ALP 31: Do you negotiate pricing with prospective clients?

Understanding how to handle pricing conversations leads to better client expectations and a more profitable business.

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A participant in the Spin Sucks Community asked if other agency owners negotiate with prospective clients.

It sparked some great conversation on the Slack channel, so Chip and Gini decided to address the topic on this episode of the Agency Leadership Podcast.

Here’s the original question from an agency owner:

I just finished listening to a podcast and a question popped into my head. I’m still pretty new to this but I haven’t had any prospect or client try negotiate with me yet over pricing. I’m just curious. How many of you when you give a price for services do it anticipating that your client is going to negotiate? If so, how do you do this? Start at a certain percentage above what you know line is?….

Chip’s immediate reply was: “if they haven’t pushed back at all, you’re not charging enough.”

Of course, it’s more complicated than that. You might even say, “it depends.”

The hosts emphasized that agencies need to hold firm on pricing and not allow it turn into a bazaar where everything is negotiable.

Gini explained it this way: “I look at at at it just like you would in a restaurant. You don’t go in and say to the chef, I think I’m going to decide how much I’ll pay for this meal after I eat. It’s not how it works, the price the price.”

Instead, Chip and Gini explained that every adjustment in price needs to have a corresponding change in the scope of work. Otherwise you risk clients feeling overcharged or knowing they can always take advantage of you.

They discuss how agency owners can handle clients who want to low-ball price, when to start talking about costs with prospects, and how to hold firm even when you really want the business.

Transcript

The following is an automated transcript with only light editing. Please listen to the audio to verify accuracy.

CHIP: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin

GINI: and I’m Gini Dietrich.

CHIP: And today we’re going to negotiate with you, our listeners, to see if you’re willing to continue paying all you pay to listen to us blabber on every week.

GINI: We’re getting pretty organized about this though I would say.

CHIP: You know, it’s – we’ve made progress since last October when we got started. We no longer make decisions just on the fly like, hey, Gini, what do you want to talk about today?

GINI: Well today, I’m feeling like…

CHIP: Yes, we were doing a much better job. Hopefully it comes through to you, the listener, we’d love to hear your feedback as to whether it is or not, but we are we’re doing a much better job of putting questions out particularly in the Spin Sucks community.

GINI: So we have a nice question from somebody in the agency owner channel in the Spin Sucks community. And he says, I just finished listening to a podcast. So the question popped into my head. I’m still pretty new to this. But I haven’t had a prospect or client trying to negotiate with me yet over pricing. I’m just curious, how many of you when you give a price for services, do it anticipating that your client is going to negotiate? if so how do you do this? Start at a certain percentage of what you know your bottom line is? Or what…?

CHIP: And that is an absolutely fantastic question. Because I know it’s on the minds of lots of agency owners and executives as they as they try to figure out pricing. And I think it opens up a number of different topics. And and, and obviously in the discussion that took place in the Spin Sucks community, there was a variety of opinions and further questions that came out. So hopefully this will provide some some good meat for us to talk about over the next 20 minutes or so. And I guess since it took place in the Spin Sucks community, I will let you have the first crack at it, Gini.

GINI: Well, you know, it’s funny, because you actually had a really good response to that, which was if they haven’t pushed back at all, you’re not charging enough.

CHIP: Yes. Yeah, exactly. I mean, it, you know, it’s you, it is a good way to test your pricing in the market. And over the years, I’ve you know, I’ve often underpriced things in whatever business I’ve been doing. And the common thread is if someone doesn’t say, ooh, I don’t know, then you probably can ask for more. And the worst is, of course, when you give that to a client, and they just say yes, immediately, they don’t even think about you like, Oh, I could have asked for so much more. Right, right. Yeah. And I remember a particular story where I was, this was early in my consulting career 20 years ago. And I was going to the home of a wealthy individual in Beverly Hills, who wanted to hire me to do some communications, consulting work for him. And as I’m going, he had a car service pick me up. And as we’re going, we’re going up and up and up the hill. And so sort of every lap around the hill that we made, as we circled up to the top, I’m like, Okay, well, my price just went up, it went up again. And I ended up going into his study, which was just a stunning view of Los Angeles, from his windows. And he talked for me – talked with me for a while, I shared what I could do. He asked what it would cost. I told him what the cost was. He says, let’s get started today. I said, I said, Oh my god, I didn’t I didn’t mean there was there was literally not even a moment’s pause. He just said yes. And so that caused me to raise my prices at the time, not just for future work I did for him, but for others, because I realized that I was undervaluing what I was providing,

GINI: I also think there’s something to be said in that, that they know the expertise and the value that they’re getting from you. And so they’re like, okay, if that’s the price, that’s the price. So I think there’s something to be said, but but I totally agree that if there’s no, if it’s just Okay, let’s get started right now, you’re, you definitely need to increase your price. Right.

