In this episode, Chip and Gini discuss the psychology of pricing within agencies. They cover topics such as the importance of being confident in your pricing, avoiding negotiating against oneself, and the benefits of premium pricing.
Gini highlights her experiences with male and female negotiators, emphasizing how women often undervalue themselves. The duo debates the effectiveness of the ‘three pricing options’ strategy and its pitfalls. They also offer practical advice for owners to ensure their pricing sends the right message to clients and reflects the true value of their services.
Key takeaways
Chip Griffin: “If you’re absolutely convinced, and you might be right, that a prospect doesn’t have a certain budget, you can give them an option at a lower price. But for God’s sakes, make the amount of work less than what you planned on doing originally for the higher price.”Gini Dietrich: “Stop negotiating against yourself. People will pay more than three grand a month. Trust me.”Chip Griffin: “There are high end and low end bounds to your targeting, and you need to think about how your pricing presents within those.”Gini Dietrich: “If you know exactly how much something costs, it will build your confidence to say, this is just how much it costs. And then add in your profit margin.”Related
Pricing strategy for your agencyThe relationship between bottled water and agency pricingUnderstanding pricing models for your agency’s servicesView Transcript
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.
Gini Dietrich: And I’m Gini Dietrich.
Chip Griffin: And Gini, I think I’m gonna be a psychologist today.
Gini Dietrich: Oh, you are great. Yeah. Yeah. Okay. Shall I, I tell you all my problems.
Chip Griffin: Oh, I, I, I figured that Olivia Benson would actually,
Gini Dietrich: yeah. Olivia Benson’s having a rough morning.
She’s, it was Addie’s birthday on Friday and there are balloons downstairs, and she’s scared of them. She’s having a rough day.
Chip Griffin: So. Listeners, if you, if you hear a dog bark in the middle of this, she just wants to be part of the show. Which is natural. I imagine lots of people, in fact, based on my inbox, lots of people do want to be part of the show.
Most of them having absolutely nothing to do with the business of agencies.
Chip Griffin: Most of them being just awful, awful podcast guest pitches.
Gini Dietrich: My, my favorite one is, ones are always the ones that say I’m a big fan. I listen all the time. And I’m like, no, you don’t. Nope.
Chip Griffin: Nope. You don’t. ’cause you wouldn’t be pitching this person.
You wouldn’t be pitching anybody because you would know we have never had a guest ever. Right. In seven years. Ever. Like, we don’t do guest interviews. Don’t bother trying.
Gini Dietrich: Right? Yes.
Chip Griffin: But we, we’ve been on that rant before, so I suppose we probably don’t need to go on it again. But you know, if you happen to be listening, then you know, don’t pitch a guest for this show.
Gini Dietrich: Don’t pitch. Yes.
Chip Griffin: But most of the people who are pitching don’t listen, so that doesn’t really help,
Gini Dietrich: even though they say they do
Chip Griffin: at all. And, and I really do appreciate the ones where they then become almost abusive in the follow up emails
Gini Dietrich: because you haven’t responded,
Chip Griffin: never heard back from you. Yep. Yeah.
you’re not gonna Yep. Because if you, if you’re not polite enough to actually tell me the truth or make a good pitch, I feel no obligation to respond.
Gini Dietrich: Right, right. I got one yesterday. That had a meme that said, are you ghosting me? And I was like, yes, I am ghosting you because you didn’t like, same thing.
We don’t have guests. I’m not gonna respond to you.
Chip Griffin: Yeah, I, I did respond once though, to someone, and, and it was, it was a very blunt email, but I, I was actually friendly with that agency’s owner that they were pitching. And that owner had been a guest on, on one of my shows that does have guests in the past.
So it was a, a poorly targeted pitch for so many reasons.
Chip Griffin: And so I responded to that individual and said, look, I’m not gonna tell my friend, the owner about this, but you might want to hone your targeting a little bit. Because this is not a good look. It’s a really bad look.
Gini Dietrich: Yeah. It’s a really bad look.
