Pricing Pass-Through Services Profitably
Have you ever found yourself pondering the best way to price pass-through or white-labeled services? Should you apply Markup to it? If so, how much Markup should you apply? How do you ensure that you’re making enough profit on pass-through expenses? What’s the difference between pricing pass-through services and the work we do in-house? So many questions...
The answers to the above might surprise you, and Marcel Petitpas breaks it down for you in this video post from his session at the PPC Agency Book Launch back in September 2023. Marcel provides you with timeless best practices for making sure you know how to set up any engagement for success – regardless of whether or not you’re outsourcing all the work, doing it all in-house, or anything in between.
Let’s hop in!
Financial Ratios 101
Delivery Margin – Your Golden Metric
Pricing vs Scoping
Markup – A Pricing Concept
The Agency Pricing Quadrant
Value
Risk
The Result
To conclude, we want to emphasize the significance of understanding your Delivery Margin in relation to your AGI (Adjusted Gross Income). It is undoubtedly the most critical factor when it comes to pricing and Markup.
To ensure a healthy Delivery Margin, it is recommended that your per-project margin should be 10-20% higher than the agency-wide metric. It is advisable to aim for a margin of at least 50-60%. This ensures a comfortable buffer to manage unexpected expenses and maintain profitability.
When pricing pass-on services, it's crucial to strike a balance between ensuring that the AGI has enough margin left after paying the external vendor and allowing for a strong delivery margin. This ensures that you can effectively manage the cost of external services without compromising profitability.
While Markup can be a useful pricing strategy in some cases, it's important to understand that it shouldn't be the sole concept to rely on when scoping projects and setting prices. Other factors, such as market demand, competition, and value proposition should also be taken into consideration.
Ultimately, the goal is to set prices and maintain a healthy Delivery Margin that allows you to provide value to your clients while ensuring sustainable growth and profitability for your business.
