Over the past few weeks I’ve been talking to a lot of agency owners about profitability and one of the best ways to be more profitable is to raise prices. I’ve stated publicly that inbound marketing agencies are NOT charging enough based on the value of our deliverables, but the challenge remains—how do you raise prices especially with companies you’re already working with?
Today’s article features a few of the tactics we’ve used to tell clients your prices are going up and getting them to say, “thank you.” It might not be as hard as you might think and once you do it, you’ll see a whole new perspective on your inbound marketing agency’s bottom line. The client conversations are tricky and you might be concerned raising prices means you loss new clients because you’re too expensive. We’ll tackle that fallacy too.
Here’s how to raise prices this week.
Talking To Clients About Value
When our sales team tells me we lost a prospect to a cheaper agency, my response is “you didn’t do a good job helping them understand the value of our engagement.” You never lose on price, you always lose on value. The same applies to your clients. Your strategists or consultants should be constantly sharing and comparing the value of what you’re doing vs. what you’re charging.
I encourage all our consultants to make sure they deliver enough value each week to justify our bill. If clients are paying $10,000 a month, we owe them at least $2,500 of value each week. Once you start thinking about the pricing inbound engagements like this, what you work on, what you talk about, and what you deliver does change.
You need this as a backdrop to any conversation about raising prices. It goes without saying that I’m assuming you’re adding much more value than you’re getting paid for. In that case, the conversation I’m encouraging you to have with your clients is easy.
We’ve been doing content creation, website optimization, conversion improvements, email marketing and social media for you since last July. If you hired a team of people to do that work, you’d be looking at close to $20,000 a month in salary, benefits, taxes and other expenses. You know our monthly retainer is significantly lower than that. We think that value you’re getting is worth talking about an increase in the investment we receive. I think you’d agree you’ve been getting a ton of value from the work we deliver.
We’re not going to be increasing is substantially, but enough to get a little closer to the value we’re providing.
From here, there’s usually some negotiation on when the new pricing will start and how big an increase you’ll agree to, so start high and work down based on co-creating the price increase. The result will be increased prices, a client who thinks they negotiated you down and a healthy conversation about value.
Talking To Clients About Being Profitable
Clients who are seeing benefits from working with you have a vested interest in your agency being healthy, profitable and around for a long time. If they squeeze you on pricing, they run the risk of putting you OUT of business and then they won’t have the benefit of your services, expertise and skills.
It’s this strategy that you’ll leverage to raise prices. Again, I’m counting on your relationship with your clients. If they don’t’ care about your business, they’re probably not the right clients for you. But if they do, they should want your company to be healthy.
I want to share with you some profitability reviews we did on your engagement last week. Unfortunately, we’re not making enough margin on your work. It’s not because of efficiencies, it’s because of the very aggressive pricing we gave you when we started. I’m sure you’d agree that if we don’t make money, we can’t remain in business and then we wouldn’t be here to help you with your goals. To fix this, we’re going to be asking you to review a new pricing structure that will put us in a healthier position. We want this to be reasonable for you, so I’m open to talking about when and by how much. I’m sure we’ll be able to agree to something that works for both of us.
Again, if you let them get some wins, they’ll feel ok about the increase and you’ll get what you need too.
Talking To Clients About Results
This scenario is one of the most straight forward. You’ve been getting them results and the results you’re producing isn’t in alignment with what they’re paying you. There’s a lot more math and numbers in this conversation and this is the easiest of the conversations to have.
Last week we generated 20 new leads and five sales opportunities for your team. Each of those opportunities is worth around $100,000 for you. I know you’re probably not going to close all of those, but you might and even if you closed one of them, that’s a lot of value we’re adding to your company. I think you’d agree that what you’re paying us is low compared to the results we’re delivering so starting next month we’re increasing our pricing by 20%. That might sound like a lot, but compared to what we’re delivering, we think it’s fair.
I’d suggest that in this case, you stick to your guns on the timing and the increase. This position doesn’t come around very often. Most of the results conversations won’t be so straightforward and in those scenarios, you can concede on timing and potentially fall back on the percentage of increase.
Talking To Prospects About Why You’re More Than Other Agencies
When you’re talking to prospects, the background is a little different. They don’t have any experiences with you for you to leverage. The way you justify your pricing for prospects is to lean on past results with other clients, the experience of your team and the methodologies you’ll be deploying on their behalf. As in any sales situation, you must differentiate your agency from all the other agencies and help your prospect see clearly that they WANT to do business with you.
One of the forces working against you is most of the prospects don’t understand all the work and energy required to get results from inbound marketing. This means when they’re evaluating two or three proposals and they don’t understand all the details—the cheapest option usually wins.
It’s in your best interest to educate the prospect as much as possible, all through the sales process. The smarter they are, the better chance you have to get a fair price for the work you’re proposing.
Talking To Prospects About Value
The value conversation with prospects is tough. Again, they have no experiences with you. But you can talk about the lifetime value of a new customer and how low the investment in the engagement would be when you compare that to full lifetime value for all the new customers you’ll be helping them close. You can also talk about the fully allocated cost to acquire a new customer and how inbound can reduce that cost.
You can also help them evaluate the cost to hire all the resources required to run their own inbound engagement, the lost time to ramp up as everyone learns inbound, and the time required to get the program to produce results. All of these aspects should be lower with your agency than if they go it on their own.
It might be a little intimidating to have a conversation with clients about raising your prices, but it’s a little like the first time you had to tell an employee you no longer needed their services. You probably tossed and turned the night before, wondering how this person was going to continue after you give them the bad news. Then you did it and it turned out to be far less stressful than you thought. This is the same. Almost any reasonable client is going to respond reasonably.
Every time we had conversations like this with good clients, who we wanted to retain, they always responded fairly and we came to a fair and reasonable path forward. I want you to keep in mind that this conversation is also very good for clients who you don’t want anymore, but can’t bring yourself to fire them.
When you tell them you’re raising prices, they’ll either say, “no thanks” or they’ll come along quietly. If they don’t want to go forward, you didn’t want them anyway and if they do go forward, now you’re getting paid handsomely for your most challenging clients. You’ll feel great afterwards and your bottom line will thank you.
Start Today Tip – This conversation is one of the most important in your client services bag of tricks. You need to get good at it if you want to optimize your agency’s bottom line. My tip for you today is to practice this conversation by selecting at least one client who needs their prices raised. They could be that challenging client or that client whose been getting “friends and family” pricing for far too long. Plan the conversation in your head, practice it with a friend or trusted advisor, schedule the call or meeting and launch right into it. No fear! You will be rewarded. It might not go exactly as expected, but keep working on it and keep using it. It’s like learning to play golf, you must do it to get good at it. Make it a habit to have this conversation regularly and your business will thank you.
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