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At the end of the day, every agency’s primary goal is to make a profit. Unfortunately, this is something many agencies struggle to do.
Agency owners may assume that the best path to profitability is to take on more work and clients. While this can help bring in more cash, it also often requires more manpower.
If you take on more work, you’ll need to have the appropriate staff to help complete those projects. This could mean hiring new employees or bringing on freelancers. Both of these can be good ideas, but they also can quickly eat away at your profit margin.
A much faster path to profitability is to readdress your agency’s pricing structure.
Finding the right pricing structure for your agency can be complicated. It can be hard to know whether you should charge per hour or per project and what each of those prices would be.
However, by reevaluating your pricing structure to account for operational costs, outsourcing fees and other expenses you may have missed the first time around, you can grow your margins and improve profitability.
But before you start charging clients more, be strategic about improving your prices. Jumps in price that seem unnecessary or not thought through can send clients packing.
Here are a few tips for making your pricing structure more profitable without angering any clients.
1. Understand Your True Expenses
Before you begin setting any prices, understand how much it will cost your agency to get the job done. This can help guarantee that all your expenses are covered by your prices.
Take a minute and write down all of your expenses related to a project. Include everything from the tools your team uses to the hourly rate of the team working on the project. You’ll also want to think about overall agency costs, like rent.
Knowing the full extent of your expenses can give you a starting place for your pricing.
2. Establish A Clear Scope Of Work
As an agency, you might be hired to complete a certain project or task. However, the work surrounding that project or task can vary greatly. It’s important to establish expectations early on so you don’t find that you’re investing more time than you originally budgeted for.
For example, let’s say a client has hired you to write a blog post. You tell them your standard rate and they agree, but when you get started, you find that the client wants to spend hours on the phone chatting about the post, editing the post and asking for your opinion on new ideas.
To avoid spending hours and hours of additional time that you’re unable to bill for, talk about your clients’ needs and expectations before finalizing a project. Then, include everything within your scope of work.
3. Measure Your Clients’ Pricing Elasticity
It doesn’t matter what you raise your prices to — your clients need to agree to them for your profitability to increase. In order to ensure that they stick around, first assess how sensitive they may be to pricing changes.
A client who can easily move to a competitor may not agree to a price hike. To determine who may not stick around, take a look at how long your relationship has lasted, whether there are competitors on the market and how easy a switch would be.
However, don’t let the threat of losing a client hold you back. If you believe you can replace low-paying clients with new organizations willing to pay more for your services, it may be time to end the relationship and move on to better deals.
Raising your prices in an effort to increase profitability can be overwhelming — but it doesn’t need to be. With the right planning and strategizing, you can implement a better pricing structure for your agency.
Let’s recap the three tips to keep in mind when reevaluating your current pricing structure:
1. Take a look at all of your true expenses, and use this number as a baseline for setting prices.
2. Establish a clear scope of work so you don’t get stuck with unpaid, unbillable hours because of differing project expectations.
3. Evaluate clients’ pricing elasticity and how receptive they might be to a price change.
Be smart about how you set your agency prices. Revisiting your pricing schedule every so often can ensure that you’re always remaining profitable.
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