Our today’s guest for the Cloudways Agency Coach Interview Series is Robert Patin. He’s been in the industry for nearly two decades, guiding countless agencies to build profitable businesses.
Today, we’re talking to Robert about a big question regarding agency payment guide: How can agencies charge the right prices to get more jobs and still make money?
As Robert himself has said, “Lots of agencies have trouble making enough profit.” Let’s hear it from Robert Patin to see how he helps his clients aim for at least a 25% profit by making sure they cover all their costs.
Let’s get started.
1. To start, could you introduce yourself and share your expertise in coaching agencies, specifically in the realm of helping them set optimal prices to attract more projects while maintaining profitability?
I’ve worked with agencies for nearly two decades, guiding countless of them to build sustainable, profitable, thriving businesses. The industry is fraught with low margins, and agencies suffer for it, so I’m on a personal mission to have all the agencies I work with achieve a minimum of a 25% net profit. When agencies factor in all of their delivery costs appropriately, they can have the profit they deserve.
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2. Pricing strategy is crucial for agencies. What common challenges do agencies face when determining their pricing, and how can they overcome them to find the right balance?
Many agencies start from two bad places when it comes to price:
- They focus on what other agencies charge without considering who they work with, their experience, the results they deliver, and whether they are profitable.
- OR they try to reverse engineer the price based on the client’s budget, trying to fit everything the client needs into that small bucket. Both of these lead to a race to the bottom.
The right pricing structure depends on several factors:
- The audience they serve
- The results they accomplish for their clients
- The agency’s expertise
- The services they offer
My belief system is that the “competition” price is irrelevant in the calculation, as you are often comparing apples to oranges.
To build the right pricing structure, you want to have a clear understanding of:
- The costs associated with delivery.
- The revenue of your ideal client and a reasonable budget they should allocate to the service you offer.
- The expected ROI that service would provide the client and the likelihood of the outcome working with you.
When you have this information you can best determine the price point that is reasonable for the service that you offer to your prospective client.
3. How do you advise agencies to assess and understand the value they provide to clients, and how can this understanding influence their pricing strategy?
The best way to go about this is to get down to the numbers and review the impact that your service had on the client. Taking the clients that they have worked with, the average ROI that they have been able to accomplish, thus understanding the risk associated with working with the agency.
The key to price is a couple of factors: the buyer’s motivation for the result and the likelihood that they can accomplish it. As the risk level falls, the price level can increase.
4. Flexibility in pricing models is essential. What effective pricing models can agencies adopt to cater to different client needs and project scopes?
One of the best and easiest ways to deal with pricing concerns and considerations is to provide options, essentially the good, better, or best model. This allows the client to decide which of the following is best suited to fit their budget and what they are willing to commit to.
Often, the focus with each increasing cost is the speed at which the prospective client can accomplish their goal.
5. Competitive analysis plays a role in pricing decisions. How can agencies conduct a thorough competitive analysis to ensure their prices are competitive yet profitable?
Generally, I disagree with this. While it is a factor for some clients, the biggest factor should be the likelihood of the outcome. When having a sales conversation, the objective should be focused on creating comfort, safety, and assurance with the prospective client.
Most clients will select the agency that they trust the most, focus on advising, creating good rapport and trust with the client, and the “competition” becomes a nonissue.
6. The industry landscape is dynamic. How can agencies adjust their pricing strategies to adapt to changes in market demand, industry trends, and economic conditions?
Each market is ever-changing, and the primary benchmark that I would suggest agencies look to see if pricing is an issue is their conversion rate. If it is high, then there is an opportunity to increase price. If it is low, it highlights adjustments that may be needed in positioning or price. When adjusting prices downward, always ensure that margins are maintained.
7. Transparency in pricing can build trust with clients. How do you recommend agencies communicate their pricing structures to clients effectively?
To me, price is a factor in the objective and the expertise. In most cases, transparency can cause detriment as it opens more questions than provides answers.
Most clients are focused on the outcome and whether they can afford the agency they prefer (except for RFP procurement-based relationships). What needs to be provided is the information that the client needs to make the best decision for themselves, nothing more, nothing less.
8. Upselling and cross-selling can be effective revenue streams. How can agencies integrate these strategies into their pricing models without overwhelming clients?