CHIP: And if you’ve never experienced it with a client, then that sort of suggest that you want to take a fresh look at your pricing and see, you know, you know, why? Why is that? Why are people accepting it so easily? Right? And is it you know, it sort of glib to say you need to raise your prices, because it as you say, it may just be that they are completely seeing the value in what you’re providing. But more likely, it’s that you’re you could be asking for more, until you reach some degree of price resistance.

GINI: I actually had this experience right before the holidays, where I, it was really expensive. And, and I was I did it, I price it about $15,000 more than we normally do. And the client was like, hoooo, You drive a hard bargain, but okay, and I was like, Damn it! Should have gone for $25,000 more.

CHIP: Right. Right. Well, and it’s, you know, it is a balancing act, because the saying pigs get fat, hogs get slaughtered. Right? Yeah. And and so you know, you do need to make sure that you’re you know, that you really are pricing for value and not simply being greedy, because at some point, it can come back to bite you if you’re overcharging for what you’re doing. So and you also want to make sure that that, you know, whatever you’re delivering, achieves that level of expectation, I remember having an employee that was working on a on a report for a client. And so I obviously knew what it would cost and he knew what it cost the client, and he gave me a draft of it, I looked at it and I said, Do you think this is X dollars worth of value in this document? And he kind of looked at it looked up at me and said, No, I guess not. And so he worked on a new draft that got a little bit more effort. And so you do need to make sure that whatever you’re pricing, that you’re comfortable that the recipient is going to feel that they’re getting that value, because sometimes you can have that disconnect where they say, Sure, I’ll pay you $50,000 for this, and not, you know, not really understand what they’re getting. And they may be expecting more. So matching expectations with your price is also important.

GINI: So one of the things that somebody else commented, which I thought was equally smart is the first time they hear pricing should not be in your formal proposal, it should be a range brought up in earlier discussions about scope, you have a lot more room to convince them of your value, if you know where the goalposts are at that early stage. So I think that goes back to what we were saying too about value, if you, if they see the value, they’re typically not going to negotiate on price, it’s when they either you’ve gone so far above the budget range that they need you they need you to bring it down, or you haven’t proven the value yet that they are like, yeah, and not really willing to pay that much for what it is you say you’re going to do, to your point is this report worth this start amount?

CHIP: Right. And I think the point about, you know, having a conversation about price before you have a conversation about price is spot on. Because, first of all, that’s part of the qualification process. And I know, I know a lot of agency owners and other business folks who are of the mindset, you know, don’t be the first to name a price or don’t, you know, don’t don’t share pricing information too early, I completely disagree with that. I think setting expectations on pricing early on in a range format, not a this is a fixed price. But you know, giving someone some sort of expectation is really helpful. So that neither side wastes time, because you and I can have a fantastic conversation about all the wonderful things that I could do with you, we can have seven or eight conversations, exchange ideas, all that. And then if the first time they see the prices at the end of those seven or eight conversations, and it’s so far out of their budget, you’ve wasted everybody’s time. So why? So, look, I mean, and frankly, most of us, as agency owners know roughly what things are going to cost from an early part of the conversation, you know, we we may tweak them, you know, there are certain things that will drive price up or down over time. But, you know, we have a pretty good sense as to what things are going to cost from our agency for the prospect. And so there’s really not a whole lot of downside to sharing a range early on in the conversation.

GINI: And I also think there’s something to be said, and this is what we do, there’s something to be said about having a very clear process and saying this is how much it costs. Like, that’s what it costs. Now we do have friends and family discount and a nonprofit discount. So but we have like this is how much it costs. If you fall into this group of people, we’re going to give you a discount, and for it’s going to cost this but you’re not, you’re also not going to get A, B and C, if you fall into this group of people, this is what it costs, but you’re also not going to get A, B and C. And so we do do that. But there’s, I mean, from our perspective, there’s no negotiation on price, because that’s what it costs. I look at at at it just like you would in a restaurant, you don’t go in and say to the chef, you know, I think I’m going to decide how much I’ll pay for this meal after I eat. It’s not how it works, the price the price.