Chip Griffin: So anyway, but that’s not what we’re gonna talk about. We’re gonna talk about the psychology of pricing as an agency. Because… I, you know, we’ve, we’ve talked about pricing before and how to do it well, and, and how to make sure that you’re doing it profitably and all those kinds of things. But I, I think it would be interesting to take a look at it from basically the perspective of someone who is, is looking at or hearing your pricing as an agency and, and what signs that sends to them. You know, how do you present your pricing in such a way to have an impact, and, and get the, the right feelings, if you will, from your prospects. So, I’m just gonna throw the floor open there and, and see where you would like to start on this topic.
Gini Dietrich: Oh, where I would like to start? Yes. Well. I actually just did a podcast interview on this topic a couple of weeks ago, and it was mostly it, it was mostly aimed at women business owners and women, you know, in their careers as they’re looking for promotions and raises and things like that because women tend to… tend to not, you know, negotiate, not ask for what we’re worth. We don’t, you know, I work with a lot of women agency owners and they never price themselves correctly. They do, they do this thing where I, that I call negotiating against themselves, where they say, oh, but the client will never pay for that. How do you know that?
You don’t know that, right? Why are you negotiating against yourself? So I think that, you know, a, as a woman, I see something a little bit different. See it, see it through a different lens than I think others do because it is, that is for sure what happens. And I told this story in the podcast interview I did a couple of weeks ago, but in all the time that I’ve been hiring for my own business, men always negotiate their starting salary.
Men always ask for promotion and raises. Always. Women never do. And it’s gotten to the point where I will make an offer to a woman. And actually say, I need you to negotiate this. Because A, I want to know that they can do it because they’re going to be working with clients, right? So they, I have to know that they can negotiate with clients, but B, I want to give them the skills that they need to be able to do it and what better way to do it with their than with their own salary.
And, but I still have to say to them like, I’m going to make this offer and I need you to negotiate it. So that I understand whether or not you can actually do it. Otherwise, every single woman I’ve ever hired would be like, yeah, this is great.
Chip Griffin: Yeah. I, I, I guess when it comes to pricing, there’s, there’s the psychology on the prospect or client side, but then there’s also the psychology on the owner’s side.
Yeah. And, you know, part of that is, is what you’re getting at there. And I think that, that it is certainly in my experience as well, it is, it is more pronounced with women, although it, it certainly does exist with, with many men as well. And, and so you, you need to, to think about, well, first of all, you need to start by being confident in your pricing, right?
Correct. Yes. Just, I mean, at, at a minimum stop negotiating against yourself. Yep. Because that, that happens far too often. Yep. And it just, it, it doesn’t make any sense to me to do that, in particularly when it’s simply lowering your price for the exact same thing. Right. And we’ve talked about how you get discounts or reduce pricing in the past.
But certainly when you’re negotiating with yourself, don’t just lower the price on the exact same thing. If, if you’re, if you’re absolutely convinced, and you might be right that, that a prospect doesn’t have a certain budget, you can give them an option at a lower price, but for God’s sakes, make it less than what you planned on doing originally for the higher price.
Chip Griffin: Now I do think from a psychological standpoint, there is this concept of premium pricing that can be effective for agencies at, at some point if you are not charging enough, people don’t value what you’re doing. For sure. And so I think that it can be helpful for you, in fact to have higher prices in order to close business.
Now there is a fine line here, and I do see some people who take this to an extreme. It’s sort of like, you know, the whole notion of value pricing, right? Yeah. You know? Yeah, I know which widget to turn and when and so, you know. Yeah. And, and so I do see some people who say, well, you know, an hour of my time, you know, it’s gonna cost you $1,500 or something like that.
And, that’s just bonkers right there. There is a point where you go too far in that direction, in my view. And so you still have to make sure that what you’re doing really does provide the value for that, that money, because otherwise you may get some people who say, oh yeah, they’re premium price. They actually know what they’re doing.
I should hire, but then it’s gonna be a lot of people who feel the other way. Yeah. Like, this guy’s just, he’s a nut job. There’s, there’s no way It can actually cost that much. No. But, but, but more often than not, if you’re listening to this, chances are you can charge more than you currently charge. We say it all the time. But that the psychology of that is that the, at some point when that price is high enough, people are like, oh, this is, you know, this is a premium service.
