Latest / Agency Uncovered / How do you raise your agency prices without loosing clients - Mads Singers
Transcript
- Sasha Damon (00:00) How do you raise your agency prices without losing clients? We’re here with Mads Singers. Let’s get started. So Mads, how do you raise your agency prices without losing clients? Mads Singers (00:11) There are multiple ways. Generally, I’d say most agencies should be increasing their prices. What happens over time is that agencies set their prices in the early days, when the founder is very involved. As you grow an agency and have to add management layers, you have to put yourself in a situation where you’re increasing your pricing over time. There are a couple of key things to keep in mind here. Mads Singers (00:35) People should generally be paying for the value of the output. If you run an agency where you help customers make more money and you’re very good at it, it makes sense to charge more when you know you can do it consistently. Mads Singers (00:54) Over time, as you build more case studies and build the confidence internally that “I can take this customer from making a hundred grand a month to five hundred K a month in a twelve-month period” — if you know you can do that and you’re charging them two grand a month, you are underselling yourself. So really try to look at what value you can provide. The second thing is a trap that many agencies fall into. Mads Singers (01:20) They’re so eager to close that they’d rather close smaller clients just to feel they’re growing. But if you have five clients paying you one K each, or one client paying you five K — in many agencies it’s roughly the same amount of work to handle a one K client as a five K client. What that fundamentally means is that you can… Mads Singers (01:45) …deliver a lot more and a lot better work for a five K client, with a significantly higher profit margin, compared to a one-grand-a-month client. A lot of the time people are so eager and so keen to close sales that they lower their prices. Whereas really, what you want to be doing is positioning yourself not as the cheapest option but as the most premium option — or one of the more premium options. Mads Singers (02:11) By doing that — if you have ten clients in an agency paying you five grand each — that’s a way more sustainable and very often way more profitable business than a hundred clients paying you two grand each. Just because of the amount of work, the amount of hassle, the difficulty, and so on. Mads Singers (02:34) Are there some models where you can charge less and scale it? For sure. There are some very productised services — things you don’t touch, where the service is very repeatable, scalable, and can almost be automated with AI. That might be a different scenario. But for most of the agencies I see using a lot of human labour, when they go and look at it… Mads Singers (02:58) …I see agencies with clients paying them a grand a month where, for over a year, they’ve actually spent more money trying to get them results than they’ve been paid. That is definitely not a great model. One of the things I sometimes recommend agencies do is actually measure — do time tracking on their staff. Not to see how much the staff are working; it’s not about that. It’s about seeing how much time goes into each client, so you can actually calculate profitability per client. Sasha Damon (03:29) So how do you know when you’re undercharging? Mads Singers (03:34) Generally, your profit margins aren’t high. In an agency you ideally want at least a 30% profit margin. Asking for more money can be difficult. If you’ve never asked a client for three K a month and you’ve only ever asked for one or maybe two K, asking for three K is scary. The way to learn to do it is by doing it. Mads Singers (03:53) As a coach, for example, I’ve raised my prices many times. When I first started out I was charging maybe fifty bucks an hour. I’ve way more than 10x’d my prices since then. And every time you ask a new, higher price — the first time you ask a client for three K a month, or five K, or ten K a month — the first and maybe the second time it’s difficult. Mads Singers (04:14) But as soon as you’ve done it, as soon as a few people have said yes, you get comfortable with it. And then that becomes your new minimum level. So learning to do it is really just a question of trying. Sometimes people say, “We want to stop lead generation, we have too many leads.” And I say: never stop lead generation. If you have a lot of leads and a lot of incoming clients, increase your prices. Increase your profits, or increase the amount of money you can afford to spend on delivery. Mads Singers (04:42) Again, dealing with fewer clients who pay more is way easier than dealing with more clients who pay less. Very often, the clients who pay the least are the biggest headache. Clients who don’t have a lot of money and pay a little bit of money are often