Summary:
When we began this podcast, our goal was to share and learn about the questions that many have but few talk about. There may be no more secretive or uncomfortable area among agencies than the topic of pricing. The result of this is many different pricing models, and clients that are comparing apples to oranges. This lack of conversation hurts the entire community. Today we’re breaking down some of those barriers. We are discussing pricing strategies, payment systems, the importance of educating your clients, true hourly cost, and more.
Top 3 Curtain Pulls in this episode:
- Basic but SO important: Pricing correctly determines the financial health of not only your business, but the value that you can provide clients.
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- “Unless you’re healthy as a business, you can’t provide really good services to your clients.” - Ken
- Transition to instant electronic payments. We live in the 21st century, people!
- Work to make everything as clear as possible upfront. This includes scope, payment terms, payment dates, overages, etc. Many clients will require deep education on your processes and payment terms. If they are not able to see your perspective or understand your needs and requirements, maybe they’re not the best fit! Don’t be afraid to not take on unhealthy projects.
For more tips, discussion, and behind the scenes:
About The Guys:
Bob Hutchins: Founder of BuzzPlant, a digital agency that he ran from from 2000 -2017. He is also the author of 3 books. More on Bob:
Brad Ayres: Founder of Anthem Republic, an award-winning ad agency. Brad’s knowledge has led some of the biggest brands in the world. Originally from Detroit, Brad is an OG in the ad agency world and has the wisdom and scars to prove it. Currently that knowledge is being applied to his boutique agency. More on Brad:
Ken Ott: Co-Founder and Chief Growth Rebel of Metacake, an Ecommerce Growth Team for some of the world’s most influential brands with a mission to Grow Brands That Matter. Ken is also an author, speaker, and was nominated for an Emmy for his acting on the Metacake Youtube Channel (not really). More on Ken:
Show Notes:
[3:05] Bob asks Brad and Ken about their pricing models.
[4:15] Ken: Metacake has 3 basic types of pricing models: Projects, Retainers, BAI (Bill and Incurred)
- The older-school model of billing for hours spent without any expectation of the amount can cause a lot of friction even when clearly communicated. We work to minimize this type of billing as much as possible.
- Projects: Includes engagements with a clear start and end. Things like building an online store, development, design, strategic help.
- Retainers: Ongoing services like marketing campaigns, coaching, management fall into this scope.
[6:48] Bob: “Do you try tailor the plan to the client’s needs? Do some clients prefer a fixed rate and do some prefer an hourly rate?”
[6:58] Ken: “We try not to because consistency is how we are able to deliver results… many would prefer a fixed rate as much as possible, but the nature is that many things are unknown and it’s important to acknowledge that.”
[7:22] Brad reflects on Ken’s philosophy of what matters to have a healthy business. Ken is more apt to try and get the client to work within Metacake’s processes, versus Metacake working within the client’s processes.
[8:09] Ken: “Unless you’re healthy as a business, you can’t provide really good services to your clients.”
- Refers to the analogy of “put your mask on first” in the case of a plane crashing. Taking care of yourself first is necessary to help anyone around you.
- Going to a coffee shop, it only makes sense to ask for coffee in the way that they make it- messing up their process means you don’t know that the product will be the best it can be.
[10:18] Brad talks about his company spending a lot of time trying to collect money from clients.
- Having specialized, personalized payment plans means more work for Anthem and inefficiency all around.
[12:00] Ken: “As an agency, you should think about ‘What is the formula that makes us able to deliver this product for the value and the price, efficiently, scalably, in a healthy manner for your business so that you can stay in business.”
[12:51] Brad asks if there are situations where maybe a client is willing to commit for a year but only for a reduced rate.
[13:25] Ken: For Metacake, they do give a discount on a rate for a longer-term commitment. “If you’re going to really serve somebody, you need the ability to know that you can invest into making sure you get those services.” If you can’t really invest because you don’t have a commitment, how can you do really great work?
- Metacake typically begins reducing rates around a 6 month commitment.
[14:50] Bob asks: “What do you feel are some best practices and philosophies that bring you to the table based on your experience on how to price a client and a project?”
[15:45] Brad speaks about working in the advertising world back in the day, and remembers how there were built-in measures for overages that clients didn't understand.
- “Clients don’t want to pay for three or four or five half day meetings of discovery meetings and pay for it, just to understand them better so that you can actually get a real statement of work done.”
[17:43] Ken speaks on deep discovery documents - Metacake tries to avoid them unless they are paid. If they are necessary, they are fit into the first part of the project.
[19:01] Brad speaks on Anthem including that brand discovery into the first part of the project, and ensuring that there is deep value in what the client receives.
[19:40] Brad mentions how difficult it is to provide an estimate for people on the fly. “Can you give me an estimate for that… we need a website developed, can you give me an estimate for that?” These are difficult questions to answer, but only because there is a distinct lack of information and conversation around budget.
[20:15] Bob talks about uncomfortable conversations about pricing with potential clients. Many clients want an “estimate” for work but don’t want to share a budget or much about their needs. There is a “game” mentality for many people, but the reality is that budget will have a deep impact on the offerings from any agency you work with.