And so you need to think about how you want to position yourself because you do send a message with that pricing before they even know anything about your work.
Chip Griffin: What kind of agency you are.
Gini Dietrich: Yep. Yeah. I have a really good girlfriend who runs an agency and, and she says to me all the time, I want, and I’ve been working her through this, but, she wants to work with higher paying clients.
Right? We all do. But the, the work that she does, she, she’s convinced herself that no one will pay more than three grand a month, which just isn’t true. And she’s, when you look at her website, she presents a very boutique, like small business, micro business type of work. And so I’ve said to her a couple of things.
First of all, stop negotiating against yourself. People will pay more than three grand a month. Trust me. And secondly, let’s revise your website copy so that it demonstrates the work that you can do at a larger business. Maybe not at the enterprise level, but you know, at mid-size business level. So let’s start elevating that.
And as soon as she started, she did a couple of things. First of all, she revised her website copy, which has been great. She figured out exactly how much things cost, which we’ve talked about ad nauseum here. But you have to know, and part of that is in the confidence that that will build that confidence.
If you know exactly how much something costs, it will build your confidence to say, well, this is just how much it costs. And you add in your profit margin. Like that’s just how much things cost. If they want a strategic plan and it’s gonna take you 20 hours and you charge 300 bucks an hour, you know how much that costs, right?
So you have to know that. And then lastly. She, you know, if you’ve got your profit margin set in there and you’re doing things at a premium. Like I have one really good girlfriend who, who will say for tactical work, like showing up for client meetings and, you know, doing administrative kinds of things from the meeting, meeting minutes and agendas and all of that.
I charge this rate. But if you are wanting me to do strategic thinking or strategic work, I charge this rate per hour. So she, she has sort of a range based on what it, what the work is. So you have to sort of know those things. And you can add in your premium pricing too. But one of the tests that I always do is I’ll say, okay, this is how much it costs because you’re having us do something on the PESO model, for instance, implementation that literally no one else in the world can do.
We’re gonna add premium pricing on top of it, and then I will say to the prospect, this is how much it costs. If they don’t blink, I know I’m not charging enough. Right? Like that’s a test I do. And sometimes I win and sometimes I lose. More often than not I win. But I know that if they are like, okay, then I’m not charging enough.
Chip Griffin: Yeah. And, and studying the reactions of people as they hear your pricing, it’s a great way to, to use psychology basically as a research tool going forward. Because, you know, different people will, will take different messages from the exact same pricing. Right. So let’s say I’m building websites. I can build relatively similar websites and I might price, for some people at 750, some people 7,500, others at 75,000.
There are certain clients that you will attract within each one regardless of their budget. That’s right. That’s right. Right. Because someone like Coca-Cola is not gonna hire someone who says they build websites for $750.
Gini Dietrich: Right. Or 7,500.
Chip Griffin: Or probably even 7,500.
Chip Griffin: So, you know, you, you immediately take yourself out of that market, which may be a good thing.
Right, but, so you need to think about who it is you’re trying to reach. You know, if I’m, if I’m trying to reach a, a higher level of client, I need to charge more in order to convince them that, that I know what I’m doing and that, that I am the right fit for them. Now at some point you are out of the budget of certain clients.
So you know, you, you can’t just say, well, I’ll always have a high price then because that, that way I’ll always get the premium clients. Yes, you will, but you’ll also price yourself out of the people who simply don’t have the budget. But my point is simply that there, there are high end and, and low end bounds to your targeting, and you need to think about how your pricing presents within those.
Gini Dietrich: Yeah, absolutely. It’s, that’s such a good point. And it’s the same conversation I keep having with my, my girlfriend who insists that nobody’s gonna pay more than three grand a month. The reason that you believe that is because you’re working with micro businesses who can’t afford to pay more than three grand a month.
