Times are tough, and traditional agencies of all sizes have been under pressure for years.

value based pricing

Agencies don’t wake up one day and just go out of business. It happens by a thousand tiny cuts over time.

And many have not survived. It’s been a slow death by a thousand cuts: pushed out of the strategic high ground by consultants, forced into competing on price by smaller, more nimble specialty firms, design firms and freelancers, and having to deal with a new breed of client. Not to mention the impact of digital, social, and mobile on the traditional advertising agency. The cuts go and on and on. As a result, many agency leaders are trying to find new directions for growth and revenue.

The hard truth is agencies have to leave what’s been working for them in the hope of finding something better. And while it’s true many agencies have folded, it’s also true that it has never been a better time to turn the talents, abilities, and unique skills within your agency into revenue. The question is how?

Shift to Value Based Pricing.

Many agencies still cling to the old model of trading time for money – in effect, discounting their value. If you’re charging for time, there are only two options to increase revenues: find more hours or raise your hourly rate. Sadly, raising rates will price you out of many projects, and as an added cut, higher rates will prevent clients from seeking more face time. Consequently, this handicaps you from fully engaging, getting more in-depth, and really assisting the client achieve their goals.

Agencies need to move into a pricing model that more effectively determines the true value of the services provided from the perspective of the client. Many clients value what the agency brings to the table, beyond the boundaries of hours or fees. Clients need to move product, drive sales or build their brand. Agencies hope to be valued by their in-depth experience, insight and knowledge about marketing. But by charging an hourly rate they’re removing all of that from the equation. In effect they’re reducing themselves to a vendor measured only by hours worked.

Charging for value starts with having a unique expertise – you can’t be a generalist. In an era of change, clients want, and need, proven experience and are willing to pay for it. Develop a skill set you can own, a unique focus or expertise and concentrate on developing proof points. Focus on what clients really need. Unless you can offer something other agencies can’t, you’ll soon find yourself in a price war with smaller more nimble tactical shops. That’s just a race to the bottom.

If you want to be rewarded for the value of your agency, you must be able to deliver on the promise of your expertise. This requires a strong operational strategy that places a premium on providing value. The operational strategy for an agency represents the translation of the firm’s strategic vision into the internal business practices, processes, people and structure that will be needed to achieve the vision. It starts with creating an organization that can track, measure and report on all aspects of your work. From timesheets to sales, everything should be measured. In effect, the agency is prepared for the future by taking advantage of the information flow that surrounds brands.

Having a strong focus, along with proven results, deliverables, and a strong process, helps agencies negotiate the true value of any initiative at the very beginning of the relationship. What the client values most becomes the driving factor in determining cost. Start the negotiation with identifying clear deliverables, cost-benefits, and expected results. Clearly define different scenarios with different pricing options and make sure the client can identify a win-win situation.

If your agency gets involved in a prospect-driven price war, with freelancers or smaller shops, get out of the hunt. You’ll lose. You may not lose this pitch, but you will lose the longer game of understanding your true value to clients.

Value-based pricing only works when clients recognize the benefits of working with your agency. If you can effectively set up your agency with the right tools and processes, prospects will respect you as the only marketing partner that can help them navigate their critical issues. They will trust your experience, professionalism, and believe you’ll act as their trusted advisor with their best interests at heart. Or you can keep trading time for money. Clients can always find cheaper alternatives. Soon you may find you’re just another vendor fighting over scraps. The choice is yours.


Shredded photo by Envy124