desperate for that money to work. Whereas clients who have more money and more financial capacity generally view it as an investment. So what you’ll see in every agency is that the lowest-paying client is typically… Mads Singers (05:10) …the most work. Sasha Damon (05:12) It’s a bit of a dreaded conversation to have, because you never know what the reaction is going to be. How should you tell a client you’re increasing your rates? Mads Singers (05:21) What I’d typically recommend is not going to your old clients initially. Start with new clients — start pitching three K a month. So if you’ve gone from one to two K, and now up to three K, once you’ve onboarded five or ten new clients at three K… Mads Singers (05:39) …then you can go back to the clients paying one K and say, “You’ve been a client for a while, and we’ve actually increased our prices.” You might not want to take them to three K, but you might say, “Unfortunately, going forward, our services will be a minimum of two K a month. If that doesn’t work for you, we totally understand. However, from our perspective we’re delivering high value and we can’t operate on a smaller budget.” Mads Singers (06:03) What will happen is that some people will leave and some will stay. But in most cases, when I’ve seen agencies do this, they’ve ended up making about the same amount of money. Typically about half the people leave and half stay — but the ones staying pay a lot more, so you end up making the same money with a lot less work. Sasha Damon (06:23) And if a client won’t accept your new price, does that mean you’re not providing enough value? Mads Singers (06:29) It could be. But the problem here is — let’s say you have a little plumber somewhere in Alaska. They might only make so much money, and they’ll only ever have a certain budget for marketing. If you’re running a marketing agency and they’re paying you five hundred or a thousand dollars a month, and you’re spending, say, seven hundred to deliver, you’re making three hundred dollars profit. In most cases that’s not worthwhile. Mads Singers (06:54) Three hundred bucks a month, and you have to deal with the client, maintain the client relationship, have people employed — that’s not very much for dealing with all of that. A lot of agencies are so desperate to keep the client that they’ll keep them. But the real question is: instead of doing that, let’s target different customers. We only work with customers who have a budget of minimum X amount. Mads Singers (07:20) If you make 30% on two K, you’re making six hundred versus three hundred. You can do a lot more with six hundred. It gives you a lot more flexibility, a lot more room to work with, compared to a thousand-dollar client. Mads Singers (07:37) As an agency you constantly want to look at how you can increase your value and how you can land bigger clients. Because here’s the thing — I work with a lot of SEO agencies, for example. Mads Singers (07:46) And they say, “Yeah, but this client can only afford so much.” And I say, wait a minute. If you find a really big company and you increase their traffic by 10%, you’ll make them millions more. If you find a very small client and improve their traffic by 10%, they’ll make two hundred dollars extra a month. So it comes back to picking the right clients — clients who can actually afford your rates, where your rates make sense. Sasha Damon (08:11) And what’s the best way for an agency to increase their prices? Maybe a bit of a plan of action you could suggest. Mads Singers (08:19) Honestly, just look through your clients and set up a plan: from now on, we’ll charge a little bit more to people coming through the door. So step one, ask new clients for more. When you’ve done that five or ten times, and you’ve got a bunch in, then look at the clients you have who are paying the least — depending on how big the difference is. If you feel, “Okay, these guys are a lot of hard work for no money”… Mads Singers (08:45) …reach out to them and say, “We’re increasing our prices” — and maybe say from January. Maybe not tomorrow, but if you say from January: “We’ll be increasing our prices because our costs to deliver the service have increased.” And see what happens. Again, some of them will probably disappear and some will probably stay. Then really go through your pricing, and if you’re not at a 30% profit margin as a company yet, you definitely want to start… Mads Singers (09:13) …evaluating your expenses and evaluating how much you’re charging. Because if you’re not able to generate a decent profit margin, you’re running a significant risk. Some agencies I’ve worked with start out with ten or twenty percent margins — and if you’re at a ten percent margin, losing a couple of clients means you’re suddenly losing money. That’s a very difficult situation to be in when you’re running an agency. Sasha Damon (09:39) That was very insightful. Thank you very much for your time, Mads.