But if you elevate into a different, into a larger size business, now you’re working with organizations that, A, understand marketing and communications. B, understand the value. C, understand how to to measure results and hold, how to hold you accountable to the things that you say you’re going to do. And D, are willing to to pay more.
So you, as you grow your agency, you’ll, you’ll, you know, you may start out at 1500 bucks a month in a retainer, and then you move to three, and then you move to five and you’ll, you’ll continue to grow. But I think it’s really important to first understand how much it truly costs to do something, add your profit margin in, and then if you add a premium price on top of that, that’s okay too.
And then to your point, use the reactions of your prospects to help you define and, and like tweak and evolve your pricing as you go.
Chip Griffin: Yeah. And, and we all do this in our own lives too, right? I mean, absolutely. Back, back when I used to drink wine regularly, there was no chance in hell I was gonna buy a bottle of wine that was five or 10 bucks.
It just, no, it, it, it wasn’t gonna happen, absolutely not. And, and the truth is, and I know this from having done a, a short stint as a food and beverage writer, there’s actually some pretty decent stuff in those cheaper price points. Right. It’s harder to find.
Chip Griffin: But it does exist.
Chip Griffin: Just like there are actually some decent boxed wines out there.
I never in a million years would’ve bought a boxed wine. Nope. But the reality is, and, and that’s also different in other parts of the world, it is actually more common to have good wines that come in boxes and not just bottles. So, you know, but it, it, it’s all the psychology of me as the customer. I’m just not going to do it at certain price points.
And so people will perceive you in the same way. Now, one of the other big psychological things that tends to come up is the, the notion of the three option pricing. And, hmm, I would say this is probably one of the most widely held beliefs, not just in agency pricing, but elsewhere, which is you, you should always give prospects three different prices. Basically a low number, a high number, and then the number you want them to settle on in the middle.
I’m curious what your thoughts are on the three pricing proposal.
Gini Dietrich: We rarely do it. And I understand the psychology of it, but usually what we do is say, this is what we think you need based on our experience and what you’ve told us, and this is how much it costs. I have found in the past that doing the three prices allows them to sort of nitpick a little bit, and I don’t want to be in that kind of business. That said, we do have a client who’s a long-term client we’ve been working with for a really long time, and they’ve, they had us do a, a new scope of work for some additional work a couple of weeks ago, and they asked for three prices. And I was like, okay, so we actually did the low price on what it actually cost, and then a medium and a high price. And they actually went with the high price, which I was super surprised by. That almost never happens because you’re right, usually they go for the middle, the middle price. But I, I hardly ever do it and be, and it’s mostly because they, most prospects, especially if they haven’t worked with you before, will nitpick it.
Chip Griffin: Yeah. I mean, it, it, I, I think it certainly does open up more debate around, you know, what specific things cost. Yeah. And in general, I think that’s not a healthy. Yep. Conversation. Yep. You know, I, I, I think that you need to, to talk about what the, the package costs and not get into a place where you’re breaking things out.
So, to the extent that you are providing three options, I would prefer to do it in such a way where there’s no quantities involved, right. So it’s not, you know, at, at this price point, we’ll do, you know, two or three pitches a month and Yeah. Two blog posts. And the, because the more you put numbers in there now it’s, it’s opening the door for people to start doing their own mental math, which may or may not be correct.
Yep. And say, well, you know, what, if I do three blog posts. One right. And two pitches and Right, right. Five social media posts. Yes. And like, no, no, because that, that is not, that’s not the kind of menu that you should be offering. So I, I think that to the extent that you are providing options in order to fulfill the psychology of pricing that is so widely taught, they first of all need to be three viable options.
Yes. You, you can’t ever do it in such a way where either you’re not profitable on the low end. Or the low end can’t produce results. Or the high end is just kind of silly, and you’re not really gonna be able to produce that many more results or that much more impact, right? They, they need to be things that actually make sense on a standalone basis.
So you, you can’t, psychology is important, but you can’t use it to make all of your decisions for you. And I’ll also tell you, real world. I, I’m not convinced that for a lot of what agencies do, it really drives people to the middle option. Yep. I think that, that people are, and part of that is probably because agencies aren’t doing a great job of constructing those three different options in order to really drive people in the right direction.