[21:41] Ken stresses the importance of tracking time spent talking with potential clients and setting up for discovery.
[22:37] Bob adds that when he owned an agency, they charged per proposal. “It helped in the sales process… you can pay me and execute this with whoever you want… or you can and continue to work with us.”
[24:32] Ken talks about the importance of trust. Building trust allows clients to work with you and open up about honest budgets, and the earlier on you can get to that level of transparency, the more smoothly and efficiently the sales process will go.
[26:15] Bob asks for rates!
[26:25] Ken: $195 to start, reduced to $175 for longer or larger projects.
- “Our cost basis, on a net level, is in that $100 to $150 range.”
[28:30] Brad speaks about how some clients may look at what you charge and attempt to match hiring a freelancer or an in-house person with hiring an agency… “But sometimes they don’t actually do the math of even their own employees of how much it’s actually going to cost them to have that person sit there at their office.”
[29:15] Brad: “We charge between $165 and $220 an hour, depending on what we’re doing. We like to get to the point where with all our projects in the end, we’re at around $150 an hour range.”
- Brad adds that with almost all clients, around 80% of them eventually start to try and negotiate on price, so they try to add padding onto the pricing to account for that. Ken provides insight into how to keep this from happening.
[30:53] Ken talks about how to combat that. Metacake doesn’t build in a buffer to negotiate on, and that sort of transparency has had good results.
[31:45] Ken asks about the guy’s average project price. Metacake‘s is between $30K and $150K.
[32:50] Brad says that for Anthem, a short term 3-4 month project needs to be around $50K to make it worth their time.
[33:05] Ken speaks about the beauty of having those difficult conversations. In having this specific convo, he is learning more about how Metacake can help potential clients that may not be the best fit- other agencies could be a better fit.
- In addition, so many agencies cover their pricing that there isn’t a proper public consensus for what things cost.
- Prices aren’t published online for most companies, but almost all of them have package options that they will send.
[35:30] Ken and Brad discuss the idea of posting limited pricing information on their websites, just for transparency's sake. Will it actually be enough to entice some? Will it turn others off?
[37:15] Ken: “Be aware that if you reduce something to fit into someone’s budget, it has to be successful.”
- Brad and Ken talk about creating “packages” for clients that are limited and more straightforward, without customization for the product, etc. If this package is not appropriate for the size of a client but you attempt to make it work anyway, you could be doing yourself a huge disservice.
[39:15] Bob: “The lower you come down on your prices, you are communicating with your prospect what your value is.”
[40:40] Brad speaks on building brand equity. “It takes a lot of time and commitment, investment with no real immediate return.”
- The higher your brand equity, the less and less you have to spend on marketing.
- Companies like Tesla don’t have to spend any money on marketing, because the brand speaks for itself.
- Finding clients who want to become a long-term partner to build brand equity is difficult. Most want to spend a dollar to make two, then leave.
[44:50] Ken talks about a prevalent misconception of “growth hackers” and marketing shortcuts in the digital space. “You can get the idea that it’s easy, it’s low cost, and I don't’ have to invest anything into it,” but that’s simply not possible.
- “The truth is, you have to invest in something if you want to create something.”
- Ask potential clients- what is the value you’re providing? Not always numbers.
[45:51] Bob: “There’s just an ignorance… not to be derogatory… they [prospects] don’t know what they don’t know.”
[46:45] Brad asks to speak about invoicing and software they use. Anthem typically has net 30 payment terms, or requires that the invoice is paid within 30 days of receiving it.
- A 2-month project would be split into a downpayment and then 2 other smaller payment.s
- Deposits may be around 30% of the project, with the last billing coming around when the project is finished. That last payment doesn't come after the project is over, but when the statement of work says it is due.
- Many clients will say “No let’s hold off until this project is over… we don’t pay because there are no billable hours,” which results in the agency losing money.
- Clients missing deadlines or requirements shouldn’t change the date that monies are due.
[50:45] Ken mentions that Metacake doesn’t send invoices, but rather receipts
- Just like you can’t not pay your rent because you’re on vacation!
- Making space or allowing for client delays sets up a bad precedent for receipt of payment.
[53:09] Ken continues: “We try and operate very transparently upfront, we have disciplines that are important to creating success and also to keeping our sanity and we stand by those because that’s very important… we try not to let anyone abuse those… it’s important that clients have those similar values.”
[54:00] Ken: MC’s goal is to be an efficient, smart business so that we can be really great partners for our clients.
- Projects are split into equal payments over the time of the contract.
- Quickbooks online, merchant accounts that are third party and secure to store payment info.
[56:35] Ken: “The expectation is that what goes on this agreement is not based on deliverables but rather effort because let’s be honest, very rarely have I seen projects where agencies have 100% control of the output deliverables… I think it’s unwise to even suggest that you, as an agency can control that deliverable 100% or that your payment is dependent on it.”
[57:33] Brad: Speaks on clients who are not prepared to participate. There is a clause in their agreement that points out charges that a client may get if they are stalling and keeping the process from moving forward.
