Mastering Value-Based Pricing
Mastering Value-Based Pricing
Redefining Agency Success with Strategic Pricing and Client Engagement
In the latest episode of the Schmidt List podcast, host Kurt Schmidt sat down with Garrick, a pricing strategist who works with CEOs in B2B software and professional services companies. Their conversation was insightful and practical, delving into the critical nuances of pricing strategies, client relationships, and the often-overlooked hidden value in business services. This blog post will expand their discussion, focusing on how shifting the narrative and unbundling services can revolutionize agency operations.
Understanding the Why: Shifting the Narrative to Business Problems
One key takeaway from Kurt's and Garrick's conversation is understanding why clients purchase services. Too often, agencies focus on selling a product, like a website, rather than addressing the underlying business problems. This approach limits the perceived value of the service.
Solving Real Business Problems
By changing the narrative to focus on the solved business problems, agencies can significantly impact their success and profitability. This approach enhances client satisfaction and positions the agency as a strategic partner rather than a mere service provider. Garrick emphasized that understanding the unpriced value provided to clients can help boost confidence among creatives and founders.
Unbundling Services: Identifying and Leveraging Value
Garrick introduced the concept of unbundling services to identify and leverage the actual value provided to clients. Many essential qualities and services are often not explicitly recognized or priced accordingly. Unbundling allows agencies to present a more transparent and customized offering to clients.
Confidence in Pricing and Service Offerings
Agencies can also gain more confidence in their pricing strategies by clearly delineating the components of their services. This transparency prevents wasted time with potential clients who might not be a good fit and ensures that the agency is fairly compensated for its work. Garrick cautioned against competing on price, especially in regulated industries, where hidden barriers might justify existing pricing structures.
Evolution of Billing Practices: Moving Beyond Hourly Billing
The discussion ventured into the evolution of billing practices, especially Garrick's shift from hourly billing to value-based project fees and annual retainers about ten years ago. This change improved cash flow and reduced administrative workload, benefiting the agency and its clients.
Overcoming the Challenges of Hourly Billing
Despite its disadvantages, hourly billing persists due to its deep entrenchment in business culture and traditional payment structures. Garrick criticized it for not aligning with impactful results and potentially incentivizing inefficiency. He advocates for alternative models that benefit both the vendor and client, with more meaningful results and better alignment with business goals.
Strategic Communication: Enhancing Client Awareness and Utilization
Kurt and Garrick stressed the importance of strategic communication and client education. Many clients are unaware of a business's full range of services. Implementing strategic communication and bundling can maximize client awareness and utilization of different business offerings.
Third-Party Feedback for Honest Insights
Using third-party intermediaries to gather honest client feedback can yield better and deeper insights. Clients might withhold negative feedback when directly confronted by the service provider. Garrick highlighted the role of Customer Success Managers in providing a holistic view of customer relationships, separate from sales-focused interactions.
The Future of Profitable and Sustainable Business Models
The conversation concluded with thoughts on the future of business models, particularly the shift towards creating profitable and sustainable practices. Garrick noted that businesses need to engage directly with clients to understand if they are providing value. Often, this involves confronting uncomfortable truths.
Shifting Offerings for Maximum Impact
Minor adjustments in business offerings can make a significant difference. Garrick emphasized the importance of strategic project engagements with set timelines, contrasting this with traditional billing practices that miss strategic opportunities for impactful results.
Wrapping Up: Key Takeaways
This episode of the Schmidt List with Garrick provided valuable insights into transforming agency operations through strategic pricing and client engagement. Understanding why clients purchase services, unbundling offerings to reveal actual value, and shifting from hourly billing to value-based models are essential. Moreover, effective communication and client education can significantly enhance the utilization of business services.
Be sure to connect with Garrick on LinkedIn, where he shares valuable content. For more insights on pricing and value propositions, check out his Substack newsletter, "For Starters," Stay tuned for part two of this fascinating conversation on the Schmidt List podcast.