CHIP: And that was part of the conversation to that took place in that community. Because, you know, the to me, you shouldn’t be negotiating about price. And instead, you can work with a prospect on price. If they’ve got a budget that works with the kinds of work that you do, right. But what you need to do is you need to make sure that for whatever reduction in price, there’s a corresponding reduction in level of service. Yep, yep. Because if you don’t have that, then they’re going to see you as one of two things. Either easy to get some savings off of and they will continue to do that over time. Or they will view you as overcharging In which case, they will have a negative perception of you from the outset, which neither one of which is good. So, you know, by all means, if someone says, Look, I can’t do 10K, I can do 5K, and you still want to work with them, and you can still do it profitably come up with a $5,000 package that that is appropriate. And and do keep in mind it when you do this, people will look at the difference between the $10,000 and $5,000 proposals and they will attribute that that difference specifically to what came out. So make sure that when you look at it, whenever you’ve taken out sounds like it could be worth 5K. And I think that’s a mistake that some people make when they’re when they are coming up with a revised package. They take a few things out. But they’re essentially just discounting their services in a fancier way. Right. So you know, make sure that you’re understanding that you’ve now said what came out, you would charge them $5,000 for on its own.

GINI: And I would also say and this is what I think this is one of the most challenging discussions that we have with prospects is when you ask the question, what’s your budget? And they say, and they say, a lot of times this is good majority of what they’ll say, I don’t know, can you just tell me what it will cost? And we’ll find the money? No, I cannot just tell you what it’s going to cost and you’ll find the money, you have to have budget allotted for this. And if it’s $5,000 a month, it’s $500 a month, it’s $50,000 a month, you have to have a budget allotted for it. Because if you don’t, we’re not going to continue this conversation. And I think it’s really challenging for people like us, because we tend to be people pleasers, and we’re creatives and all those kinds of things. But I would venture to guess and I have no research to back this up. But I would venture to guess 85 and 90% of the prospects who say, I don’t know, why don’t you tell me how much it’ll cost and we’ll find the budget, either ghost you or never hire you. So be strict in getting that information up front. And if they don’t have it or can’t get it, then it’s a conversation that does not continue.

CHIP: Yeah, I would, I guess I would agree with that with the asterisk that a significant number of organizations outside of major corporations don’t do actual budgeting.

GINI: Sure, but they would have an idea like I don’t do I don’t do Corporation level budgeting. But I have an idea of how much I can spend on a new website. I’m not going to go to somebody and say, can you build me a new website? And they say, what’s your budget? And I say, I don’t know…. I’ll say, you know, I have between 15 and $20,000.

CHIP: Right. Yeah, no, exactly. But I think it’s just it’s a question of making sure that when you’re talking with the prospect, you make sure that that you’re you’re not relying on a specific budget line item, but instead that they have a sense as to how much money they have available. And and I say that because I have seen situations where things have gone South because someone relied on the notion of having an actual budget. And they could certainly afford it, they had the cash available for it, but they didn’t have a budget per se. So it’s really making sure that they’ve got the availability of the cash to do the deal.

GINI: Yeah, so at the same at the same time, semantics on choice of word, but yeah, I mean, it’s it, you, if they cannot tell you we can spend X amount or a range, then I would, I honestly truly would not continue the conversation until they could come back and say, I have $60,000 for the year or I have whatever happens to be, or I have between 45 and 60, you know, whatever the number is that they give you something because if I, I’m willing to bet a lot of good things on this, that if they can’t give you a range, it’s because they don’t know how much things cost, and they really haven’t thought it through. So you’re going to put together a proposal, and it’s going to be let’s say, call it five or $10,000 a month, and they’re going to be like what, and then you never hear from them again. And it’s not because they didn’t value you or you didn’t think they didn’t think the work was that you were the right partner, or that they didn’t need the work, it’s because they didn’t really think through, I need to have some cash alotted to this.

CHIP: When I think that’s where that’s where it can be helpful to, to even early on share a range or minimums or things like that, you know, there are a lot of agencies with a minimum, you know, and so, so you can simply say, you know, our minimum is, you know, 5000, 10,000, whatever its per project doesn’t matter, it doesn’t matter what it is. But if you just have a policy, something, you know, that will allow you to share that with them. And so that then helps weed those folks out early on without having to get into a lot of detail. But it’s also, you know, if you give a range of someone says, you know, well, you know, what are your typical engagements to build a website cost, and you say, you know, generally it’s between 10 and 25, depending on bells and whistles and that sort of stuff, you’ve at least set the expectations. And so they can then run away scared, then as opposed to after you’ve had all those conversations and put all that work in there. So you know, there is there is value in just being upfront with people early on, instead of falling into that dance, where you just want to keep the conversation going. Because if only you spend enough time talking with them, you can convince them of the value and they will find the money. They won’t. If they freak out about pricing early on, they’re going to freak out about pricing later on.

