Your Agency's Goal is to be Profitable, Not Busy

By Tim Williams

By Tim Williams

At a time when prospective clients are scarce, it’s easy to be lured into the belief that some new business is better than no new business.  The self-talk among agency executives is that the account “will help keep the lights on.”

But something is not better than nothing, because some things are worse than nothing because instead of making money they cost money.

As the joke goes, the bank believes they can afford to sell loans below cost because they make will it up on volume.

When winning is losing

Pricing expert Alan Weiss preaches that failure isn’t from insufficient business; it’s from the wrong kind of business – the kind that creates, drag, friction, and fatigue. His point is pricing a new business win too low is worse than losing the pitch.

In their excellent book, “Pricing with Confidence,” Reed Holden and Mark Burton would put it this way:

The price isn’t wrong, the customer is.

It does your firm no good to add volume without adding profit.  Volume may or may not be profitable.  It’s the client’s job to try to lower price.  It’s your job to protect it, and most importantly to protect your profit.

Negotiating the right thing

When a prospective client keeps pushing unreasonably on price, one of three things is happening.

1.      The client doesn’t believe in the value you’re offering.

2.      The client doesn’t believe that what you do will provide that value.

3.      The client believes they can get the same value elsewhere for less.

So to get to the real issue, try asking your prospective client the above questions.  Clients will always try to reduce price but they don’t necessarily want to reduce value.  So negotiate value instead of cost.

Being worth your price

Besides being squarely focused on value instead of cost, there are a number of things you can do to add to the perceived value of your price:

A 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.

A professional 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. (Note that this isn’t a guarantee of results, but rather of excellent service.)

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 firm 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.

Nobody’s business but yours

And remember that your profit margin is really none of the client’s business.  Do you know what Apple earned on your iPhone?  Probably not, and it’s really none of your concern.  You bought it because you wanted the value it delivered.  An unfortunate number of major clients have been taught to insist on cost and profit information from their agencies. But as two of the more enlightened marketers would say (Coca-Cola and P&G), the profit the agency makes is really none of the client’s business.  It’s up to agencies to run their business in a way that earns a profit.