Has your firm ever run into a pricing cliff, cascaded off a pricing waterfall, or put up a pricing fence? Chances are, no. That's because pricing in most professional firms like agencies is an oversimplified afterthought that consists of adding up your costs and calling it a price. But in client organizations, pricing is a core competency -- separate from finance -- that navigates through the minefields of pricing psychology to optimize profit margins for their company …
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If you’re like most agencies and other professional firms, you’re likely missing a critical component in the model upon which you have built your business. Here's why having a cost structure is not the same as having a revenue model …
Knowing the costs of serving your clients is important, but it’s not the same thing as knowing how to price your services. Costing is objective and tactical; pricing is subjective and strategic. Costing uses formulas; pricing requires judgment …
If you really want to get paid what your agency is worth, you must first leave that state of denial in which so many agencies find themselves. Sigmund Freud described denial as “knowing-but-not-knowing” — a state of rational apprehension that does not result in appropriate action.” Medicine provides some other potent examples of how “knowing” doesn’t necessarily result in “acting," and how that relates to changing your pricing paradigm …
As agencies become more and more convinced that they should be selling their services based on value instead of costs, they need to learn a new set of skills to help sell the concept of value and get a better price for what they do …
Imagine three agencies presenting to a prospective client. The client has provided all three agencies with a list of guidelines for the presentation, which includes explicit instructions to outline the agency’s proposed compensation approach, including hourly rates, expected hours, and staffing plans …
Agencies want to capture more of the value they create for their clients; in other words, earn more for what they do. The important first step is to understand the nature of value, including how, when, and where value is created …
In groups of agency professionals around the world I have often asked the question, “What do clients really buy from your agency?” Their answers usually include things like “Solutions to marketing problems,” “Insights and innovation,” “Expertise,” and “Successful marketplace outcomes.” Not a single person has ever said “Time.” Because deep down inside we all understand that clients don’t really buy our time. Time is just a means to an end, not the end in itself …
I’ve always believed that the greatest benefit of getting paid based on value instead of time isn’t that the agency has the potential to earn more money (although most do). It’s that a focus on results instead of hours has the potential to completely alter the dynamics of the agency-client relationship …
To understand what’s happened to the perception of agency value, look no further than the invasive involvement of procurement in the agency selection process. Rest assured that procurement does not hire a company’s management consulting firm. How did this happen to agencies?
The vast majority of agencies are mostly engaged in “costing” instead of pricing. When your production manager walks around asking team members how many hours they expect to spend on a project, that is essentially an exercise in determining your costs. Costs are one thing. Value is quite another …
The key to improving your firm’s profits is to improve its pricing. Nothing can improve your bottom line more than improving the price you get for your services …
