As agency advisors, we’ve come across a lot of creative agencies that are still competing on price to stay ahead of the competition. However, this approach often leads to narrow profit margins, difficult customers, and financial troubles. Instead of trying to undercut your competition, it's essential to find an alternative competitive advantage if you want your business to grow and serve you.
Here's how to stop competing based on price and shift your focus to create a more profitable and sustainable agency:
So When Should You Cut Your Prices?
As a creative agency, the answer is almost always never! It's challenging to get a cost advantage in this space because your largest fixed cost is people and their expertise. Competing on price as an agency only means smaller profit margins and limited growth, or lower quality deliverables that lead to high churn. If you can't sign a client at your price point, walk away and revisit your value proposition.
Ward Off the Vampires
Dealing with vampire clients is a challenge that every agency owner has faced. These clients question the price of everything and don't see the value of anything, making them challenging to work with. When you stop competing on price, these vampire clients may fly elsewhere, but that's a good thing for your agency. You can focus on attracting high-value clients who will contribute to your bottom line and allow your business to grow.
Start As You Mean to Go On
During the startup stage, it's easy to compete on price because of a lack of confidence in your offering. Instead of trying to attract business with low introductory prices, bake in the fact that you won't be competing on price in your business plan, and keep this intention at the forefront of your mind. While rejecting clients willing to pay you in the short term may feel strange, you'll be far better off as your agency grows.
Track the right metrics
Focusing solely on the number of clients as a measure of success can drive the wrong strategies. It's far easier to manage 10 high-value clients generating £100k in revenue compared to 50 clients generating the same amount. Identify the metrics you need to impact to take your agency where you want to go, and track those with laser focus.
Make Value Your Selling Point
Price and value are not the same. If you want to convert high-paying clients, you need to communicate the quality of your offering to them. Invest in your own marketing and messaging to demonstrate your expertise to the market and show up as the solution to your audience's problems.
Work To Find Your Optimum Price
Finding your optimum price requires testing, adjusting, and retesting over time. A good starting point is to set a minimum profit margin you need your agency to achieve to support your growth plans and set a price that achieves it. You can then increase prices over time as you collect data on conversion to find the optimum price that maximizes profits.
Summary
Competing on price is never an effective strategy for a creative agency and often leads to financial uncertainty, low-quality service, and a stressful business. Instead, compete based on value from the beginning.
If you're running an established agency and still competing on price, it's still possible to change your approach to give you more time, more money, and less stress. Re-evaluate your client base and let go of those vampires that are hard work. Work on your marketing and sales strategy to focus on quality and value and onboard new clients at a profitable price point.
Questions agency owners ask
Why should my agency avoid competing on price?
Competing on price often leads to narrow profit margins, difficult customers, and financial troubles. Instead of trying to undercut your competition, it's essential to find an alternative competitive advantage to grow your business and serve you better.
What are vampire clients and how can they affect my agency?
Vampire clients are those who constantly question prices and do not see the value in your services, making them challenging to work with. By stopping the practice of competing on price, these clients may leave, allowing you to focus on attracting high-value clients who contribute positively to your bottom line.
How can I communicate value to attract high-paying clients?
To attract high-paying clients, you need to effectively communicate the quality of your offering. Investing in your own marketing and messaging will help demonstrate your expertise and position you as the solution to your audience's problems.
What should I consider when setting my agency's prices?
When setting your agency's prices, it's important to find your optimum price through testing and adjusting over time. Start by establishing a minimum profit margin that supports your growth plans and set a price that achieves it, then increase prices as you gather data on client conversion.
What metrics should my agency focus on for success?
Instead of focusing solely on the number of clients, identify and track the right metrics that will impact your agency's success. Managing a smaller number of high-value clients can be far more beneficial than juggling a larger number of lower-value clients.
