How Much Should You Charge for Your Service?
I consult for a number of ad agency clients. My primary goal is to deliver what I promise, a pipeline of relevant new business prospects in their favorite industries. But, I also love to just talk about business and give away my very best free advice. And I want to share a piece of that advice right now that might be beneficial for you--the answer to a question that I've been asked on more than one occasion.
But first, I need to say that I simply love business! I better, right? I mean, I studied business, earned not one but two Master's Degrees in it (an MS in Marketing and an MBA), I've built and sold two, and I currently run another. I lecture at five universities about building businesses, train marketing teams and consultants every week, and I talk about business to just about anyone who wants to listen--and even several who don't! (Sorry, honey!)
So, the question I've been asked so often is "How much should I charge my clients for X or Y service?" And I'm sharing my answer based in part on over 10 years of ad agency experience stacked on top of what they teach every newbie in his first semester of business school: there are two approaches to determining the price of a product or service. Cost-based pricing and Value-based pricing. I recommend using them both. Combined!
Cost-based Pricing - Make sure you cover your cost for the service by estimating the hours you'll need for everyone involved, then multiplying that by your agency's average billing rate. Then, double it! Because we always underestimate.
For example, Relevant offers an email campaign management service. In our experience, it should take about two hours to layout, write, proof, review, and approve the copy. It takes another hour to account manage the process with the client and about another one to two hours to design, code, and load the email into the client's system. So, four hours times our (very affordable!) $100/hourly rate equals $400. Then I double it to $800. Because, reasons. So, by this method, I should be charging at least $800 for this service to cover our projected cost.
Value-based Pricing - Make sure you know what the value of your service is! What price will the market accept? What are your competitors charging? What is the client probably willing to pay for the service? I've found that many people will pay way more than the cost of the service just to get their problem off their plate and know that it is being taken care of.
Back to our example of email campaign management. Even if the client or her agency had the capability to write the campaign and send the emails, she might be willing to pay $2k, $3k, or even $5k for an agency that just makes this Problem. Go. Away. So if you can deliver a consistent, professionally designed, on-strategy email service for the client, it is truly worth whatever she wants to pay.
In summary, to price your service, first, determine the actual cost plus markup to deliver the service. Second, evaluate what the market will accept, what competitors are charging, and what the client is probably willing to pay for that service. If your answer to the second one is greater than the answer to the first, and your client considers it a value, you've found the right price for your service!
Let me know if that structure has worked for your agency! Or, let me know if you have a better system for determining prices.
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