Pricing Models For Agency Owners
If you ONLY have one pricing model in your agency you’re exposed.
Especially, if that pricing model is “time-for-money” better known as “capacity” or “units of time”.
At AltAgency we believe you should have multiple ways to serve your clients and understanding the different pricing models and how they might apply to you is crucial if you want to:
- Escape the agency hamster wheel
- Stop trading time for money
- Add new revenue streams that are more profitable
- Get paid for your thinking
...and a whole lot more.
We have seen a huge benefit of this in our own business as well as our clients.
When something like Covid happens or even a recession...one of the first things to get cut is labor.
So, only pricing your services based off of labor leaves you at risk and unfortunately, many agency owners felt it recently and many continue to deal with that aftermath.
Now is the time to add on a new revenue stream and pricing model to diversify how you get paid.
Transcript / MP3
Hey, what's going on, Greg here. And in this video, I want to talk about the different pricing models that you can adopt and use inside of your agency. Now, a few things that I want to cover before we jump into the different models is first, you can really only sell three things. And so the three things are what you're selling and the pricing model is really the structure and how you're going to deliver one of those three things. So the first thing that you can sell is your input and or time and materials, which if you're in a, you know, an agency, whether they're full service or specialized, you are probably doing one of these already. You're probably selling inputs time and materials. That's how you charge for the work that you do. The second option, or the second thing you can sell is outputs of deliverables....
So maybe you develop software apps, or maybe you launch ad campaigns. Those are specific deliverables. Now the last thing you can sell is an outcome that can often be tied to the value that you create for your client. Now, that brings me to a caveat. Then I want to kind of put as like an umbrella statement over what we're about to talk about. As I walk you through, I have seven different, uh, seven different pricing models that I'm going to share with you. And all of which can actually leverage this notion of value based pricing because how you deliver and what you deliver for your clients could yield a specific type of return that warrants you raising your rates that is unlike, just charging for time and materials, which is where you see a lot of the commoditization happening inside of the agency world. So three things we can sell input time and materials.
Two is output of a specific deliverable. Three is an outcome that will create some sort of value for your client. Now, three, a couple of mistakes. I don't know if there's three, a couple of mistakes that I want you to look out for as we talk about this. Um, one is that, um, value based pricing, like I said, can it be applied to each of these models that I'm going to share with you? So that's the first thing. So value based pricing, isn't a pricing model. It's a way of pricing. And any of the models that I talk about coming here, the seven and I'm going to share can be based on value. All right. The second thing I want you to look out for is that there is a difference between pricing models and payment options. So the terms in which a client pays you is kind of woven into in some cases, the model itself, but can also be different.
And so I'm not diving deep into how you should structure your payment options or your payment terms as so much as I'm going into the actual model itself. So just want you to pay attention that there is a subtle difference. Obviously there's a lot of overlap there, but we're talking specifically about pricing models. Um, now a mistake that I want you to look out for is that I see really commonly is as an agency owner, having all of your clients in only one pricing model. Um, and you know, often you see this with agencies that only sell retainers and those retainers are based on time, which we're going to talk about here in a minute. So that's one mistake. I want you to look out for not a good sign. If you have all of your clients under one pricing model to another mistake is having too many pricing models for too few of clients.
So if every time a client comes in, you're changing your pricing model and you have five clients with five different pricing models, creating a repeatability, the predictability, the scalability is going to be a lot harder because you're essentially giving a unique solution every single time, which not only is solving unique problems, harder to scale, but the way changing the way in which you price and the way in which you charge for, for how you work with each client just creates unnecessary complexity inside of your business. So mistake number three is actually having too many pricing models for too few team members. I see this time and time again, you have a team of three, but you are utilizing all seven pricing models. Again, if you have three people you probably should be offering no more than three services. Ideally one, because in most cases you'll find that one to two service offerings harnessing one of these or two of these pricing models is enough to get you to seven figures and beyond if you're below that at this point, which goes into kind of my last caveat before we jump into the seven different models, is that at all agency, we believe that as an agency, like you, shouldn't be only getting paid for your time and your labor because you also have expertise.
And so a lot of what we help our clients do is add on additional revenue streams so that they don't only have one pricing model, like the ones we're about to share. And they add on another one, that's more leveraged, more profitable and more around selling their expertise and their knowledge versus their labor time for money. So that being said, let's jump in to the seven different models. Model. Number one is capacity. Now. Um, normally I would call this time for money, but in a podcast, um, that I heard, uh, with an interview by a guy named a guy by the name of Blair ends talked about capacity. And that's actually a better way to talk about getting paid for your time, because you can actually look at capacity as your time as one form of capacity. So often, like I just alluded to capacity means we think of our hours.
Um, so you could sell blocks of hours or buckets of hours, or you could scope out a project based on the number of hours it's going to take, but ultimately your pricing model is based off of hours. Now I also see some agencies base their pricing on sprints. So a team who sells sprints, you're essentially selling capacity in the form of a sprint. So, Hey, we're going to work on this sprint and they're backing themselves into that six week cycle or a 90 day cycle, AK the sprint, really just with their hours. Um, now another one that actually Blair mentioned that you see a lot of agencies offer is like a day rate. So instead of selling hours, you sell days. Um, and so you see this often in consulting, um, and or even coaching agreements where there's just a day rate, Hey, come into my office for the day.
