Why, when, and how to raise your agency’s prices

The thought of charging clients more can be appealing and scary at the same time. Chip and Gini demystify the process.

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As fall approaches and clients start working on plans for 2020, it may be time to raise your agency’s prices.

Chip and Gini explain why you should be thinking seriously about bumping up your rates (and what it can mean for your bottom line), and they also offer tips on how to do it effectively.

Quotes

  • Chip: “I run into very few agencies who are overcharging their clients, and many, many, many, many who are undercharging their clients.”
  • Gini: “Eventually, you need to run your business as your agency as a business. And I think we can agree that that now is the best time to start doing that whether or not you think you need it.”
  • Chip: “I’ve had clients in the past I’ve gone to, and I’ve told them that they have to pay twice as much for what they’re getting, if they want to continue. And I tell you what, every single time I’ve done it, 100% success rate on that. If someone is being that over serviced, they really recognize  it.”
  • Gini: “Clients are really reasonable. I mean, they get raises every year. Why shouldn’t they be paying their agency a little bit more every year?”

Resources

Transcript

The following is a lightly edited computer-generated transcript. Please listen to the audio to confirm 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 we’re here to raise our price on you, you’re gonna have to pay more to listen to us jabber on every week,

GINI: Hey, more of zero is still zero.

CHIP: True, I guess when you look at it that way we could double our prices, and we’re probably not going to be generating any more revenue.

GINI: Or profit for that matter.

CHIP: Or profit. Yeah. Oh, well, well, maybe if we can’t raise the prices for this show, perhaps we can talk about agency owners raising their own prices to make more money and put it in their own pocket.

GINI: That is a hot topic right now, especially as people are looking towards September when, you know, new budgets and plans and all that are created for 2020. So I think it’s a good topic to to discuss.

CHIP: It is a very good one to look at. And to be honest with you, I run into very few agencies who are overcharging their clients, and many, many, many, many who are undercharging their clients.

GINI: I would say undercharging is probably more typical than overcharging.

CHIP: Absolutely. And it comes in a lot of different forms. Part of it is just not asking for enough to begin with, part of it is over servicing so that you end up under pricing over time. So there’s a lot of different ways that you can get there. But the bottom line is that most of you listening probably are not charging as much as you could or should for your services.

GINI: Yeah, I mean, I have an agency owner client who said to me today, so I did it, I had the conversation. It was awesome. I presented the price and the prospect was like, yep, sounds good. Let’s do it. And I was like, you know what that means? Right? She goes, I didn’t ask for enough. And I said, Yes.

CHIP: Absolutely true. You know, you get some point you need, we’ve talked about this on previous episodes, at some point, you need to get some pushback on your pricing to know that you’re, you’ve hit a good balance point for it.

GINI: Yeah. And it’s going to take trial and error for sure. And so we joked that now we know what her bottom is, and we don’t go lower than that. And the next time we increase from there and see where we start to get some pushback.

CHIP: Right. And and unfortunately, a lot of agency owners who, you know, may be struggling a bit, they may look at what they’re generating for profits, and they get concerned. And if anything, their tendency is not to raise prices at that point, it’s to either hold firm or maybe even cut them because they think they just need to keep signing more clients or more, they go out there and they say, Hey, you know, we’ve got to try to slash expenses. So they have that those famous belt tightening meetings in the agency when they get the employees together. And they say, okay, you know, how can we save? And a lot of times they come up with just a fixed dollar figure, how can we save $10,000? Let’s, let’s put some ideas together. That’s not a good idea.

GINI: No, that’s not a good. It never works either.

CHIP: It doesn’t and the reality is most agencies do have places where they can save money. We’re all overspending on certain things. They’re expensive, you know, subscriptions that we may no longer be using as well as we could or, you know, but I mean, there are ways that you can tighten your belt. But the problem with belt tightening is that it’s a one for one. So if I save $1, that generates $1 in profits. But what I want to tell you, as an agency owner, you should be thinking about raising your prices, and not by nearly as much as you think you need to in order to generate profits, because $1 in additional revenue, as long as it’s for the same services generates even more profit for your agency.

GINI: Yeah, and you wrote a really good article on this on Agencyleadership.com, that talks about it, it talks about how easy it is to, you know, perhaps you have a 10% price increase that’s going to generate a 50% boost to profits. And you do the math for everybody in there. So we can link to the the article in the show notes for sure. But talk that through, talk through the math, because I think people don’t consider it this way.

