In this week’s Agency Framework post, we’ll be taking a look at how some of the most successful agencies across the country price their services and stay competitive in an industry where there are always other agencies offering lower cost solutions.

Before your agency can begin to market its services and start pitching potential clients, there needs to be a set pricing model in place. This pricing model is highly dependent upon your business strategy. Your pricing should reflect the target market your agency is going after, the experience of your team members, and the value that you feel you can provide clients.  In the digital space, there are a number of popular pricing models, each with its own advantages and disadvantages. From hourly-models, to retainer models, to value-based pricing, there is no shortage of potential pricing structures that your agency can adopt.

Beyond your pricing model, it’s also important to consider how your agency’s pricing will remain competitive. The barrier for entry in the digital industry is quite low, leading to an over-cluttered market filled with low cost options. One important obstacle that every agency must address is how to handle situations where their prices are being undercut by another company or where a potential client is being lured away by the possibility of a lower price point.

As we mentioned above, there are a variety of potential pricing models that digital agencies can take advantage of. The most basic of these is an hourly model; however, we’ve found that most successful agencies hesitate to adopt an hourly pricing model since it puts the emphasis on a simple deliverable rather than on the value that’s being provided. Keeping a client happy comes down to how much value you’re providing their business, so boiling the hard work that your team does to a simple equation of hours worked * hourly rate = price is not always the best idea.

That’s not to say that the amount of time your team will need to spend on a given project or client isn’t important. On the contrary, it’s crucial to take that into account when developing your pricing model, but when communicating your cost to a potential client, the focus should remain on the benefit you provide.

The vast majority of the agencies that we surveyed utilize either a package model or custom, value-based pricing.

One of the easiest way to price your services is through a package. These packages can be focused on the deliverables that you will provide the client, but a much better option is to create packages based on the results a client is looking to achieve. Having packages that span a range of potential budgets allow you to cater to a wider range of potential clientele.

Value-based pricing is an extremely popular way to price digital services. Not only does this type of pricing model emphasize the tangible benefits that you will provide a client, it also gives your agency flexibility to modify your pricing based on a potential client’s budget.

This type of pricing model does require a bit more due diligence and effort on your part, however. You will need to meet with potential clients to determine their goals, their budget, and their desires. Once you understand the client, you can then determine what strategies and tools will be most effective for achieving their goals.

As you develop your custom pricing for each project, you will need to take into account the resources your team will need to fulfill this particular campaign, the amount of time it will take, and the profit margin you’re hoping to maintain.

Finally, once you’ve decided on a custom price, you will need to decide how to communicate that to the client. You can either break the cost down based on each particular aspect of the project (e.g. the website will cost $X and will likely generate $Y, PPC will cost $X and will likely generate $Y, etc.) or based on a flat-fee.

If your agency is struggling to bring in new business, it may be because your pricing model is not in line with your target market’s expectations. It’s important to keep your pricing competitive by adapting to the market, but don’t sacrifice your bottom line to acquire new clientele. The fact of the matter is that lower cost options will almost always lead to less quality work and less results. With that in mind, if your competition is offering the same value at a lower price, you will always lose out.

If your potential clients are comparing your agency to another, it’s important to emphasize the importance of comparing apples to apples. As you research your competition, you may discover that what you do is much more specialized and your expertise goes well beyond what they offer in the same service category. Paul Weber of EAG Advertising & Marketing gives the following example:

This same example applies to every type of digital marketing. There are SEO specialists with years of experience and processes that generate proven results; there are also “SEO specialists” who simply outsource their work to teams of less-trained workers. In both cases, the deliverables and the pitch may sound quite similar; however, the results will vary greatly. Don’t be afraid to let your clients know why your services cost more. Show your track record of success through case studies and explain how what you do differs from your competition.

Most digital agencies list their pricing clearly on their website. Be sure to keep an eye on your competition and regularly conduct competitive research to understand where your agency fits in. If you notice that all of your competitors have a lower price point and they offer similar services, it may be time to consider modifying your pricing model.

Your customers are a great source of information when it comes to competitive research. Most clients will happily discuss how much their previous provider charged and the types of results that they saw. There’s a reason that the client is no longer with that other provider, so don’t be afraid to ask!

Your pricing model should accurately reflect the value that your agency provides for a client. If that’s the case, then justifying your higher price point comes down to educating the client on why your work offers more benefits than the work of your competition. Whether you accomplish this through a dedicated content marketing strategy or whether you explain your value in person, you should focus on demonstrating your expertise and displaying your value.

Someone in an organization is usually tasked with finding a web design agency that is highly rated with a strong client portfolio. They then proceed by contacting multiple agencies to gather information and baseline pricing. This proves to be confusing for most because unlike many other industries that have very close pricing ranges, digital agencies do not. Pricing can vary drastically and then digital agencies frequently find themselves having to justify their pricing structure in detail and the value that they can bring to the project.

There will always be competitors that look to undercut your pricing. That’s a simple fact. That being said, just because there are those out there that would undercut your prices does not mean that you should necessarily modify your pricing to compete.

Always stay true to your business strategy. There’s no need to compete against people undercutting your prices if they aren’t providing the same results.

One of the core components of your business strategy is your target market. Pitch clients that will be a good fit for your agency and see the value from the onset. If you stay true to your strategy and stick to clients within your target market, you won’t need to compete with competition that seeks to undercut your prices.

Last but not least, if you’ve done your due diligence and you’ve developed a pricing model that accurately reflects the value that your agency provides, don’t be afraid to walk away from a potential client if cost becomes a major issue. As we’ve said time and time again, lower cost almost always equals less results. When a client makes the decision to sacrifice quality for lower price, there is a high chance that they’ll end up unsatisfied.

Remember, your pricing model should always accurately reflect the value of the work you provide. If you begin with a strong business strategy, your pricing will follow effortlessly. To stay competitive, you will need to keep an eye on your competition, but make sure that you’re comparing apples to apples. At the end of the day, if price is a major issue during the pitch process, that’s a red flag that that client may not be a good fit for your agency. Don’t be afraid to walk away.