We can work on whatever you need and it's going to cost X dollars for the day. So that's another form of pricing based on capacity. And one that Blair actually mentioned in his podcast that I was listening to, or it might've been his book, honestly, I forget which one he talked about this notion of reserved capacity. And I don't see this too often, and this is not something that you lead with or that you only offer reserved capacity. But when you look at kind of the traditional agency where traditional agencies, you really survive off of like 10 to 20 clients paying you a premium pricing, oftentimes they'll want to know that you're just going to be available, sort of like an insurance policy. And so they'll pay a specific amount per month to know that they have a certain amount of your capacity available if they need to use it each and every month.
Now I see this backfire a lot, especially when you start to see agencies that are trying to productize their services. But what they're really doing is just selling blocks of hours. That's not productized. And especially if you let those hours roll over, which I see a lot of agencies do is they'll say, Hey, you're going to pay us X dollars for 10 hours a month or 20, 20 hours a month. And if you don't use them that they roll over into the next month, but at the time, the challenge there is that time doesn't roll over. So if they keep building this bulk of hours and all of a sudden they're like, Hey, you know, we didn't use those 10 hours the last three months, and we need you to do those, you know, 30 hours this month. Plus the 10 of this month, that's 40 hours.
You might not actually physically have those hours available to work. So pricing in blocks of hours is not productized. Um, and it can actually lead to a lot of trouble that I see agencies run into. But this notion of reserve capacity is I think you see often with an add on component when you have a client pain, you know, top dollar. And I saw this kind of in my agency days where contracts were like, no less than six figures a year, they would say, Hey, we're paying you X dollars a month. That is really just, we know we might need X amount of your time, or at least X amount of your time to be thinking about our business and or our problems. And that's sort of woven in as like an add on which is this notion of reserved capacity. So pricing model number one is capacity pricing model.
Number two is retainers. Now most of you watching probably no retainers are, many of you have been tricked. Yes. I said, trick, I have another video breaking down. Why retainers are not as great as you think, but, uh, the second model is retainers. Now retainers, what I see is often happening, kind of what I alluded to with capacity is really just selling buckets of capacity, buckets of hours. Again, I've already sort of alluded to why that's not the best, so I'm not going to go much deeper, but a retainer. Um, one thing that I always found really interesting and also devastating at the same time when we were growing our agency, because when I started my agency, we only had re we started with only retainers. Like we'd only work with you if we jumped into a retainer. And what ends up happening is at some point, usually after probably the first three to four months, which is when the initial scope of work usually was completed.
You kind of go into this weird phase of the client doesn't necessarily know what's next, neither do you. And now they're paying you. And they either start asking you to do things that are out of scope and you just take them because you don't want to lose the retainer. And now you're doing all of these things, which starts to spread you too thin. And what that leads to is there's always going to be a, um, an unfair, like an unfair situation, because one client will feel like they're going to get the short end of the stick, because as an agency, if you're selling buckets of hours as a, as your retainer, it's in your best interest to not use all of those hours. And it's in their best interest to use all of the hours, if not more. And so it kind of gets into this weird situation where there's always someone feeling like they're getting shafted because either they didn't utilize all the hours and, or you're feeling shafted because they're using too many hours and it, you know, you're not getting compensated for it.
So it's more profitable for you to use less and it's more profitable to them for you to use more, uh, cause they get more bang for their buck. So what I find to be true time and time again, is agencies that are selling like labor that are doing retainers, get into this capacity issue where they're doing more work than they're actually getting paid for. And if they reverse engineered the profit, that's actually coming from those hours. They're not really as profitable as they think, even though they feel safe because they know that the client's going to pay next month in the retainer where I actually find retainers way more valuable is in coaching and consulting, where it's tied to the ongoing sharing and training of intellectual property and sharing the strategies. You often can see this, um, in agencies where there's also elements of account management where say you're a media buying agency and each and every month, there are certain amount of things that you need to do to maintain your client's campaigns and that's account management.
So that also makes sense for a retainer. So capacity is pricing model. Number one, retainers is number two, three is sort of, kind of a combination of things. Programs, memberships, subscriptions, and workshops, um, bundling those together on purpose. Um, this is where you see your common like high ticket consulting model or high ticket coaching model. Um, but the whole subscription membership notion is obviously picking up a lot of steam in the online world. Um, there's a lot of books that have been written about it. Um, and you know, things like Netflix, Amazon prime, like you see all of the subscription box services, many of those concepts can be applied to your agency. And um, so three good books on the subscription concept. The membership concept are one, a book called subscribed. I actually just started reading this book. It's really good so far. And then two others that I've read is the membership economy and the automatic customer.
