Most agencies struggle to earn decent and
consistent profit margins.
They often also wrestle with pricing…which is at
the root of the problem.
…But each day that you avoid nailing your pricing strategy
is another day you keep your agency from growing at a
desired p...
If you’re like many agency owners, you might
say, “how I price depends on…”
 
If you’re like many agency owners, you might
say, “how I price depends on…”
•  Agency Resources
 
If you’re like many agency owners, you might
say, “how I price depends on…”
•  Agency Resources
•  How desirable the clien...
If you’re like many agency owners, you might
say, “how I price depends on…”
•  Agency Resources
•  How desirable the clien...
If you’re like many agency owners, you might
say, “how I price depends on…”
•  Agency Resources
•  How desirable the clien...
These are all important
factors…
These are all important
factors…
But they aren’t the best factors on which
to base your pricing decisions – or to
choose c...
We believe it’s time for a change in how
agencies price their work.
We
 believe
 that
 the
 right
 price
 is
 based
 on
 the
 
value
 the
 client
 gets
 from
 t...
Why?
Why? Because value is your common ground.
Your client wants value for his
investment. And so do you!
Getting to value-based pricing from where you are now
can be a lot of work.
But the end result is well worth it.
It’s a journey filled with creating successful
partnerships that are mutually beneficial and
profitable with the right client...
First, let’s talk about how agencies have
traditionally priced their services.
Most businesses start by charging for their
products and services based on their costs.
Knowing your costs is vital to understanding
your profitability.
Knowing your costs is vital to understanding
your profitability.
But the problems start when you base your
price on costs.
Cost-based pricing sets you up for an
adversarial relationship with your clients from
the beginning.
So
 what
 is
 cost-­‐
based
 pricing?
 
So
 what
 is
 cost-­‐
based
 pricing?
 
It’s
 a
 method
 for
 
determining
 your
 selling
 
price,...
You calculate what it costs to produce your product or
service, set desired margins, add those margins to your
costs… and ...
Over the years, agencies have seen cost-
based pricing evolve into 3 different models.
1
Opaque Pricing
1
Opaque Pricing
This pricing gives client little to no visibility
into what and why an agency charges what
they charge.
2
Billable Hours / Line-based Pricing
2
Billable Hours / Line-based Pricing
Agencies who use this model often have a
price sheet that shows the hourly rate each...
3
Fixed Package Pricing
3
Fixed Package Pricing
This is another menu-driven option, but
instead of an hourly rate, it’s tied to
producing a specifi...
Download the full
Nail Your Pricing Strategy
ebook to learn more about transitioning
your agency to value-based pricing
he...
Ultimately, these cost based pricing models can be
vicious traps. You open the door for clients to
challenge you on…
Ultimately, these cost based pricing models can be
vicious traps. You open the door for clients to
challenge you on…
“Why ...
Ultimately, these cost based pricing models can be
vicious traps. You open the door for clients to
challenge you on…
“Why ...
Ultimately, these cost based pricing models can be
vicious traps. You open the door for clients to
challenge you on…
“Why ...
Ultimately, these cost based pricing models can be
vicious traps. You open the door for clients to
challenge you on…
“Why ...
All of which puts you in a tug of war with your client.
Enter…
Enter…
Value-based pricing.
 
