple place to start, rather than thinking gotta have four tiers, or five or six, start with two, come up with one premium tier and see how you get on with that, go on a journey with this and then see where you end up. You’ve got the stats, you’ve got the benchmarks, you know what other people are doing and you know what you’re capable of so let’s go on that journey together.
Step five, really important one, I’ve got another cracking case study coming up for you, that will show you how to do this. But a really simple way that you can increase your pricing. And the amount that clients buy from you is to give three pricing options when you quote now, right at the start of the process, you need to first of all do one simple thing and you need to know your clients’ budget. So 19% of agencies know their clients budget before they quote, this is really important. And there’s not enough people doing this. So four out of five, a kind of I don’t know, we’re flying a bit blind here. We’re issuing proposals, and we don’t know clients’ budget. I think that’s absolutely bonkers, like really bonkers. And I spoke to an agency owner really recently, and we were chatting, she was not happy with her conversion rates. And we were looking at the sales process, and she was doing a lot of things right. But when I said you issue a proposal, I said, How do you decide what the value is? She said, you know, I’m kind of guessing a bit. I said, You’re not asking the budget? Sometimes we do sometimes we don’t. And you know, if we get a no or we don’t know their budget, we kind of guess. I’m like, well, you don’t want to guess you don’t need to guess there’s something you can do in that first conversation that will help you work out at least a ballpark of the client’s budget. When a client comes when you ask them, first of all, ask me about that budget. Most people respond with something like I don’t know, or I’m just looking for good value. Let me know what you think. Right? And so what you need to do is to in response to that, to help you put together a proposal to say look, to help me put together this proposal, I just need a steer from you as to what type of proposal I’m going to put together. Now we work in broadly three pricing categories or three project sizes. The first project size is this one, and you always go big. So whatever your biggest project value you’ve ever done, you go a little bit above that. So if your biggest project value was 100, grand, you say, look, we our first category we work in is projects between 100 and 120,000. Right, because it’s important that you stretch where it is that you want to be and project, you know, give yourself a chance of winning bigger budgets in the future. So we work on projects between 100 and 120 grand and this is what they look like. We also work on projects between 50 and 100 grand and this is what those projects look like. And we work on projects between 20 and 50. So I mean, minimum project value is 20 grand, which of those three categories do you think you fall into? Now, I promise you almost always they will pick one of the categories, they may even go further still and say well, it’s that one but I’d prefer it to be slightly at this end of that one. And but if after you’ve given the most three categories, broad categories, by the way, we’re talking ranges between 20 and 150 and 20 grand here. If they are unable to tell you where they sit in that huge range, then trust me runaway as fast as you can. You do not want to work with these people if they either don’t know their budget or they’re not willing to tell you, do you really want to enter into a relationship with them. Let them be someone else’s painful client go and find a client that’s willing to work with you and collaborate with you. I promise you, when you present those three options, those three ranges, they will pick one and then you’ve got a much better chance of presenting your proposal and presenting these three pricing options in a way to get you success. Now, we asked the question in this year’s BenchPress, we looked at the number of pricing options given to clients when presenting a proposal 47%, you’re doing this wrong, if you are only presenting one pricing option to your clients, you are giving them the opportunity to go and seek alternative options elsewhere. Because what we are all looking for when we buy something is to try and work out whether the thing that we are buying is a value, right. And the way we do that, as humans is by assessing that thing that you put forward to us against other things, right? So we can assess them by value is this good value. And if you want to control that value assessment, you have to give more than one pricing option. Because if you don’t, they’re going to go to a competitor. And then they will have an alternative to compare the value. 28% are giving two pricing options, where we all need to be is to give three, I think three or more, ideally 3, 24% are in that category. And you guys get it, right? You guys know exactly why you’re doing this and the importance of it. Because you know, and certainly with some clever positioning, you can make sure that you are positioning your offering in the right ways to the clients by the most profitable one.
