In this episode of The Agency Accelerator Podcast, I discuss why, when you're buying a software or a product online, you are offered three price points, with the middle one being highlighted as the most popular one.
I unpack that and help you increase your prices to get your clients to pay what you are truly worth.
Here's a glance at this episode.
Many agencies struggle to get their pricing right. They are frustrated that they are not as profitable as they would like to be and are not constantly hitting their margin targets.
[01:31] Three Typical Ways Agencies Charge You
- Selling your time. This is where you are exchanging money for your time, usually through charging by the hour or day. The flaw in this approach is that it encourages the client to focus on the wrong thing i.e., how you spent the hour rather than the outcome of the work you are delivering!
- Having a fixed project fee. This is where you estimate the project's cost at the beginning based on the scope of work agreed with the client and consequently the number of hours you estimate it will take to deliver the scope of work. You agree to a fixed fee based on these hours. The potential flaw with this approach is that the product's brief and scope can change and evolve. To please the client, you end up over-servicing them - cutting your margins.
- The retainer concept. This is where you agree on a set fee for each month and agree on the scope of work included within that fee. The potential challenge is that the client believes they have unlimited access to you because you are on the retainer.
[8:43] Focusing on the Right Things
I share three pieces of advice when it comes to pricing a project.
Ensure that you understand the ultimate goal and price against the outcomes and impacts and not the bits and bytes you do for your client.
Use three price points in your proposal. The high price point sets the higher anchor point; the lowest price sets the negative anchor point, which leads to the client buying the middle price point (and that leads you to achieve the price for the service you hope for).
Put a contingency pot in place with your clients when you are setting the project's scope. If you have a £10,000 project, ask the client to put aside an additional 15% as a contingency pot. Then if you are asked to do something outside the agreed scope, you can call upon this money.
[15:30] Having the Right Mindset
Having the right mindset is crucial and can be the most significant battle you have around pricing! If you think this does not work for you, it does. We often tell ourselves stories about how the client will react to a certain price point or price increase and this stops us from changing our pricing. We just need to realise that they are stories and not facts!
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