CHIP: Yeah, and look, I know math makes a lot of our listeners’ heads hurt. It is what it is. But But math is what will demonstrate that this is probably something you should be thinking about. And first, I think I think we can agree that if we were to raise prices by 10%, that’s not outlandish. That’s not – I mean, frankly, many of or most of my clients could probably raise by more than 10%, and still be charging a fair amount to their clients. But so let’s, let’s just agree. And I like using easy math too. So that’s the nice thing about 10%. So we’re going to use 10% as the price increase. And so what we’re saying is in a hypothetical agency, and again, to keep the math simple we’ll say that you’re generating a million dollars a year in revenue. So if you raise prices by an average of 10%, across the board, but you’re providing the same level of services, because that’s what a price increase is, by the way, you don’t charge 10% more and service more, just so we’re clear about that. So you’re now generating $1.1 million a year in revenue. Okay. So let’s look at profit. So a typical agency might have a 20% profit margin. So when you are billing a million dollars a year, that means that you had $800,000 in expenses, and $200,000 a year in profit. So now we’ve raised our prices by 10%. On average, we’re generating 1.1 million in revenue, but we still have that same 800,000 in expenses. So what does that leave in profits? $300,000. So we went from $200,000 in profit to $300,000 in profit, with just a 10% price increase? That’s 50% more profits on a 10% price increase? That’s not bad.

GINI: No, it’s not bad at all. And I think it’s pretty easy to have that conversation with clients to say, hey, our prices are increasing in 2020, it’s a 10% increase across the board. If I mean, if somebody’s paying you $5,000 a month, their retainer goes to $5500 a month, it’s not a big, huge deal. And I think for most most agency owners, who are terrified to have that conversation that makes it a little more, it makes it easier to have that, to say, you know, it’s a 10% increase across the board. You I mean, even if you’re even if your retainer is to that $20,000 a month, it’s still only $2,000 more. So I mean, it’s something that is easy for clients to absorb, versus, you know, going from year to year with the same retainer every single year.

CHIP: Right, and it’s something that’s, you know, relatively easy to do as you’re bringing new clients on too. Because if you’re, you know, if you were charging $4500 a month for something, now you’re charging $4950 a month. To the the average prospect, that doesn’t seem like that big a difference, they’re, you know, they’re probably not going to have a material change in their Yes/no judgment on the proposal. So, you know, look that this is something that most agencies can do. And keep in mind, I’m talking about an average 10%, you might have some clients, you could squeeze out a little bit more, there might be some that are, you know, already priced right. And so you don’t need to worry about as much, but I think it’s fair to say that most agencies could quite easily get 10% more for the same services that they have been providing.

GINI: And I think that one of the challenges people have is they’re terrified to have that conversation. And I think it’s pretty easy to say it’s a 10% increase across the board. Here’s how it affects you.

CHIP: Look, I’ve been there. I have I have had that anxiety, that pit in my stomach when I realized I need to go to a client and tell them that they need to pay more for basically the same service. But I’ll tell you what, I can’t think of a scenario where it didn’t end up working out for me.

GINI: And not only that, but clients are really reasonable. I mean, they get raises every year. Why, why shouldn’t they be paying your agency, their agency a little bit more every year?

CHIP: Right. And chances are, if it’s a client that you’ve had, for any length of time, you’re way more than 10% off on what you should be charging. Because the longer you have a client, the little more likely it is that you’re over servicing them, because the over servicing just increases over time. It never gets cut back.

GINI: Right. And you always have – this is a mistake I made early on is when you bring a client on, there’s a lot of stuff that’s front ended. And so you always think, Okay, well, I’ll make it up on the back end. And then when you don’t, in Year two, you’re like, Okay, well, I can finally catch up from Year one. And then when you don’t in Year three you’re like… so, yeah, I mean, you never catch up from the over servicing that you do, ever. And so then it becomes a writeoff situation at the end of each year.

CHIP: And, you know, we talked about sort of a relatively healthy 20% agency. But let’s let’s look at an agency that’s perhaps struggling a bit more. So they’re only at 10% profits, which which I think we would both agree, and most listeners would agree that’s, that’s not a real healthy margin for an agency, for the most part, you want to be generating at least 20% in profits. But so if you’re at 10%. Okay, so you’re still a million dollar agency, but you’re now spending $900,000 on that million dollars in revenue, so you only have 100,000 in profits, 10%. If you give that same 10% price increase that we talked about before, so you’re now at 1.1 million, your expenses are still 900,000. So you still have a higher expense base than the first agency we talked about. But now you have $200,000 in profits. 1.1 minus 900,000. $200,000. So you have now doubled, doubled – 100% increase in your profits with just a 10% price increase. So the less healthy your agency is, the more you should be looking at a price increase.

GINI: Yeah, I mean, it’s kind of a no brainer.

CHIP: It really is. And look, I mean, there are certainly some agencies out there that are that are already priced fairly or already generating excess fees for what they’re doing. Fine. So be it you know, they probably could still get away with a 10% price increase.

GINI: Yeah, absolutely.

