Increasing Agency Profit with Value-Based Pricing
Are you using value-based pricing within your digital agency? Did you know that through value-based pricing, it can support you in increasing the profit of your agency?
In this episode, we’ll cover:
- Why value-based pricing will keep you from losing profit.
- How to setup a value-based pricing model.
- How to understand your client’s perception of value.
This week on the Smart Agency Master Class, we’ll hear from Dan Mall founder of SuperFriendly, a design collaborative. Dan has spent his entire 18-year career in design and in that time he’s grown to understand a ton about pricing. He’s going to share how to develop value-based pricing so you can stop losing profit.
Why a Value-Based Pricing Model?
You are providing a service based on your unique skill set, knowledge and experience. Value-based pricing takes all those elements into consideration and quantifies. Value-based pricing is the intersection between: what it’s worth to the client and the amount of compensation you’re willing to take.
And if that isn’t enough to convince you — consider this analogy.
A woman calls a plumber to come to her house and fix a leaky faucet. The plumber is there for 5 mins, tightens one screw and the leak is fixed. He hands her a bill for $1,000.
She asks “Why are you charging me $1,000 when you were only here for 5 minutes?”
He says, “It’s $10 to tighten the screw and $990 for knowing which screw.”
When a client has a problem and you know which screw to tighten your value is priceless 🙂
How to Setup Value-Based Pricing
Dan’s agency is 5 years old and has been using value pricing since the beginning. Here are 3 steps you can take to get started with building this type of price model.
- Start with pricing that is easy to understand. You have to be able to explain your pricing structure to a client, so make sure you can easily rationalize it.
- Determine client expectations and the perceived value of the project. You’ll have to ask a lot of questions to get to the real meat of what they want and why. Experiment with pricing over time.
- Learn from one project to the next and test out different pricing. Figure out what works and what doesn’t. Then apply a combination of experience and gut instinct to get to the right pricing structure.
How to Determine “Value”
It’s not easy! Dan says it takes time and those 3 steps above won’t can’t overnight. But what you can do is gather as much information as possible from your client so you can fully understand what they need or rather, what they think they need and how you can help.
In his experience as a designer, Dan said he’d often learn information a few days or weeks too late. Some issues are preventable and some problems aren’t solvable unless you get to the core of the issue. To do that, you have to ask the right questions. Go beyond the logistical and go deeper to fully understand the expectations/goals.
Great client service starts with building a relationship. And to build a relationship you have to ask questions.
Questions You Need to Ask
If you’re building a new website – don’t just be an order taker and build the website as instructed. Ask why the client wants a new website. Ask what the goals are for the new site. Is it for a better reputation? Is it for lead generation? What you’re doing and why you’re doing it go hand-in-hand.
The goal for asking questions is to identify what the client needs – which can be different from what they’re asking for.
Here’s a few questions to get you started:
- What worries keep you up at night?
- How can my agency ease these concerns for you?
- What is your business model?
- How do you make a profit?
- When was the last time you were profitable?
- What is the problem costing you, in terms of revenue/profit?
- How does a solution translate to your bottom line?
Most importantly, you want to understand the 3i’s: Issue, Impact and Importance. You can this information in developing solutions and in handling objections or pricing concerns.
Don’t let a value-based pricing model worry you. People don’t choose to work with you on price alone. And those who do are viewing you as a commodity. If you are viewed as an expert in your field (think plumber!) and can get the results they desire (think leaky faucet!) price won’t matter as much as you think it does.
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What’s Next For Your Agency?
Now that you know the benefits of value-based pricing for your agency moving forward, what’s next on your list? Why not take the time to take a step back and look at other processes that need attention? No matter what challenge your agency is facing, I can help you get through all of it.
Growing your agency can be a major struggle for any agency owner and I can show you the different phases of growth you will experience, how placing a process for performance based pricing can be the best pricing strategy for your business and the three questions you need to ask yourself to sell more!