Most pricing advice for agencies starts with the same question: what is this worth to the client?
It’s a reasonable question. It’s also one that almost no client can actually answer with any precision, let alone an agency owner with minimal knowledge of the prospect’s business.
There’s a better way to think about what’s happening when you and a prospect go back and forth on a fee, and it has very little to do with value.
I’ll get into it later in this newsletter, but first let’s take a look at what Jen has rounded up for us this week.
— Chip Griffin, SAGA Founder
Jen’s Weekly Roundup
Here’s what caught my eye this week:
AI SCREENS YOU BEFORE A HUMAN DOES — On The Innovative Agency, Sharon Toerek talks with Justin Inman about how AI chatbots are becoming the front door of search, and what agencies need to do before their clients disappear from results. And in the first video of a 4-part series, Lee McKnight, Jr. of RSW/US breaks down a similar shift on the outreach side. Apple Mail, Gmail, and Outlook now summarize your prospecting email before anyone opens it, and each platform weighs your first 150 to 200 characters differently.
DO THEY OFFER C-SUITE ON DUOLINGO? — At Spin Sucks, Gini Dietrich tells us the budget conversation is a translation problem. Your CFO runs the business on pipeline, risk, retention, and cost to acquire, and reach maps to none of them. David C. Baker examines some research that explains a shift in working with CMOs. Today’s CMO is winning the relationship and losing the argument, so you may need a new strategy when selling to them.
GENERIC DOESN’T SELL — That Solo Life lays out the data behind the specialization economy. Generalists are getting squeezed while specialists pull away, and the floor keeps dropping under “I do a bit of everything.” And RSW/US discovered some math not mathing in their own survey. Over 80 percent of agencies think they’re well differentiated, even while agreeing the industry as a whole sounds the same. Specialize, specialize, specialize.
THE BOTTLENECK IS YOU — Karl Sakas asks, if you built a leadership team, why are you still the bottleneck? Guest Mike Grinberg on the Agency Profit Podcast calls it owner’s clarity, the personal groundwork that has to happen before positioning or growth strategy means anything. And Brad Farris at Anchor Advisors gives us a six-question form taped to an office door that got a team solving their own problems before bringing them to the boss.
CHANGE IS HARD — Rick Gould walks through how to protect your firm’s reputation during an ownership transition, starting with employees, then clients, then the public. On 2Bobs, David C. Baker and Blair Enns have some ideas for employee retreats for remote-first teams. Culture doesn’t hold itself together when there’s no water cooler to meet at, so they lay out what it costs to keep people connected.
— Jen Griffin, SAGA Community Manager
Agency pricing is more about risk than value
I’ve spent years telling agency owners that value pricing isn’t the answer for most of them. Very few agencies can genuinely calculate what an engagement is worth to a specific client, and most of what gets called value pricing is really fixed pricing (possibly with a premium attached) masquerading behind a fancy label.
But that leaves an obvious follow-up question. If value isn’t the starting point, what is the pricing conversation actually about?
It’s about risk. Pricing at its root is a negotiation of risk between two parties. Once you see that, a lot of the confusion in your pricing goes away.
Every pricing model is a risk allocation
Think about what you’re really deciding when you pick a pricing model. You’re deciding which side eats it when the work turns out to be harder, longer, or messier than anybody expected.
- Billable hours put the overrun risk on the client. If it takes twice as long, they pay twice as much. That’s exactly why clients push for caps and estimates, and it’s the real reason hours make them nervous.
- Fixed fees move that risk onto you. You’ve promised a number before you know what the work will actually require, which is why a contingency cushion isn’t padding, it’s the price of carrying the risk.
- Vaguely scoped retainers are the worst version of this, because the risk you’ve taken on has no ceiling at all. Most retainer problems stem from poor (or even no) scope applied at the start.
- Performance-based fees and equity shift outcome risk to you, including the large portion of the outcome you don’t control. Rarely worth it for most agencies, but if you do make sure you have clear measures and careful legal review of the documents.
- All-you-can-eat arrangements hand you volume risk, which is why the ones that work have governors on them, like one project in the queue at a time.
Any pricing strategy is all about risk. The more risk one side carries, the more the arrangement should skew toward them financially. That’s the trade.
Risk explains what “too expensive” usually means
The risk lens is also the most practical thing you can bring into a pricing conversation with a prospect.
When a prospect balks at your number, the instinct is to assume the number is too high and start cutting. But often they aren’t reacting to the price at all. They’re reacting to the risk of writing that check and not knowing what they’ll get for it.
Those are different problems with different fixes. Cutting your price doesn’t reduce their risk one bit, it just means you’re now carrying the same risk for less money.
Reducing their risk, on the other hand, is something you can do without touching your rates. Start with a smaller paid project as a mutual test drive.
Offer reasonable exit terms instead of locking them in for a year.
Use paid discovery so nobody is guessing at scope.
Ask for a three to six month minimum commitment priced to at least break even rather than a big setup fee that turns a manageable monthly decision into a scary upfront one.
The question to keep coming back to is how do we make it easier for them to say yes. Risk is usually what’s making it hard.
Risk also gives you a defensible reason to charge more
This works in the other direction too, and you shouldn’t overlook it.
If the client’s situation loads risk onto you, that belongs in the price.
A prospect who can’t tell you what success looks like is a risk. A client who won’t commit to feedback turnaround or timely access to their own executives is a risk. Nine stakeholders with veto power is a risk. Difficult clients discovered in discovery get the pain per dollar ratio treatment, which is really just a risk premium with a friendlier name. (Of course, my Agency Leadership Podcast co-host Gini Dietrich’s caveat on that one stands: if you need a difficulty premium to make the math work, ask whether you want the client at all.)
None of this requires you to know what your work is worth to them. It only requires you to be honest about what you’re absorbing on their behalf.
Where value still belongs
I’m not arguing that value is irrelevant. I’m arguing it’s not the starting point.
Long-time readers know that I advocate a floor-to-ceiling approach to pricing.
Start with your floor: the minimum amount that produces a fair profit after you cover your costs and pay yourself a market rate for the work you’re doing. Hold it. Then use your understanding of value and risk to figure out how far above that floor you can go before you hit real resistance.
Value sets your ceiling. Risk sets the shape of the deal. The floor is what protects you when the risk lands on your side of the table, which it eventually will.
Try this on your next proposal
Before you send the next quote out, go through it and note who carries each risk in the arrangement. Scope, timeline, client responsiveness, outcomes, out-of-scope requests.
If the answer is you on nearly every line, you have two choices. Move some of that risk back to the client through scope language, terms, or model, or charge for carrying it. What you shouldn’t do is carry all of it and then discount the fee because the number made the prospect flinch.
So by all means talk about value with your clients, because it’s how you justify sitting at the higher end of your range. Just remember that the conversation you’re actually having is about who pays when things go sideways. Price accordingly.