But, but too often I see people take the low end price just because…
I mean, when, when, when you’re first starting to work with someone you want as low a risk as possible. Sure. In most cases. And so there’s going to be a natural tendency to gravitate towards that low end. And, and so you need to be careful about this because you might actually be driving people to the wrong option.
Absolutely. When you do it. Absolutely. So if you are going to do it. Try it, see how it works, see what the reactions are. But if you are consistently driving to either the low or the high end and not to that middle option, you may need to reevaluate how you’re structuring.
Gini Dietrich: Yeah. I just, I agree with you. I haven’t had really great luck with them.
And, and, and it does, it does… They do nitpick it. So.
Chip Griffin: Yeah. I mean, and, and I, and I think that, that there is a value to, to providing either one option or maybe two options. But they, they need to be, you need to do it in such a way that, that you are perceived as the expert. Yes. And, and if I simply provide three options, as, as everybody kind of expects you might, it now looks like I’m more of just a regular salesperson.
Yeah, and you really are that expert advisor. I mean, if you, if you go to the doctor, you know, they might say, well, you know, you could do this or you could do that. They very rarely say, so here are three options.
Gini Dietrich: Here’s the low end, here’s the high end. Right?
Chip Griffin: And, and so, you know, I, I’m all for options when there actually are legitimate options, and you can explain separate and apart from the price of it, why someone should go with option A or option B.
But to me the pricing piece of options should be secondary and not primary.
Yeah, absolutely. It’s so funny ’cause..
They might even be two similarly priced options.
Gini Dietrich: Right? Yes, absolutely. Yeah. And the other thing you could, you could do if, if it’s a necessity, is tie it to results. So instead of saying we’re gonna do this work, you can say, okay, for this amount of money, these are the results based on our experience that we can expect, that you can expect to get.
This is how much it costs. For this price. These are the results you can expect to get. So, but you have to be really, really, really good at predicting outcomes. And so often, as, as we all know that when we start working with a client, we really don’t know, right? We just, you’ve had a couple of conversations.
You, you base a proposal on experience. You, you might know the industry really well, but you have no idea. You have no idea the ethics or the culture or the morals or the values or any, like, you just don’t know. You don’t know how they work. You don’t know what works and what doesn’t. You don’t know what they’re hiding from you.
Because there’s always something. So it’s, I think it’s really hard to predict that kind of stuff until you’ve been working with them for at least a year.
Chip Griffin: Yeah. I mean, I, I, I would be super cautious about being too specific with, with expected results, because as you say, you just, you don’t know enough about them culturally.
You don’t even know if they’re gonna be easy to work with so that they get you what you need. Right. In order to succeed. I mean, right. Frankly, a lot of the times when agencies struggle, it’s because they’re not getting the feedback. The information, yeah. The other things that they need from clients, when we’ve talked a lot about that on this show in the past as well, about how to cajole clients into getting you what you need to succeed. But because you know, now you’ve created psychology in your pricing where you’re, you’re making them almost expect failure when you’re not able to, to, to hit the exact numbers. Yep, yep. And so, you know, because you told them you can get these results, you may do something really well in another portion of, of what you were doing that that really makes it.
The engagement worth the client’s money. But because you, you started the conversation around specific results and, and numbers, if you don’t hit those, the perception will be that you failed even when you didn’t. Yeah. So be really, it’s super careful about, about thinking about not just the psychology, at the signup stage, but the psychology over time as well, because that plays into how you price and how you retain clients as well.
Gini Dietrich: Absolutely. And the last thing I will say is you’re, you’re definitely not charging enough. So increase your prices.
Chip Griffin: There we go.
Gini Dietrich: It’s true. So it’s true.
Chip Griffin: So now, now that we’ve depressed everybody, speaking of psychology. Alright, well on that note, we will wrap up this episode of the Agency Leadership Podcast.
Gini Dietrich: I’m Gini Dietrich.
Chip Griffin: And it depends.
