Big Deal Energy

The Best Pricing Models for Agency Owners and Consultants

• Laura Khalil

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Say goodbye to the constraints of hourly pricing! This episode is packed with insights on why hourly rates might be holding you back and how pivoting to retainer and project models could revolutionize your freelance, consultant, or agency business. 

This episode is not just about innovative pricing models; it's also about attracting higher-paying B2B clients. I'll let you in on some strategies that have worked wonders for me and my clients.

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Speaker 1:

Hey everyone, welcome to this episode of Big Deal Energy. I'm your business bestie, laura Kalil, and today we're gonna have maybe a little bit of controversy on this show because I want to talk about pricing. If you're an agency owner or a consultant, this episode is for you. Listen in, because the ways that I think about pricing and how I get my clients to make this their $250,000 year might not be the ways that you're expecting and, frankly, they really buck some of the common trends that are used in pricing. So there are a few common ways that people price, but one of the most popular ones is the agency model. They typically charge by the hour and so if you've ever worked in a big agency, you'll resonate with what I'm about to share, which is an agency will get in a client and in the initial kickoff meeting or meetings they'll bring in all the staff into the meeting with the client so that the client feels like really special and really appreciated and like, oh, we've got a big staff working for us. And then what actually happens? If you've worked in an agency, you know that work goes to the interns and the folks who are lowest on the wrong to get done and they are billed out at an hourly rate. Okay, why is that done? Because that's how it's always been done in that industry. And here's the problem they are burning and churning through 20-somethings and early 30-somethings that are killing themselves at the stake of hourly pricing, because if they're not billing enough, then they're in trouble. By the way, what industry does this sound a lot like? The legal industry is very, very similar as well, where they're always billing by the hour. But what that means is it immediately devalues your time.

Speaker 1:

There's a few problems with hourly billing or hourly rates, and it's why, in general, I do not recommend them. First, the greater your expertise, the more you are penalized for it. And here's what I mean, and this is within the context of hourly pricing If I, as an expert and I have, you know, 10, 15, 20, 25 years of experience in what I do and I can do it, you know, really easily and really well because of my years of experience that means that I don't necessarily need as much time as someone who is newer, which means that if I can do it in five hours and it takes someone who's more of a newbie 20 hours, then I am immediately devaluing the rate at which I work because I'm an expert and I can do it faster. So hourly pricing immediately devalues you the more expertise you have. So you're penalized for being an expert under an hourly pricing model. What are some of the other challenges with pricing hourly?

Speaker 1:

You are a freelancer. If you've ever freelanced, if you've ever consulted on an hourly basis, I bet that there's been at least one time that you've looked at your clock and you've said you know I've been working on this for six and a half hours, but I'm gonna call it seven, right, and this isn't to like blame and shame you for the work you're doing. But it is more to say that hourly pricing is really a vestige of the Industrial Revolution, when people would go sit at a machine for a certain number of hours a day and produce a certain number of quote-unquote output. That just does not apply. Or work with knowledge workers.

Speaker 1:

I think hourly pricing is unethical. I think hourly pricing often makes a consultant or a freelancer or an agency owner want to pad their hours because they've quoted a lower hourly rate to make it more attractive to the client, but now they're stuck. Okay, so they've had their hours, not always, but very often. So in addition to my belief that hourly pricing is unethical, in addition to it being part of a broken model. Hourly pricing means that you, as a consultant or agency owner, will run out of time in the day because you will have no more hours left, and so what that actually does is it caps your income, and we know this because the Small Business Administration has said that most small businesses cap out at $113,000 a year, so we know that at that rate, there's a lot of people just like you who are like shoot, I have exchanged time for money and I have no more time, but I'm working all the time. How can I grow my business from here? This seems unsustainable, and it is. Hourly pricing is ultimately unsustainable. Hourly pricing is unethical. It is unsustainable as a business owner and it devalues your expertise. Okay. So the fourth thing that I really hate about this type of pricing model is it turns you into a commodity, meaning that you get lumped in with all these people based on an hourly rate and whose rate is better, and that has nothing to do with the quality of the work that you can provide to the client. It has nothing to do with the value of the work that you can provide to clients. So let's put away hourly pricing for one second and just put it to the side in this discussion as we think about well, if we, okay, laura's saying, don't do hourly pricing, right, so what do we do instead? What are the other options? So I want to present you with two other options, and this is exactly how my clients land $100,000 to $200,000 to $250,000 contracts.