I'll make sure those are linked up below. Now, the interesting thing is obviously if you have a subscription or a membership, it's sort of like a retainer because they're paying you a membership fee or a subscription every month. Um, but this is where I start to see agencies kind of bridge the gap between their, their, their services being super customized and their services being more productized like, Hey, each and every month you're going to receive X type of deliverables. That's sort of what I mean by productized. And it works really well for kind of agencies that are making the transition into kind of the coaching and consulting. And a lot of our clients will design this new revenue stream into like a three or six month program that then could lead into more of a six or 12 month like membership coaching consulting arrangement. That's again, designed more about the transfer of knowledge and IP and advisory mentorship than it is executional deliverables.
So that's another model we love this model. We see many cases, most agencies adding this model on is one of the most no brainer options because you can do it within 90 days. That being said, if you want to add this model in the next 90 days, private message may because we can walk you through step by step a process. That'll have you getting three to 10 clients in the next 90 days in this new model. All right. Number four is what I'll call courses and training. These are more DIY things that are purely information. I'll call it less hands on. So they buy a six week training or a six week course where they consume most of the training online, or maybe they attend a training where you walk them through something in person, but you're not actually executing on anything specifically or providing any, you know, really high touch experience.
So I look at kind of the courses and the training as a little bit more of a DIY do it yourself experience that is also a no brainer to, for agencies to add on. But in my opinion, to add on after the more done with you options, which is that program, the membership subscription and workshops number five is leasing and licensing. You've probably seen this in different ways, but this is where a client pays you on a monthly basis for, um, work that you've done and or to retain your intellectual property. We have clients that have built training that associations and organizations pay for it to share with their members. They don't have to go create it. They just pay our client to keep that training up to date. You're starting to see this in a lot of coaching and consulting programs where they'll add a certification element.
You are a certified member of this methodology and you, you, as the expert will pay a, a, an annual fee to be able to utilize those resources. If you've ever heard of StoryBrand, where they certify agencies on their StoryBrand methodology. That's an example of the agency will pay, you know, a couple thousand dollars a year, if not more, to have the right and licensed to share and utilize story brands, intellectual property. So that's leasing and licensing. Number six is one that we've used. And I see a lot of coaches and consultants utilize as well as barter. Let's take old school guys. Um, Hey, I'll do this for you. If I get some of what you, what some of what you're good at now, in most cases, I recommend this as a, I think this is a bad idea. Um, but there, I think exceptions to the rule where it might work out, I've actually, um, been in a situation where a client paid me and what I charged him was equal to what he was paying me.
And so it ended up being a wash. There were still a transaction. So it was sort of like a barter because the pricing was a wash. Fundamentally. We felt like we were making the transaction, but like we were really kind of exchanging services. Um, but the fact that we paid each other, it really just made us more committed to that process. But traditional borrowing would be like, Hey, mr. Or mrs. Mentor, can you mentor me? And I'll design a website for you. You might have done that in the past. Something that you can do maybe do early on in the beginning to get some testimonials and or, but because there was no real money exchange there, it's not one of the ones that I recommend, obviously, building your business on because you're going to need money to survive. Now, number seven, the last is performance.
You're starting to see this a lot more in lead generation agencies and, and where you're not just paid on lagging indicators like sales. So you'll see some agencies say, Hey, you know, you don't pay us until we generate a certain amount of money for you. That's one only one element of charging based on performance. The other way of doing that is what I see a lot of lead gen agencies doing right now is charging based on lagging or sorry, leading indicators. So sales would be a lagging indicator. So Hey, mr. Mrs. Client, you only pay me when we generate X dollars for you. Whereas the getting paid on a leading indicator would say, Hey, we're going to get paid for every qualified appointment that we put on your calendar or a qualified sales call that we schedule on your calendar. That would be performance, but performance based model, but based on leading indicators, which I highly recommend doing, if you're doing anything performance, because it'll protect you a little bit, um, cause there's some things that are always going to be outside of your control that will impact performance.
So finding where those elements lie for you is really critical when doing the performance option. Now, um, again, all of these can have the layer of PR you know, um, value based pricing. So when you go to price, your program or your membership or your subscription, or your course, or how you licensed certain things, you need to think about, well, how much will this deliverable or information or outcome impact my client? Like how much will they get in return? And your pricing should be based off of, off of that value exchange, not just the traditional way, which is hours and the inputs of time and deliverables. So those are the seven quick recap. Capacity is number one. Retainers is number two programs, membership subscription, and workshops is number three. Courses and training is number four, leasing and licensing is number five. Barter is number number six, and, um, performance is number seven.
Again at all agency, we believe you shouldn't only have one pricing model. Most agencies are based off of either a capacity or retainers, which is really just buckets of capacity. If you want to learn how you can add on a leveraged online program, like a membership or a subscription or a workshop, or you're getting paid for your expertise and you, and you want three to 10 pain clients in the next 90 days, uh, I'm going to put a link below in the description for you to book a call with our team. We'll look at your agency and how your what's your pricing model looks like right now. And we'll share some ideas as to how we could introduce a new revenue stream that you can have coming in in the next 90 days. If that sounds good, definitely click the link below in the description and schedule a call. And if you enjoy this video, please comment below with what pricing model you're looking to add next in your agency until next time, take care.