When I talk to agencies about growth, one of the main topics we discuss is growing the revenue line and finding new clients. However, one key aspect to growing revenue profitably is often overlooked. That aspect is………..
Increasing your prices!
About a third of the agencies I’ve spoken with this year didn’t increase their prices at all in 2023 and some of those didn’t increase their prices in 2022 either.
At the same time, we’ve seen large salary increases for employees to cope with cost of living increases and a general upwards shift in salaries across the market
Those two factors have the effect of massively squeezing margins. Probably by more than you realise!
Although it’s not a fear shared by utility companies, TV companies and Supermarkets, addressing fee increases in a tough economy is difficult and a bit scary. It’s also much harder to have the price increase conversation with existing clients than it is with new clients.
If you can overcome the fear, the prize is significant. A 5% price increase across the board for a £1m revenue agency leads to £50,000 in extra profit…..for no additional work.
That’s adding £1,000 to a £20k project, or £2,500 to a £50k project. Will those levels of increase really make your clients go elsewhere?
Here’s some tips to help you get better at increasing prices
- Understand both the pain and the prize. Running a capacity planning exercise will help you understand the return you’re currently getting on your team. If it’s low, that’s painful! Scenario plan your price increases and see just how much you could add to the bottom line, without doing any extra work
- Know your gross margin and your wages as a percentage of revenue KPI’s
- Set an expectation with every new client that there will be a price increase every year to reflect current market conditions
- Have regular review points with clients where you can share the value you’re adding
- Pick your moment. There’s no better time to discuss fees than when your client is happy with the work you’re delivering
- Demonstrate the return on investment your client is getting, wherever you can. This is easier for some services than others
If you’d like to talk about margin KPI’s or building a capacity model, please drop us a line and we’ll book some time together.