Charging a premium price

How and why premium pricing can be justified.

Besides doing good quality work, there are a number of things agencies can do to justify charging a premium price for what they do. Economists and professional pricers teach these principles in other industries; there’s no reason we can’t apply them to the advertising business.

Fixed price vs. variable price
A fixed-rate mortgage always costs more than a variable-rate one. That’s because there’s value in knowing exactly what you’re going to pay for a service or outcome.

Service guarantee
Offering a 100% guarantee that your client will be pleased with your services is worth a premium price. It’s also a powerful reflection of your confidence and self-respect.

Pre-authorized pricing
Tell your clients that they never have to pay an invoice they didn’t authorize in advance. This does two things: 1) It forces you to price all of your work in advance (vs. letting the costs just run through the system), and; 2) It provides your client a guarantee of no surprises. Doesn’t that make working with your agency worth a little more than the agency down the street?

Customized payment terms
For some clients, cash flow is sometimes more important than the price itself. Be firm on your price, but flexible and creative on the payment terms. This overlooked strategy can make working with your firm more attractive.

Risk along with reward 
Ultimately, clients are in the business of reducing risk. It’s classic economics that a reduced risk is worth a higher price. A homeowners insurance policy with a low deductible is priced higher than a policy with high deductible. By offering to assume some of the risk by tying your compensation to results, your work is worth substantially more.

Ownership of intellectual property
Rather than automatically granting ownership of all IP to the client (the standard “work for hire” approach followed by most agencies), consider a lower price to develop the work accompanied by a higher price to use it. The better the work (meaning the better the results), the more it will get used, the more the agency makes. Good ideas are therefore worth more than bad ideas.

Of course the foundation of value-based pricing is to sell outcomes, not hours. You’ll never be able to charge more for what you do by simply adding up timesheets and sending the client a bill. In fact, experience in other professional firms shows that the more you use a formula (like an hourly rate) to price your services, the lower your fees are likely to be. 

By employing some of the same creativity you apply to your clients’ business to your own business you can start to break out of the commodity pricing trap. Just remember, you are what you charge for.

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