I’ve got a case study here, right? Because a lot of people ask me, Well, what should the pricing options be? How should we do this. And all of this is covered in a book, which I’ll explain later. But I just wanted to give you this case study, because it’s one of my favorite case studies occurred a few summers ago, where I talked to a friend of mine, this agency owner about this concept, and we just had a brilliant text message exchange all summer. And I just wanted to share bits of that with you. So they had an initial offering, which was 15,000 pounds. So their initial offering for clients was a discovery piece at 15 grand. And they used to just go in, have the initial meetings, issue a proposal for 15 grand, and it was yes or no. I told him about the three pricing options. And this is what they did, they took that 15 grand. And first of all, they increase it to 20 grand. And what they did was they then took some things out where they then went in, anchored with a really, really high option 50 grand option. And they basically thought around that discovery piece. If we were to really go to town on this, if we were to just deliver the most amazing experience and add a ton of value? What would that look like and let’s price that highly according to the value. And that was their 50 grand option. What they then did was took that 20 grand option, which used to be their 15 grand option took a few things out and had a 15 grand option. So those are their three pricing options. Now. They what they did, they were clever with that 20 grand, they tweaked it slightly. What they did was, they took elements of the 50 grand there and included them in the 20. But that didn’t cost them much to deliver. And that allowed them almost instantly to start selling that 20. Well, basically clients went for that middle option that 20 grand. And I remember that first text message saying oh my goodness, I’ve just sold something that was 15 grand for 20 grand. What they did next was they upped it, they grew in confidence. And they changed the three pricing options to lead with 60, then 25 and then 20. And what you notice is that middle option isn’t a middle option in terms of exactly the middle in terms of the pricing, it’s very closely anchored to that bottom option. So in terms of value, it’s only a little bit more, but they’re getting quite considerably more. By the way, in the course of this, some people did buy the 60 grand option. And what happened was throughout the course of the summer, that price went up and up and up. And by the end of the summer, this was like three or four months over period. This was happening. And this wasn’t years, this was three or four months. They went from selling something that was 15 grand, that became 60,000 pounds, right. And clients who were buying something that was 15 grand, were now paying 60 grand for it four times the amount simply by being smart with the presentation. That was it. That was all that they changed and I absolutely adored getting those text message. He was almost disbelieving he was like, you’re not gonna believe it. Someone’s just bought it for 25 and then 30 and then 35 Oh my God, I’ve just got 50 grand for it. And it’s a shame I was on commission looking back and I’m not on commission for all of your increases well, but I love to hear these stories. So if you do this, and it works, please tell me because I get to then share your story with, you know, the next generation of agency leaders, and we can all make our businesses better.
Now, this concept is quite a complex one. And I’ve condensed it into a few minutes. If you want to explore this in more detail, there’s a brilliant book on this, written by the master Blair Enns called Pricing Creativity, you will notice that he is pricing his book based on value. And he’s also given three pricing options. And if you look at the pricing options, you think bloody hell I’m not spending $200 on a book, well think about the value that’s going to add to your business, I promise you, everyone who’s read that book, absolutely loves it, and has transformed the way they price and the profit that they make in the business so I’d encourage you to check it out.
Now, two more to go. This one is a is the holy grail, selling value, not time. And certainly, reading that book I talked about earlier, will help you on that journey. There’s no question about it. But I want to give you a couple of practical tips to help you do this. So all of a lot of the things I’m talking about so far has been around this swapping time for money and trying to swap time for the most amount of money. This gets really interesting where we disconnect time, from the price that we charge and instead focus on the value that we are adding to the customer and actually charge based on the value that we are adding, not the time that is spent. Now to do this, there’s a few things that you need to do. So a lot of the stuff that I’ve talked about earlier definitely applies and applies really strongly, you need to be focusing on bigger clients.
But my goodness, you definitely need to have a specialism and to have a niche, it’s really hard. If you just unless you do something very specific, it’s very hard to really claim that you can or to really have a chance of selling based on value rather than the time that you add. So my question to you is this, what did your clients really value? Of all of the stuff that you do, I promise you there’ll be some bits that they just love disproportionate value would be willing to pay much, much, much, much more for. And the in terms of clues where to go looking, this will probably be something that no one else does, or very few people do or something that you do particularly well, it’s a bit of expertise that you have, it’s likely to be towards a more strategic end of your offering, rather than, you know, a commoditized thing that you do. But I promise you, there’ll be something in there that you can start to charge disproportionately highly for because no one else does it. And that really is the game that we’re trying to get to. Because if you want to get really good at selling based on value rather than time, you need to do something that no one else does.