GINI: Yeah, absolutely. I really like the minimum idea. And I really like the idea of putting – I think somebody else said this in the conversation as well. But putting together a good-better-best pricing structure and put that on your website, because then by the time you talk to somebody, they will know our minimums are $5,000 a month. And this is what it looks like. They they know. So the the price that – the budget conversation is not a surprise at that point.

CHIP: Yeah, and I think at some point would be, you know, we could probably do a whole show on how you set expectations with a prospect before you even have the first conversation. Because I think there, there are a lot of things that you can do to set the expectations about what you do, how much it costs, those sorts of things. Even from the, the the time before you’ve even heard their name that will help you in selling will help you in this process of pricing for that project appropriately. But I but I really liked the good-better-best. And I like it. I like it for two reasons. And I typically will do this in proposals that I do for whatever reason I’m involved with, two reasons. One is because the likelihood is and there’s been tons of research on this, people pick the middle option, more often than not,

GINI: That’s a behavioral economics thing.

CHIP: Yeah. So if you just if you sit there and say, Okay, this is what I really want them to do, you know, you you frame that in the middle one, then you come up with something that’s got a few more bells and whistles and something with a few less and bookend it. And so you’re more likely to get what you’re actually looking for. But the second thing is it, it it’s psychologically it’s showing the the prospect that you’re willing to work with them. And so you know, you’re willing to try to find something that meets your needs as an agency owner, but also their needs as a client. And that’s a really good way to set expectations going forward so that they don’t feel ever like they’re getting taken advantage of and instead, you’re a reasonable partner for them to associate with.

GINI: Yes. Love that. Love it. Yeah, I thought it was a really good conversation in in the community. You know, people have different thoughts on that, then on what works and what doesn’t, and, you know, what you should be thinking about, but I think the general consensus is, if they’re not pushing back, you’re not charging enough.

CHIP: And and never ever, just straight up, negotiate. This is not you’re not selling a used car.

GINI: You’re not selling a used car, I love that.

CHIP: You can, I will say even if you’re a solo, you can hide behind policies and things like that. So you know, you may not have your manager that you can go pretend to talk to as part of how you work through pricing with your client, like you might at a used car shop. But you can certainly say, Look, I’ve got a policy, I don’t do projects for less than this, or I don’t, you know, I don’t do a project with less than 50% up front, or whatever it is. And this works particularly well, if you are someone who gets uncomfortable in these situations, which I know a lot of agency owners do, when they’re dealing with clients they have, you know, they’re just, as you say, they’re people pleasers. And so not inclined to say, No, I’m hard and firm on this. Just say I’ve got a policy. Right. And the policy is a strange third person that’s not in the conversation. You can’t argue with them. It’s out there. But you can use it even even if you are solo. And I’ve talked to a bunch of solos recently, who are like, what? I can I mean, I am the agency, how can I say that? No, trust me, you can say you have a policy and that shuts down the conversation. 99 times out of 100.

GINI: Yes. I mean, I used to have I used to have Charles Arment, and that’s what he was for. So there you go. Charles does not exist, but that’s what he was for.

CHIP: That that’s a great story. And I think you shared it one of the early podcasts. So if you’ve only just started listening to the Agency Leadership Podcast, you need to go download all 30 other episodes and to find the one where Gini tells that story, I’ll give you a hint it’s in, it’s in one of the first two or three. I can’t remember exactly which one, but it was shared early on. And I think it’s it is a very entertaining story. Although sad, in some respects, as well. But in any case. So with that, you know, I guess I would, I would wrap up by saying, hold strong on your pricing, make sure that you’re using your price to show your value, make sure that you’re getting the value that you deserve for all of your work. And I think, you know, we’ve shared a number of specific tips as to how agency owners can do that effectively. And if you’ve got other tips, you know, we’d love to hear them. Maybe we’ll include them on a future show. And of course, if you’re not already a member of the Spin Sucks community on Slack, you ought to be there because these are the kinds of conversations that are taking place all the time in that forum.

GINI: Yes, indeed. And it’s pretty fun too. So there you go.

CHIP: It is pretty fun. Absolutely. So, with that. I’m Chip Griffin,

GINI: And I’m Gini Dietrich,

CHIP: And it depends.

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