Ongoing relationships are one of the easiest ways to grow an agency. If the agency is both project-based and retainer-based, one of the easiest ways to grow is to structure your projects like a retainer with a defined start and end date.
Then, before that project ends, strategize with the client on their goals and how the agency fits into those, allowing them to continue with the same cost commitment. With this method, you create a habit and familiarity for the client paying the agency monthly.
9. Regarding project estimation, what techniques or tools do you recommend agencies use to assess the resources required and set realistic prices accurately?
The best way is to utilize historical information to guide the future; where you have been is likely where you are headed with project time commitment.
If the agency does not have accurate historical time data to rely upon, then one of the best ways is the percentage of the time, as then the agency can assume the number of projects that an individual can work on in a given moment, providing them with the percentage. This typically allows agencies to assume their project time budgets within margin or error.
10. Client budgets vary. How can agencies negotiate pricing with clients to ensure both parties are satisfied, and what compromises can be made without sacrificing quality?
Personally, I do not believe in price negotiation; the only way to decrease cost should be doing less for less, assuming that this will still allow the client to achieve the desired outcome.
Agencies should stand by their price, their expertise, and their value. Negotiating price for the sake of negotiation sets a bad precedent and relegates the agency from advisor to vendor.
11. As agencies grow, their pricing strategies may need adjustment. How can agencies evaluate and refine their pricing models to align with their evolving business goals?
The best way to monitor your pricing structure and its effectiveness is through the business output and financial reports. At a minimum, an agency should achieve a 50% gross profit to achieve a 25% net profit.
If the agency is not achieving this benchmark, this indicates either a change in the pricing model, underutilized team members, or innocence in operations.
The other way to monitor this live is to have a project time budget vs. actual reports so that project managers can monitor each project’s health. Having this information allows the agency to make adjustments in real time to course-correct.
12. In your coaching experience, what common mistakes do agencies make in their pricing strategies, and how can they avoid these pitfalls to maintain profitability?
The biggest issue that I see is that the agency owner is the salesperson and the only approver of sales time budgets. There should be a natural tension between sales and operations on the number of hours to complete a project, as operations always want more hours, and sales always want less.
When the agency owner is the only person managing both sides, they are overly optimistic; they undersell themselves and do not have the time needed to complete the project successfully. This leads to bottlenecks in operations, low margins, and a frustrated team and or client. No one wins this way.
13. How can agencies effectively communicate the value they provide to clients, not just in terms of deliverables but also in terms of long-term benefits and impact?
The most effective way that this is done is through a frame of the goal of the project, walking the prospective client through the metrics by which the project will be measured, reviewing the outcomes that the agency has accomplished, and allowing the prospective future client to understand the risk vs reward.
14. Would you advise agencies to consider offering tiered pricing structures, and how can they determine the optimal balance between affordability and profitability?
Yes, I like to utilize the good, better, best model for pricing. The right balance between affordability and profitability is ensuring that I am meeting my minimum margins on the price that I have set, as my agency becomes more efficient my margins can increase.
15. Do you believe agencies can leverage the benefits from agency partnership programs, such as increased visibility through co-marketing opportunities, saving on marketing costs, and offering clients lower pricing, to consequently attract more projects?
It is possible, but it depends on their ideal client and how they make buying decisions. One of the major issues that I see with the industry is that they are often looking for a one-size-fits-all.
What works for one does not necessarily work for all. So consider what you want, your business objectives, and your ideal client. When those meet you have found the likely best pathway forward for the agency.
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16. Besides yourself, are there any other agency coaches you recommend we reach out to for an interview?
17. In conclusion, drawing from your coaching expertise, what practical advice would you give agencies seeking to set optimal prices that attract more projects while ensuring sustained profitability?
Focus on the metrics, your sales conversion rates, your profit margins, and the ROI your services provide. Then, you can make these decisions based on quantitative measurements, making them more secure.
Abdul Rehman
Abdul is a tech-savvy, coffee-fueled, and creatively driven marketer who loves keeping up with the latest software updates and tech gadgets. He's also a skilled technical writer who can explain complex concepts simply for a broad audience. Abdul enjoys sharing his knowledge of the Cloud industry through user manuals, documentation, and blog posts.