CHIP: But but anyone, anyone who is concerned about their profitability, this is something that you should be taking a hard look at sooner rather than later. Because it really, really can make a difference,

GINI: it can make a difference. And then once you’ve done that, then you can start to look at upselling and doing you know offering other services. I wrote a blog post a few weeks ago about this, and how you can increase the amount of work and the retainers that you’re being paid or project work, or all any of that by just including a simple chart with your invoices. And that chart shows, here’s everything that we do. And here’s everything that you clients have taken advantage of. And in the third column, here’s all the stuff, you haven’t taken advantage of that I think you should and it’s just included as part of the invoice. So what they see is okay, here’s all the stuff that they are doing for us for this amount. But my gosh, I didn’t know that they did paid media and content marketing and sponsored content and events. And actually, we have an event coming up next year and haven’t thought about who’s going to help us with that. Let me have a conversation with them. So it starts to prompt a different mindset with your clients.

CHIP: Yeah, and that’s, that was a really great post with some fantastic advice, because you’re essentially giving a report card to your clients on how well they are leveraging their relationship with you as an agency. And there are, there are very few clients who take advantage of everything that their agency has to offer. And so the more that you’re able to paint that picture of here’s how we could help you. And I like doing that in the invoice. Certainly I would be doing it in, you know, quarterly and annual reviews that hopefully you’re doing with your clients, these are all opportunities to help flesh that out so that they can see, you know how else they can be engaging with you.

GINI: And not only that, but it really starts to help you… I mean, I’m sure I’ve had this this experience, and I’m sure some of our listeners have had this experience, but you have a client who’s like, Oh, yeah, we heard an agency to do XYZ and you’re like, What do you mean, you hired an agency to do that, we do that! And so you’re now you’ve now you are putting it front and center for them to and they never even came to you to say, Hey, we’re looking for somebody to do this, can you do it? Now you have it front and center for them to say, Oh, that’s right, these guys do it, I don’t have to go through the whole trying to find somebody new and interviewing and bringing them up to speed and helping them understand our business, they already understand it, they can do this.

CHIP: Right. And as an agency, if you’re making them aware of that, that runs less of a risk of you bringing the fox into guard the hen house, because that other agency, they may be able to do some of the things that you do too. And so you know why you want the competition inside the tent with you? You don’t. That’s the answer.

GINI: You know, some of these are some of these are hard lessons to learn. But I think that many of us have had that experience.

CHIP: Yeah, but I mean, the other thing is, you know, when you’re thinking about all these other services that you offer, it’s a good way to, to potentially camouflage price increases as well, right? So you can raise prices without simply going to someone and say, You have to pay 10% more for the same thing.

GINI: Fair, yep.

CHIP: Because that does that – look that certainly builds anxiety in you as an agency owner, and it you know, it does create an uncomfortable conversation. But there are ways that if you’re looking strategically at each client, which you should be, so you know, on at least a quarterly basis, you and your team should be looking at your clients and saying, okay, you know, what are we doing for them? What could we be doing for them? What is their potential for over time, if you’re looking at that you can figure out, okay, here’s how we can package some additional services, they can pay more, and we can just wrap our price increase into that. So you know, there’s a lot of different approaches that you can take to raising prices other than simply, you know, going in there and saying, you know, the invoice is going to be 10% more next month.

GINI: Yeah. Or next year, I wouldn’t recommend saying it next month, but give them some time to budget for it. But yeah, I mean, there, I think there are lots ways for you to do this. And certainly ways that are more comfortable than having that hard conversation.

CHIP: Right. And if you’ve got clients who have who have really gone beyond where they should, because they’ve been with you so long, you’re really over servicing, don’t be afraid to go and ask for more than 10% we’re not, we’re not suggesting that, you know, 10% is an easy math number, there’s no particular magic to it, it’s a good place for you to start your thinking process. But you may have a client that needs to pay, you know, 30 or 40%, more or even more than that. I’ve had clients in the past I’ve gone to, and I’ve told them that they have to pay twice as much for what they’re getting, if they want to continue. And I tell you what, every single time I’ve done it, hundred percent success rate on that.

GINI: 100%, really? Nobody has…?

CHIP: 100%. No, because, look, here’s the thing, if someone is being that over serviced, they really recognize it. And so it’s actually the ones who are, who are getting the absolute best deal are the easiest ones to fix, typically, because they know, they’re not idiots, you know, they know that they’re calling you seven times a day, and that they shouldn’t be getting that for $2,000 a month or whatever, you know, that they they they get it. And so a lot of – I forget it was, I think was Brad Farris on on his blog with Anchor Advisors talked recently about a client, going and asking for more money. And basically their client says, Well, I was surprised you didn’t come to me sooner. So you know, and and that is not uncommon to have clients who realize… So you know, don’t be afraid if you see something that is that wrong sized for you that the client is getting that good a deal. Those are the ones that you need to fix. And part of that goes back to something we’ve talked about on on other episodes as well, which is making sure you understand the profitability of each project.

