This week, agencies from our Network were invited to a collaborative workshop on how to realistically increase rates, manage a revised pricing structure and approach the subject of a price increase with their existing clients.
This workshop was in collaboration with our trusted partner The Wow Company, an accountancy firm that specialises in supporting agency owners in building sustainable and profitable agencies. Following the workshop, we’ve put together some key takeaways from the session to share with our network.
1. Change up your pricing structure
87% of UK agencies with a £1M+ turnover use a fixed pricing structure (BenchPress Survey 2021). If you are only using a fixed pricing strategy, you’re missing a trick.
Fixed pricing can be an effective approach for ‘fixed’ projects, but for the larger undertakings, it’s definitely worth veering towards a more agile pricing model (where you charge at each phase of the project). It helps to take the pressure off you and your team. It also means anything additional that the client would like to add-on to the project throughout can be added easily in comparison to a fixed pricing structure. You can learn more about agile pricing models here.
2. Blended rates vs Tiered rates
The difference between blended rates and tiered rates is that blended rates have a fixed hourly rate, and a tiered rate is when more senior positions are charged different hourly rates in comparison to juniors or execs.
There is a huge difference between gross profit margins when comparing agencies that use a blended rate and those that use a tiered rate.
A blended rate is easier to cost up, but you’re most likely leaning towards the lowest common denominator, and doing your team a disservice. Charge yourselves and employees accordingly when working on projects – make sure the people you have invested in are being charged out proportionately.
Below is a breakdown of agencies’ hourly rates based on seniority, taken from The Wow Company’s most recent Benchpress Survey. Take a look at the top 10%: Junior – £99 and Director – £234. – why shouldn’t you be comparing yourself to the top 10%? How do you charge out for different seniority levels?
3. Give pricing options
Figure out what is your good, your better and your best offering?
Give three pricing options when you are pitching for work. Work out what is right for the client and give it some character: ‘What is your championship and premier league?’
For example, an agency picks up some projects that are £5k but want to win more £20k projects. If they are struggling to find out a prospect’s budget, they can quite quickly say we pick up projects in different sizes we have a 5k option, 20k option and a 50k option and they will quickly realise what the budget is and find out more about it.
It can really help with scope creep further down the line, the 3 pricing options at the start will help bridge that gap and make the conversation about a fee increase a lot easier.
This way the client knows absolutely everything you offer. For example, a client has gone to a competitor to get another piece of work done which the original agency could do. Most of the time this is because the client doesn’t know the full offering! You have to make it really clear on everything you offer – talking about a premium offer will help this and help upsell further down the line.
4. It’s a confidence game
We can talk about what is a good hourly rate and what’s a good strategy. But where do you start and how do you do that? It is 100% a confidence game. The lesson is, it comes with practice – get in the habit of regularly having these conversations and be up front with your clients.
Start out with new clients and once you have done this you should then get back to your existing clients as there is no reason why they shouldn’t pay more if your other clients are. Many are nervous about asking for higher prices, but you need to be transparent with your existing clients, let them know how much you have grown and invested, and ask them “How do you feel about bridging that gap?”
5. Client reviews are vital.
Always hold a review with your client, whether this be monthly, quarterly or annually. It can be used as a tool to remind the client what you’ve done, what you have delivered and the results. For example, if an agency has delivered £10k worth of work which due to a fixed price structure has been undervalued, it is a great way show evidence of the value of the work and open up the discussion of increasing fees.
Overall, this session was a great way for our Network to learn more about how the process works for increasing their pricing rates and pricing structure but also, enabled the Network as a collective to voice their own experiences and seek advice from The Wow Company on more specific challenges they are facing on this topic.
If you would like to learn more about how our partner, The Wow Company could help you then please get in touch with Chloe, our GO! Network Manager – here.