This is a method that quantifies your
agency’s value in ways a client can relate to
his profitability.
Once you understand your client’s context (their
goals, challenges, capacities, etc.), you’re able
to attribute your effort...
There’s a formula you can use to
calculate your retainer costs based
on value.
To do this calculation, you need two
data points from your client.
(LTV)
Average Customer Life Time Value
and
(M-CAC)
Marketing Customer Acquisition Cost
LTV is the estimated revenue that an
average customer will generate during the
entire span of his relationship with your
c...
Precisely how LTV gets calculated depends
upon your clients business model – but
here’s a simple formula you can use to
es...
10% of LTV
LTV is a good pricing metric to use when
your client wants to reduce her overall
marketing costs and still maintain her cu...
The second data point is M-CAC which is
total marketing cost divided by the number
of customers acquired over a specified
p...
For example, if your client spends $300,000
on marketing in a year and adds 30
customers that same year, then M-CAC is
$10...
M-CAC
M-CAC is a good pricing metric if your client
is not looking to save on marketing expense,
but rather is trying to acceler...
Recap
Recap
10% of LTV is a good pricing metric to use when
your prospect wants to reduce his overall marketing
costs and still ...
Recap
10% of LTV is a good pricing metric to use when
your prospect wants to reduce his overall marketing
costs and still ...
Now you’re ready to calculate your
retainer cost!
To learn more about how to transition
your agency to a value-based pricing
model, download the full ebook
Nail Your Pricin...
Nail Your Pricing Strategy: Raise Your Agency's Margins with Value-Based Pricing
Nail Your Pricing Strategy: Raise Your Agency's Margins with Value-Based Pricing
Nail Your Pricing Strategy: Raise Your Agency's Margins with Value-Based Pricing
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Nail Your Pricing Strategy: Raise Your Agency's Margins with Value-Based Pricing

How you price and package your services will ultimately determine how successful your agency is, so you need to get it right. Download the full Nail Your Pricing Strategy ebook here to get an in-depth look at value-based pricing and the tools that you can use to implement this pricing strategy: http://hubs.ly/y0Ff0z0
Published on: Mar 3, 2016
Published in: Business      Marketing      
Source: www.slideshare.net


Transcripts - Nail Your Pricing Strategy: Raise Your Agency's Margins with Value-Based Pricing

