After sales process the ins and outs of pricing is one of the most popular questions from inbound marketing agency owners.
How do we price our inbound marketing engagements? There are a number of tricky elements around the answer to that question.
The first is you need a level of investment that your prospect is willing to pay and next you need a level of investment that delivers a profitable engagement for your agency.
So maybe the real question is not how to price, but how to balance those two seemingly conflicting objectives.
In today’s article, we’re going to talk about why simply adding up the hours required to deliver services is the WRONG way to price your inbound marketing engagements.
You Should Be Focused On Outcomes Not Hours
The best way to move prospects off of hours is to make sure there’s agreement on the outcomes from the engagement. Outcomes are much more important than the hours it takes to get there. Prospects aren’t actually interested in hours, but they are interested in control mechanisms and hours historically allowed clients to control agencies. Let’s budget 40 hours a month or do what you have to do but don’t go over 30 hours. Sound familiar?
Instead commit to outcomes like 10% increases in website visitors, 20 sales opportunities a month. 20% increase in site wide conversion rates or 40% increase in bottom of the funnel leads. Focusing on outcomes means you get to have value added conversations with prospects around the business value of each outcome. It also puts the responsibility on you to deliver the outcomes in a reasonable amount of time. Hours become your issue, not your client’s.
Using Hours Limits Your Value Proposition
Hours are a commodity. Commodities don’t bring a lot of value. Eggs, gas, toilet paper, bottled water, printing services are all examples of commodities and those businesses ultimately compete on price. The cheaper the price the more they sell. This is NOT how you want your agency positioned. But when you talk about hours and your hourly rate—this is how potential clients see you. Agency A charges $125/hour and Agency B charges $200 an hour. No choice right? Let’s go with Agency A.
But what if Agency A doesn’t know what they’re doing and they need twice as many hours to deliver the same service. In the long run, it might be cheaper to hire Agency B, but it’s highly unlikely the prospect is going to be able to determine the agency’s level of expertise. Instead, focus on outcomes. If you deliver increases in website visitors, an increase in leads and an increase in sales opportunities does it really matter what your hourly rate is? In fact, what is the value associated with a repeatable, predictable and scalable marketing machine for your business? Get your prospects and clients to answer this question and then build your engagement around that number.
Hours Limits Your Team’s Ability To Deliver Results
Hours have a limiting impact on your team’s ability to deliver results. Consider this situation. You priced out your blog article service at 2 hours per blog article. Your team should be aware of that and limit their work to two hours, right? What if they need more time? What if the work after two hours isn’t very good? Should they keep working? Should they stop? If you want to maintain profitability they should stop. But what about great client work that delivers results?
What’s the true value of a blog article that gets found on Google and drives massive traffic to your client’s website? Is it $500, $1,000 or even $2,000? Probably more when you consider the conversions from those visitors and the revenue generated from closed leads. This is what you need your prospects and clients to understand.
So yes, keep track of hours, but when it comes to pricing, consider value as the leading factor. Take the hours required to deliver top notch work and then apply a value multiplier to all those numbers. When you’re finished with the entire engagement, make sure the full engagement is value engineered. This gives you an opportunity to value up each element and the engagement as a whole. Now you have a much better opportunity to deliver highly profitable engagements that deliver amazing results for clients.
There are other pricing models for inbound engagements. Models like lifetime value of a client and reduced cost around client acquisition. These are excellent ideas and 100% viable, however these options are challenging for most businesses. These advanced models make clients anxious and anxious prospects don’t sign paperwork. If you want to make prospects feel safe, so they say “yes,” then stick to simple, straight forward pricing models.
Like a lot of the inbound story, you’re swimming upstream. Clients are used to buying hours, paying for hours and reconciling their bill at the end of the month around hours. Keep this in mind as you’re working with prospects to understand how inbound is different than traditional marketing services.
Starting the conversation with outcomes and results instead of deliverables and stuff will help you skip the hours conversation and move right to proper levels of investment to ensure the desired outcomes.
Start Today Tip – Build a pricing mechanism into your agency. When it comes to estimating investment levels for clients you should have a tested process for calculating pricing. Make sure this produces pricing that includes ALL costs, including your compensation and a fair profit for the agency. You're going to need to get intimate with your numbers and it’s likely you’ll need time tracking software and project management software to get those numbers. Then build your model and adjust your model every 30 days. This ensures that as your business changes your profit margins are protected.
For more help with pricing and other agency challenges, download the latest eBook titled 13 Steps You Should Take TODAY To Grow Your Inbound Agency TOMORROW!
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