There is a consultant in the agency industry, Blair Enns, that trains agencies to sell high-priced projects. An idea Blair promotes is to have your team stop tracking their time.
Blair believes that an agency should innovate in creating value for their clients. They should be discovering solutions to difficult, valuable, problems. That sort of thinking doesn’t work well when you’re watching the clock.
Innovation is massively wasteful. But when you’re highly profitable, you have room to be wasteful.
That assumes that you can still convert enough of your demand while charging a premium.
Earlier this week, I wrote about an agency that is following a high-priced strategy. Because of gaps in demand, they keep hiring and firing people. A friend of mine theorized that it was because the high prices turned away too much work.
My friend doesn’t know the actual numbers of this agency. He was speculating. But, if they are converting customers at a rate that is inhibiting growth, how might they change?
Rather than innovating, they might focus on efficiency.
Pricing drops, but they increase efficiency with more standardized and limited solutions that have built-in margin.
They switch from mixing cocktails to only serving beer.
A consequence of lower pricing and greater efficiency is that client throughput increases. Having more clients served supports word-of-mouth, which is a primary marketing strategy for agencies.
I don’t believe either the expensive or affordable approach is inherently better. Or even that you can’t have an expensive and highly efficient product or service (e.g. enterprise SaaS.)
My point is that your pricing strategy will dictate certain realities.
If your prices are low:
- Your cost to produce value has to be low.
- You should have access to a decent sized market.
- Growth will probably look more like scaling resources, people, and systems.
- Think like an engineer (and track time)
If your prices are high:
- You need to be able to convert enough demand to offset costs.
- You need a highly defensible form of value.
- Growth may look more like scaling pricing or products offered rather than people.
- Think like an inventor.
Featured image is Benjamin Franklin at work on a printing press. Reproduction of a Charles Mills painting (c1905) by the Detroit Publishing Company used under public domain.