  • 1. Most agencies struggle to earn decent and consistent profit margins.
  • 2. They often also wrestle with pricing…which is at the root of the problem.
  • 3. …But each day that you avoid nailing your pricing strategy is another day you keep your agency from growing at a desired pace.
  • 4. If you’re like many agency owners, you might say, “how I price depends on…”
  • 5. If you’re like many agency owners, you might say, “how I price depends on…” •  Agency Resources
  • 6. If you’re like many agency owners, you might say, “how I price depends on…” •  Agency Resources •  How desirable the client is, and why
  • 7. If you’re like many agency owners, you might say, “how I price depends on…” •  Agency Resources •  How desirable the client is, and why •  What the client needs to be successful, and if he’ll pay what that costs
  • 8. If you’re like many agency owners, you might say, “how I price depends on…” •  Agency Resources •  How desirable the client is, and why •  What the client needs to be successful, and if he’ll pay what that costs •  How hard you have to work (client politics, purchasing, etc.)
  • 9. These are all important factors…
  • 10. These are all important factors… But they aren’t the best factors on which to base your pricing decisions – or to choose clients.
  • 11. We believe it’s time for a change in how agencies price their work.
  • 12. We  believe  that  the  right  price  is  based  on  the   value  the  client  gets  from  the  results  of  the  work   you  deliver.
  • 13. Why?
  • 14. Why? Because value is your common ground. Your client wants value for his investment. And so do you!
  • 15. Getting to value-based pricing from where you are now can be a lot of work. But the end result is well worth it.
  • 16. It’s a journey filled with creating successful partnerships that are mutually beneficial and profitable with the right clients.
  • 17. First, let’s talk about how agencies have traditionally priced their services.
  • 18. Most businesses start by charging for their products and services based on their costs.
  • 19. Knowing your costs is vital to understanding your profitability.
  • 20. Knowing your costs is vital to understanding your profitability. But the problems start when you base your price on costs.
  • 21. Cost-based pricing sets you up for an adversarial relationship with your clients from the beginning.
  • 22. So  what  is  cost-­‐ based  pricing?
  • 23. So  what  is  cost-­‐ based  pricing?   It’s  a  method  for   determining  your  selling   price,  and  it’s  rela@vely   simple.
  • 24. You calculate what it costs to produce your product or service, set desired margins, add those margins to your costs… and there’s your price.
  • 25. Over the years, agencies have seen cost- based pricing evolve into 3 different models.
  • 26. 1 Opaque Pricing
  • 27. 1 Opaque Pricing This pricing gives client little to no visibility into what and why an agency charges what they charge.
  • 28. 2 Billable Hours / Line-based Pricing
  • 29. 2 Billable Hours / Line-based Pricing Agencies who use this model often have a price sheet that shows the hourly rate each service or line charges (e.g. creative, media, workflow/programming).
  • 30. 3 Fixed Package Pricing
  • 31. 3 Fixed Package Pricing This is another menu-driven option, but instead of an hourly rate, it’s tied to producing a specific number of deliverables within a set period of time. These are sold as one-off packages or in time-based retainers.
  • 32. Download the full Nail Your Pricing Strategy ebook to learn more about transitioning your agency to value-based pricing here: DOWNLOAD NOW
  • 33. Ultimately, these cost based pricing models can be vicious traps. You open the door for clients to challenge you on…
  • 34. Ultimately, these cost based pricing models can be vicious traps. You open the door for clients to challenge you on… “Why do I need blog posts, wouldn’t PPC be better?” Expertise
  • 35. Ultimately, these cost based pricing models can be vicious traps. You open the door for clients to challenge you on… “Why do I need blog posts, wouldn’t PPC be better?” “Why should producing an ebook take 20 man hours?” Expertise Efficiency
  • 36. Ultimately, these cost based pricing models can be vicious traps. You open the door for clients to challenge you on… “Why do I need blog posts, wouldn’t PPC be better?” “Why should producing an ebook take 20 man hours?” Expertise Efficiency Personnel “Why use Ann to design when she costs more than Steve?”
  • 37. Ultimately, these cost based pricing models can be vicious traps. You open the door for clients to challenge you on… “Why do I need blog posts, wouldn’t PPC be better?” “Why should producing an ebook take 20 man hours?” Expertise Efficiency Personnel “Why use Ann to design when she costs more than Steve?” Quality “Stop using stock or custom photos, just use Creative Commons.”
  • 38. All of which puts you in a tug of war with your client.
  • 39. Enter…
  • 40. Enter… Value-based pricing.
  • 41. This is a method that quantifies your agency’s value in ways a client can relate to his profitability.
  • 42. Once you understand your client’s context (their goals, challenges, capacities, etc.), you’re able to attribute your efforts to specific outcomes which directly relate to profit.
  • 43. There’s a formula you can use to calculate your retainer costs based on value.
  • 44. To do this calculation, you need two data points from your client.
  • 45. (LTV) Average Customer Life Time Value and (M-CAC) Marketing Customer Acquisition Cost
  • 46. LTV is the estimated revenue that an average customer will generate during the entire span of his relationship with your client. LTV helps you gauge the maximum amount he should be investing in marketing. 10% of LTV
  • 47. Precisely how LTV gets calculated depends upon your clients business model – but here’s a simple formula you can use to estimate their LTV: 10% of LTV
  • 48. 10% of LTV
  • 49. LTV is a good pricing metric to use when your client wants to reduce her overall marketing costs and still maintain her current growth rate.
  • 50. The second data point is M-CAC which is total marketing cost divided by the number of customers acquired over a specified period of time. M-CAC
  • 51. For example, if your client spends $300,000 on marketing in a year and adds 30 customers that same year, then M-CAC is $10,000 M-CAC
  • 52. M-CAC
  • 53. M-CAC is a good pricing metric if your client is not looking to save on marketing expense, but rather is trying to accelerate growth.
  • 54. Recap
  • 55. Recap 10% of LTV is a good pricing metric to use when your prospect wants to reduce his overall marketing costs and still maintain his current growth rate
  • 56. Recap 10% of LTV is a good pricing metric to use when your prospect wants to reduce his overall marketing costs and still maintain his current growth rate. M-CAC is the pricing metric to use when company growth, and using marketing dollars more effectively, is the goal.
  • 57. Now you’re ready to calculate your retainer cost!
  • 58. To learn more about how to transition your agency to a value-based pricing model, download the full ebook Nail Your Pricing Strategy. DOWNLOAD NOW

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