GINI: For sure, for sure.

CHIP: Because if you know that, then you can figure out okay, which are the ones that you need to address price on first, which ones which ones need more than a 10% increase, which ones, hey, you’re probably already healthy. So you’re not as worried about bumping those up. Although, you know, there’s value in continuing to move your prices up over time anyway, because there’ll be unexpected expenses, you will to start over service that client probably at some point. So trying to figure out the right mix can be very helpful.

GINI: Yeah, it’s, I think it’s really smart to sit down and look at profitability of clients, and absolutely doing a quarterly and annual review, look to see what, you know, if whether or not they’re profitable, and whether or not you’re over servicing, and figure out a percentage increase for them. Also look at the services that you’re offering versus the services that you could be doing. And also the services, you know, you should be doing based on what their goals are and what they’re not already paying you to do, and have that conversation. And then you know, start to look at price increases across the board for the coming budget calendar year.

CHIP: Right. And ideally, in this process, you want to look at, you know, what would the client be benefiting from so which ones should they be, which services should they be taking from you, and sort of cross that with, which are the most profitable for you to provide as well. So, you know, if you’ve got something that would really help the client and is really profitable for you, those are probably the ones that you want to focus on the most. You know, it’s funny, but the you know, my experience is that very few agency owners are actually sitting down and doing this kind of analysis to figure out, you know, what, what a price increase means, which services, they should be pushing, which projects, they need to have more like that, you these are all things that you know, while numbers aren’t fun, and you know that it’s not why most people get into the agency business, they really will help you build a much healthier business over time.

GINI: Well, and part of the conversation we had last week around your financials and understanding how you can project going forward, if that’s part of it, you have to understand, you have to be able to look at your business, whether or not you like numbers, you have to be able to look at your business and the data that’s in front of you to figure out how you’re going to move from month to month, to quarter to quarter, to year to year. If you can’t do that or aren’t doing that, you may have some success early on. And you may have some success for a few years. But I actually have an agency client who’s been in business for 15 years. And she’s now at the point where she needs to pay attention to that stuff, because she’s no longer having the kinds of success that she is accustomed to. And it’s taken her 15 years. So you may have that opportunity the same way. But eventually, you need to run your business as your agency as a business. And I think we can agree that that now is the best time to start doing that whether or not you think you need it.

CHIP: Actually, I would say that yesterday was the best time to start doing that. Unfortunately, you know, we’re not Doctor Who, we can’t travel back in time and reset things. So yes. So based on that reality, I would say yes, today is the best time to start treating your agency as a real business. And it really, you know, when you’re doing well, that’s when you should be focused most on these things, because it will build the cushion for you to survive the inevitable dips that always come along. In a business like a PR marketing agency, it’s just they’re going to happen, you’re going to see the dips, there’s there is the agency revenue roller coaster that we all experience, there are the natural ebbs and flows of the economy. So many things just come into the mix – bad luck. So the more that you can do to solidify your business today, to make sure that you’re charging a fair price for your services, that you’re generating a healthy profit margin, these things are all better to do now, when you can rather than six months, 18 months, 24 months down the road when you know the you-know-what hits the fan.

GINI: You’re in a crisis. Yeah, yeah. As my CFO always says the best time to ask for money is when you have it. Same thing, the best time to do all this is when you don’t need it.

CHIP: Absolutely. So look, the you know what, what we’ve talked about here is a good starting point for you. We’ve walked through some math for some typical agencies, but there is no such thing as a typical agency, your business will, will be different. So you need to look and say, okay, you know, what, what is my revenue? What is my expense space? You know, what would a 10% price increase look like a 5%, 15%, whatever, you know, take a look, run the numbers, see what it means to you. Take a look at the profitability of your projects, take a look at how your pricing compares to the rest of the market. So that you’re making sure that you’re being fair to your clients, but also being fair to yourself and your employees.

GINI: Right, right. Yeah.

CHIP: But bottom line is most of you can go out and raise your prices and be just fine with your clients and even better with your CFO.

GINI: Yes. Or your bookkeeper or your tax person or whatever it happens to be.

CHIP: Yes, not necessarily just your CFO. See, now you just – you ruined my good…. I was trying not to have one of my crash into the wall ending to the episode.

GINI: Oh, darn, I ruined your segue, I’m sorry.

CHIP: You just destroyed it. You destroyed it.

GINI: All right, start over. Do it again, I won’t ruin it this time.

CHIP: Just go out. Figure out how to raise your prices. put more money in your pocket. Continue to serve your clients well. And that is what our wish is for you this week.

GINI: Amen.

CHIP: I’m Chip Griffin,

GINI: and I’m Gini Dietrich

CHIP: And it depends.

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