Ok, I know it doesn't. But bear with me.
I wrote this today for a friend. Hello friend!
Designers, creatives and agencies leave money on the table at every negotiation.
The ‘reasons’ include (well, what we tell ourselves):
- The market dictates what we can charge.
- Our fees are benchmarked.
- We discounted because it's a good piece of work to win.
- It’s a loss leader which will grow to a bigger engagement.
The real reasons:
- We let competitors determine our prices.
- Our people lack confidence; not overt confidence - agencies are full of bravado, but what exists under the surface.
- Our teams don’t understand the value of our work.
- We don't understand what clients are really buying.
What we earn is a function of what we believe.
Look at the performance of these similar companies. Names redacted to protect the innocent. And the blind(ly stupid).
Brand Design Agency ‘a’: sales €30m, profit €3m (10% margin)
Brand Design Agency ‘b’: $34m, profit $12.5m (37% margin)
And these are just two examples. There are many.
What we earn is a function of three things:
- What we believe - I mean us, you, me, our teams believe about what we do and its value to the outside world.
- Understanding what clients really buy - No, not an advert, a workplace, a campaign, a brand ID. I mean the tangible and intangible outcomes, professional and / or personal which compelled the client to act.
- How the client is assisted through the buying cycle. Yep, you read it right; assisted through the buying cycle. Buying from an agency is a transaction. Parties to a transaction are subject to psychological drivers which dictate how we act, when we act and why.
Pricing psychology and value pricing are hugely influential drivers to an agencies profitability.
Oh, and a fourth thing: are we selling to appropriate clients? Not all clients are created equal, of course.
If agencies commit to shifting the dial on each of these things and have appropriately segmented their client base, profitability will shift. Materially. Today (ok, maybe not today. Its already 3pm).
Why is this important? Well, its profit, innit.
Profit can be spent on people, teams, workplaces, benefits, R&D, investment, goodwill, buoyancy, momentum, positioning, innovation, wellbeing, houses, yachts. Oh, and profits can buy more joy. Nice.
Let’s assume I sell my product or service for €10 today and make €2 profit.
If I can sell the same product for €11, my profit increases from €2 to €3. Yep, thats a 50% increase. This is true if my product costs €10 or €10m.
I know, rudimentary economics (courtesy of @blair enns).
Pricing psychology alone can deliver these gains almost instantly. Sustaining them requires a little more work, battling as we do, our good friends inertia and organisational homeostasis.
Whether today, tomorrow or next week:
More Profits = More Joy. That alone is a reason to act.