Whether you are trying to get your first clients, or you’re a seasoned pro, negotiating rates is just part of running an agency. Money talks, but nobody really wants to have the money talk. At least not any more than they have to.
Whatever services you provide, your stated rate is just the beginning. Depending on what you do—and how you do it—there are a ton of factors that go into a number you agree to.
Poor negotiations can end up in rates that are way too low, leaving you feeling unsatisfied and even resentful. On the other hand, you’re probably worried, on some level, about asking for too much and pricing out potential clients.
If you were a longtime freelancer before starting your digital agency, you know this all too well.
Your agency is a chance for a fresh start — an opportunity to make sure you do everything the way you want to, from the get-go. Part of that is setting your rates to the right level.
I’m a huge proponent of what’s known as “value-based pricing.” This approach is designed to make sure work is priced based on what it’s really, quantifiably worth — how much value it brings to the client. This works for any pricing model you use, whether it’s monthly retainer pricing, by the hour, or project-based.
This article is all about finding the sweet spot of value-based pricing, and getting clients to pay what you’re worth.
But how do you get there? Start at the beginning, with your industry.
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Learn the Industry Standard Rates
Common industries for digital agencies are things like marketing, bookkeeping, web design, graphic design, etc. These are also services many people provide through freelancing.
Any industry is going to have a range of typical rates. Whatever services your agency provides, there are some baseline industry numbers that can inform your own pricing. Looking for these is a good place to start.
Find out what people in your field or agencies of your size, with your level of experience, are charging.
There are a few ways to research numbers like these:
- Use freelancing platforms to look for people in your field. View their price ranges.
- Use job sites like Indeed or Monster and look for people in your field. Check out their hourly or salary rates.
- Find other agencies in your field and locate rates on their website or request a quote.
If you are just starting an agency and have literally no idea what to charge, it may be worth it to set up an employer profile on one of these platforms and advertise a “job.” Some platforms won’t let you see pricing until you do this. Plus, you’ll see the quality of applicants who come in and what their corresponding rates are.
Part of negotiating with prospective clients about money is about mental toughness. Sometimes, you have to be willing to walk away. If you get too hungry too soon (overquote without experience), you’ll waste time and not find clients.
Sometimes, you work for less while you’re building a portfolio. Other times, you walk away from a negotiation because it doesn’t honor who you are and what you’re capable of. You need to be realistic and know the difference, especially when it comes to what you’re worth.
Value Yourself and Your Time
Value-based pricing is basically saying, “My time (and my team’s time) is worth X dollars.”
Keep in mind that this doesn’t just relate to your actual hourly work. If you’ve been in your field for 10 or 15 years, that experience counts for something. It means that your work is informed by a lot of knowledge, and it’s worth more than someone who’s been in this for six months.
As you grow in your abilities and experience, you can charge more. Remember, though, even if you’re just starting out, you’re worth something. You don’t have to (and never should) work for free.
Decide if You Charge Per Hour or Per Project
There are a few different ways to charge, whether you are negotiating rates for freelancing, consulting, or a digital agency. For instance, if you’re a copywriter, you may charge per word. If you’re an agency providing video services or web design, you may charge per project. If you’re an accounting or bookkeeping firm, you may charge a monthly retainer fee.
Many agencies and freelancers offer services on a subscription model or productized service. Similar to a monthly retainer, this means you can negotiate a rate and set up automatic billing. This method is great for scaling, avoids unpaid invoices, and can provide a more steady cash flow.
There are some key considerations to any and all of these arrangements.
Pros and Cons of Charging Per Hour
Per hour pricing is a straightforward way of making sure that an hour worked is an hour paid. The pro for this option is that when you work, you get paid. Other pros are that you won’t be asked to keep working or risk endless rounds of edits, consulting calls, or other situations where you end up working without more pay.
There are some cons, of course. The drawback of negotiating contract hourly rates is that you have to keep track of hours, and that gets more complicated as an agency with staff or subcontractors.
You may have to communicate more with clients if projects take longer than estimated, increasing the expected cost. And unless you build this into your rates, you don’t get paid for all the extra work that goes into maintaining client relationships, project management, billing, etc.
Pros and Cons of Charging Per Project
Another option is charging per project. There are pros and cons to this, too. Some benefits are that you don’t have to communicate often about money, because you’re doing the work for a set price. Another pro is that you may be able to charge more, because it’s a “catch-all” price with some contingencies built in.
The drawbacks include the fact that you may end up working a lot more hours than anticipated (without making more money) and that it takes a lot longer to get paid. You may be able to negotiate a “half up front” or other situation that covers you. Either way, it’s usually less frequent than pay days for hourly work.
Negotiate Rates Based on Clients’ Perception of Value, Nor Yours
External consultants, agencies, or freelancers are hired because a client doesn’t have the abilities to do something for themselves.
If you came from the corporate world or a job where you weren’t highly valued, you may underestimate how much your skills are worth. But the client shouldn’t.
If you price your services too low, you are unwittingly devaluing your work. Consider how much it would cost a client to hire someone internally instead of contracting your services.
Also, consider the bottom-line impact working with you will create. If you can increase your client’s revenues or save them a big expense, factor that in when you are negotiating rates.
Do your research, and learn how to write a business proposal that makes all of these bottom-line benefits clear.
Clients have the money to pay you (even start-ups), or they wouldn’t be talking to you. Charge them the right amount, and they’ll respect the expertise and professionalism you bring to the job.
Always Aim Higher Initially
Every agency has a range. Depending on the type of client you’re in negotiations with, you can probably get a feel for whether they’re a solo act or a start-up with major funding. You’ll price yourself according to what you think they can and will pay.
That said, aim high.
There is no backward negotiation that lets you immediately raise your rates once they’ve enthusiastically agreed to a low price. Give yourself some room to play. This activates a classic sales method, where anchor pricing gives the perception of value.
Don’t Offer Low Rates or Discounts in Fear of Losing a Client
In any season of your agency’s growth, it’s tempting to cut your rates. And if you’re freelancing, it’s an unpredictable job. Your income will fluctuate, either way.
If a client feels they can no longer afford you, or if you are in need of more work, you may feel like you should slash your pricing.
Don’t do it.
The aforementioned perception of value is at risk, for one. But, what’s more, doing major discounts fills your plate with work and takes you out of the running for better paying jobs. And there are always better paying jobs.
Don’t get stuck with low-paying clients who you hope to offload as soon as something better comes along. That’s a bad way to treat people and it will backfire. Stick to your rates and the right clients will come along.
Negotiate a Rate That is Good for Both Parties
One of the beautiful things about running an agency is that your clients are your business partners. At the end of the day, no one is dictating to you how much you must or should charge. You get to make all of those key decisions, although they should be made wisely.
The price that is right for you and for your clients is where you should land after successful negotiations. You get to pay your staff (and yourself), and your client gets a valuable service that they can’t do for themselves. As with any negotiation, this kind of outcome is ideal: a win win.
As you think about negotiating rates, remember that freelance rates are typically lower than agency rates for the exact same services. If you are working as a freelancer or consultant, and you want to work with bigger clients who can pay the rates you are truly worth, think about transitioning to an agency model.
Not only can you negotiate higher rates as an agency, but you can spend more time attracting those higher paying clients — because you’ll have a team to help out with the work.
To learn more about making this transition and negotiating higher rates, sign up for the video course below!