Eight Sales Mistakes That Eat Away Your Agency's Profit
In the realm of business development, Ben has seen it all—the good, the bad, and the downright ugly. By his own admission, he's been responsible for his fair share of the latter. We were delighted to host Ben Potter in December 2023 for an open and honest discussion about the dysfunctional state many agency founders and leaders face when attempting to "engineer" profitability.
Be sure to watch the insightful video blog and download your complimentary copy of the Agency Growth Book 2024 to unlock the full version of Ben’s article.
“Be honest. When do you really start thinking about the profitability of a new client? I’m guessing it’s when you start the work, comparing the number of quoted hours with those recorded in that god-forsaken timesheet, you pray they marry up. Or, if you’re lucky, the latter might come in lower than the former.”
Working with agencies, I’ve noticed how profit only becomes clear once the work begins. But profitability is actually determined earlier in the process, during sales. I'm not the world’s foremost expert on pricing, but I see how agencies typically sell their services. Unfortunately, they often struggle due to poor positioning, inadequate sales skills, and desperation. This undermines their ability to price fairly and profitably.
Let’s explore some common sales mistakes made by agencies that can harm margins and tips on how to avoid them.
1. Failing to talk about money early in the process
Avoiding money conversations, especially in sales, can lead to wasted time on unfit prospects. Addressing the budget early helps distinguish serious buyers. If prospects are hesitant to reveal their budget, state a price range or minimum spend to encourage openness. If they remain vague, reconsider moving forward. Courage in discussing money also means being willing to walk away.
2. Using proposals to reveal pricing
Discuss money early in the sales process to avoid using proposals to communicate pricing. Engage with the prospect frequently, involve stakeholders, and agree on pricing before writing a proposal. This collaborative approach ensures no surprises when the proposal is presented.
3. Not aligning price with desired outcomes
Traditional agency pricing based on hours is flawed, especially with AI's rise. Focus on the impact rather than the time required for work. Position prices within the context of benefits or strategic outcomes. Before pricing, prioritise understanding the problem and desired outcomes. Emphasise the term "investment" over "budget" or "cost" to maintain a positive outlook.
4. Inaccurate scoping
Rushing the sales process and not thoroughly understanding the client's problems and desired outcomes can lead to improper scoping and pricing. This can result in unexpected issues during onboarding, putting pressure on margins. It's crucial to slow down, conduct effective discovery meetings, involve experts, and agree on a contingency budget with regular spending reviews to manage uncertainties.
5. Sharing rate cards or granular fee breakdowns
Years ago, I shared a detailed paid search quote with a prospect, won the business, but later regretted it. The relationship focused on scrutinising our time spent rather than our impressive results, which demoralised the team. Agencies have trained clients to buy services based on time, leading to requests for sensitive information. To avoid this, don't share intricate details in proposals, as it may cause issues later.
““If you apply the aforementioned principle - where a proposal acts as confirmation of what has been agreed verbally - there should be no need to provide numerous options.””
6. Providing a shopping list of options and prices
Including numerous options and add-ons in a proposal can indicate a lack of collaboration with the prospect and cause cognitive overload, leading them to choose nothing. Instead, proposals should confirm previously agreed-upon terms, potentially offering three options to increase revenue and profit, as Blair Enns discusses in "Win Without Pitching."
7. Dropping your price without realigning the scope
2023 has been sluggish, with delays and price sensitivity affecting sales. Even after agreeing on a price, you might face pushback, especially from procurement. While offering discounts to avoid losing business is tempting, this can lead to over-servicing and reduced margins. Instead, start negotiations by emphasising the value of the proposed price and how it aligns with strategic outcomes. If necessary, consider alternatives like adjusting payment terms. Lowering prices should be a last resort to protect profit.
8. Forgetting to take account of commission or referral fees
And finally, a simple – but often overlooked – mistake.
If you have a salesperson who is paid commission (there are arguments for and against this, by the way), you must ‘bake’ this into your pricing.
Likewise, with any fees you pay to referrers, such as other agency partners. Let’s assume you pay 10% of the deal value. If you fail to account for this in your pricing, that’s a 10% hit before you’ve even kicked a ball.
Your golden ticket to higher prices (and margins)
It’s unlikely you’ll have much leverage in the sales process when offering a multitude of different services to clients of all shapes and sizes.
“Your price should always be positioned in context. The wrong context is a list of features, deliverables, hours and rates. The right context is a set of benefits, or better still, strategic outcomes.”
Where pricing is concerned, this ‘broad-brush’ attempt at positioning makes it nigh on impossible to charge a premium or experiment with different pricing methods. On the other hand, when your specialist expertise is truly valued, the opposite can be true. You are more likely to be able to lead (or at least influence) the process, thus avoiding the missteps I describe above.
Specialisation is the key to this.
Solve a specific problem for a discrete audience.
Have a point of view.
And please, ditch the clichés.
Doing so lays the foundation to justifiably (and confidently) charge higher prices.
And run a more profitable agency, as a result.