You need to be the best in the world at something. And my question to you I keep asking this, in so many of my presentations is what can you be the best in the world at? And this is a journey we all need to go on. Because by becoming the best in the world by seeking to be the best in the world at something, it gives us the opportunity to charge what we want. I go back to that case study of the pension comms, or the agency that did pension comms for financial services businesses, they were the only person in the world that did that. They could charge what they want. They were true experts and specialists, what can you be the best in the world? What do your clients disproportionately value highly, because then it doesn’t matter how much time it takes only you can do this. And you can do this to this high standard that is required and therefore, you can charge what you want. So go exploring how you can sell based on value rather than time and that will open up a whole new level to you. Everything I’ve talked about so far, will get you to a certain point and will get you by the way into that top 10%. But if you want to get to the top 1% you need to work out how to sell based on the value, you need to focus on being the best in the world at something.
Now the final strategy is this. We need to stop discounting all of us stop it right now. Because all of the hard work in steps one to six will be undone if right at the last moment, clients asked you for discount and you cave in. And what is so disappointing from this year’s BenchPress report is that 31% said they often give away a discount without getting anything in return. I’m getting annoyed you can hear I’m getting annoyed at this because as nearly a third of agencies do all the hard work right? And then give away a discount. I think how hard it is to make money on a project anyway, all the things that need to go right just for you to make money. And if right at the last minute just before accepting a project, you’re giving away some of that hard earned profit, then it makes it really really difficult. So far too many are doing it and when you look at the amounts they’re giving away, this is stats direct from BenchPress it makes me it makes me upset 23% are giving away up to 5%, 54 up to 10%, 16%are giving away up to 15% and so 7% of agencies are giving away a quarter. Oh my goodness, like, I’m upset. Let’s stop this now. And let’s use the BenchPress report when we’re negotiating with procurement departments to say, hey, like, this is what other agencies are charging, we’re not an average agency, we are above average, and you should pay us above average rates. Let’s be really firm on this. In the report, I talk about some things that you can do. If you if you’re really stuck with this, and you’re forced to take a discount. Look, start talking about risk with clients say, Sure, I can discount it, but I want some of the reward. So there’s a great video online that is a great case study with this when clients push back on number six Sure, I’ll do the work for you for free. But I want 50% of the profits that you’re going to generate from this, and you watch the client backtrack, because the client suddenly goes, whoa, hang on 50% of the profits, I don’t want to give that way well, but there needs to be some risk-reward balance here. And if you’re going to reduce your rates, you need to get something in return. Some things you can get in return are well, if I reduce my rates, I you need to buy more stuff from me, okay, let’s have a bigger contract. If you can extend this from 100 grand contracts 150 grand contract, then maybe we can talk about a small discount. If you can extend this from a one to a two-year deal, then maybe we can talk about a discount. these payment terms, 60 days and invoicing. You know, at the end of you know, each milestone, note this invoice at the start to the milestone, let’s make those seven days, then you can have a discount. These are all things that you can use commercially in your toolbox to get something in return if you are literally forced to give away a discount, and other things, you know. There’s loads of great marketing, things that you can get back in return, you know, say, Well, fine, I’ll give a discount but you know, it’s in return for you introducing me to three other departments that could use this particular technology. It’s in return for you introducing me to three marketing managers that you’ve met along your journey, or in our in your little black book that we could go and speak to about how we could help them in return for a video testimonial. Like something get something in return stop discounting, because we’re just going to undo all of that hard work.
So we’re going to move on to questions in a second. But I’ve just got a couple of key points to make at the end of this. Let’s just recap on the seven strategies to increase your pricing. So number one, just increase your prices and make sure you do it regularly. Make sure you do it, start off with your prospects. And then make sure you go back to your existing clients regularly. We can all just do this tomorrow, just increase our prices. That will only get us so far. We need to win bigger clients with bigger budgets if we want to get into the higher end of agency pricing. This is where it starts to get really interesting. The more specialists we get and the more niche we get, the more we can charge by the way, the more valuable our agency will be as well. This is what we need to focus on. We all need to move to tiered pricing. You know, blended hourly rates or agencies that use blended hourly rates make less money, there’s no other way of putting it. There are exceptions. I know. I know an agency that charge 158 pounds an hour blended hourly rate. They’re very good at what they do. They make really good levels of profit, they’re the exception you’ve seen, you’ve seen the stats, on average, if you if you move to tier pricing, you will make more profit.