Speaker 1:

We need to move to a retainer model or a project model. So a retainer model is where you are on retainer for the client over the course of a period of time. Period of time could be anywhere from three months, six months, a year, 18 months it really just kind of depends and that obviously could be renewable. There are lots of benefits to retainer models. One is obvious. The most obvious one is predictable monthly revenue. But the other benefits are you don't have to constantly be hunting every month for new clients because we're doing larger deals, and so larger deals mean we don't have to do as many deals. In fact, I like to see my clients get to $250,000 with four clients or less, so we're not constantly hunting down for business. In fact, you can then create a waitlist, which is kind of cool, because then people are really attracted to you when they can't immediately have you. So retainer pricing is a really popular model. It's one that I strongly recommend and you want to begin to think about.

Speaker 1:

Well, how can I make my business a retainer model? What are the recurring activities I can do for clients month over month? The next option is a project rate. A project rate is we're going to just do this one project and then that there's going to be a fee associated with that. In both of these models retainer and project we are not talking about an hourly rate. Instead, we're talking about what the value is to the client, and value is a perception of value, and it varies by client.

Speaker 1:

So one thing I want to share with you is sort of the three tenets of pricing. You're always going to be too expensive For the wrong target market. So if there is a target market that you're working with right now and everyone in that market's like I can't afford it, I can't afford it, I can't afford it, I don't want you to consider lowering your rate. I want you to consider raising the target market to one that is more qualified to work with you. So you'll always be too expensive for the wrong target market. You'll always be the absolute right price for the right target market. Right, there is a market out there for you who wants your services, who wants you to help them solve particular problems in their business, and they are ready and willing to pay for you. And If you want to go after that market, you definitely need to listen to my masterclass called finding higher paying B2B clients, where we actually teach you how to find that market and by the end of the masterclass you leave with a list of prospects. Now the third type of third tenant around pricing is you will always be too cheap For other target markets, so you're always going to be too expensive for some. You're gonna be the right price for others and you're gonna be too cheap for the rest. And this is the thing that most people don't actually consider. They only think, oh my gosh, do I have to discount? Do I have to discount? Do I have to discount? And no, you don't have to discount. You need to go after higher paying target markets. But in some cases, I really want you to think about your pricing, because your pricing may actually be Preventing you from getting higher paying clients, because certain higher paying clients will not take you seriously If the price is too low.

Speaker 1:

Case in point one of my clients. She's been in my elevate mastermind with me for just about a year and For the last several months I have been coaching her through a deal and initially, when she was proposing this deal to the client, she thought it was around 35,000 and that number scared her Because that number seemed really high to her. But remember, it's all about what the value is to the client. And so when she was talking to the client about what she could offer, they actually thought it was too cheap and Instead they said to her what could? What is a more robust program you could provide for us at a hundred thousand? And she was like, oh my gosh, $100,000, whoa, like, can I do this? Of course you can do it. She's brilliant. She just won the contract this week. It finally, like went through all the approval and budgeting process. This was with a really, really large client. So what did we learn from that? We learned that she was underpricing herself for an aspirational target market and instead what she needed to be doing was Understanding the value she provided was much. They wanted something of much greater price Because they perceived the value would be greater.

Speaker 1:

So when you think about value-based pricing, which you can do under a retainer or project model. You really want to begin thinking about what is the value I offer to the client, and I like using the 10x rule for this. So whenever I'm thinking about pricing and I'm thinking about value-based pricing the first thing I'm thinking about is how can I provide 10 times the value To the prospective client from the price? So if the price of something is a thousand dollars, how can I provide ten thousand dollars worth of perceived value to the client? And that can come in a financial form, but that can come in many other forms. So it doesn't just mean like you're making them ten thousand or you're saving them ten thousand, though those might be the most obvious but there could also be things that Don't have like an immediate number behind them, such as the emotional benefits to the client, the physical benefits to the client, even so far as the spiritual benefits to the client, of having this problem solved.

Speaker 1:

So I want you to think about that and if you want more help with this, two options first, check out the find higher paying B2B clients masterclass. It is an amazing resource to help you think about this and actually walk away with a list of higher paying Prospects to go after. And the second thing I want you to think about is joining me inside of elevate that is my mastermind, that is designed to help you make this your $250,000 a year or a small group where you work directly with me and with the group To help make that dream a reality. So if you want that big deal energy, head on over to brave by design net and we'd love to give it to you. Until next time, friends, stay brave.