And then another thing is just really simple way to help you make more profit is to move to three pricing options. Make sure you’re asking getting the clients budget beforehand. And I’d love to see that 19% increase by much, much more the next time ask that question in BenchPress. And I promise you, I’d love for you to send me those messages that say hey, I’ve just sold that thing for 15 grand, I’ve just sold it for 60. Go on the journey with it and see where it ends up. And go on a journey with this too, selling value not time. This is a challenge for all of you out there to work out what you can be the best in the world at. Once you’ve done numbers one to six, we need to make sure we don’t do number seven, we need to stop discounting and make sure we get paid for what we are worth.
Now, I said that pricing was just one part of what makes a profitable and sustainable agency. I’ve spent the last 17 years working out all the other bits of the jigsaw and working with Rory and the rest of the team as well we’ve put together an agency profit program that will help you increase the profit in your agency. In fact, it will transform the profits that you make in your agency. What you have seen today is just the tip of the iceberg of one tiny bit of what goes into making a profit in an agency and this is something that we’ve run, we run every couple of years we’ve not done it for two years and every time we run it sells out right? Those who’ve been on the profit program before will know how valuable this is and we’re very chuffed they got their place. I just want to spend a little bit about what we’ve got coming up. So we’ve got five online workshops, we will take you through the five key areas to increase your profitability. So we’ll help you plan for profit, we’ll go into more detail on your pricing, we’ll look at how you manage projects, and where all the profit leaks out of our businesses in the projects and how we run our projects, we’ll look at your existing customers and how to make the most of your existing customers. And finally, and crucially, we’ll show you how to leave a legacy of profitability in your agency by making sure that you have a profit culture, because this shouldn’t be a lone exercise with us as the agency owners thinking about profit on our own, we need to get our whole teams engaged in this process. And when we do magic happens.
we’ve got five online workshops to take you through the five steps to increasing profit, then we’ve also got this, I’m so pleased to be able to bring the people attending the program together in an exclusive slack group, that means that in between these sessions, these online workshops, you can ask questions, you can share ideas, and you can learn together and that is ultimately what we’re trying to do. That’s the magic of this program is the ability to learn from others. Now, to help make sure that this is a really productive and useful exercise, there are certain criteria to attend the program, because we want to make sure that it is genuine peer to peer learning. And so you must have a fee income of at least half a million and it can’t be any more than 3 million. Okay, so if your fee income is under 500,000, unfortunately, this program isn’t for you. And if it’s above 3 million, it isn’t for you. But if you’re between half 1,000,003 million fee income, you can get together with other people who are going through similar experiences with similar challenges. And I promise you that the online workshops are amazing, they will blow your minds, but the things that that come out of the conversations with your peer group, and we will be having facilitated discussions, as part of the workshops will be transformational, because you will be able to learn from people who are doing it right now who have done some things that have worked, I’ve done some things that have been a disaster. And you can take all of that collective knowledge and share it with each other.
So I’m so pleased that we’re able to run this again, it’s being run by Rory who you’ll be joining me in a second and it’s going to be mega. So if you’d like to take part in this, well, you’re very privileged, you get first dibs on the tickets. So if you go to wowco.uk/profit, it’s appearing in the chat now, you’ll be able to find out more about the program, have a look at the dates, have a look at the content, and then decide if it’s your cup of tea. Tickets are limited to only two per agency, is 499, look it’ss a bargain considering the value that we will add off the back of this. I know it’s transformed agencies and not just in the short term. I chatted agency owner who came on our program four years ago and they are still doing things that we talked about four years ago and it’s still making impact. That’s the legacy we want to leave for your business, a legacy of profit. And I hope that today is just one part of leaving that profit legacy in your business. I hope you found it useful. I hope you will implement some of the things that we talked about today. And I can’t wait to hear your stories. Good luck.
Martin’s original content is based on his very current experience of running effective marketing initiatives for his customers and the feedback from Effective Marketing’s successful and popular marketing workshops.
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