VALUE

BASED PRICING
HOW TO GUIDE
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 VALUE BASED PRICING HOW TO GUIDE

Fixed Fees and Pricing

Hourly Fees vs. Fixed Fees
Many marketing agencies and service-based businesses charge by the amount of
time for work completed. Time and Cost model was originally developed in the
early 1900s and having a business built on a foundation that’s well over a hundred
years old is outdated. Modernizing this is a fundamental concept that will have a
huge impact on your business model and financial success. A service-based
business should switch to a value-based billing model with fixed fees for services
rendered, and there are many reasons why that is recommended.

With a time-based service business, the only way to generate more revenue is by
adding more employees and more billable hours, and increasing your employees’
utilization towards those billable hours. You want them to get 80% of their time
being billable, billing a minimum of 1800 hours a year then multiply this by your
ideal markup, and you have your billable rate. The only way to increase revenue
is to increase their bill rate, increase the number of hours they bill. With an hourly
billing model, this being the only way you can increase your revenue numbers;
your options are limited unless you adapt.

However, when you change to a fixed-fee business, you increase your revenue
number by creating additional capacity and efficiencies, not by finding ways to
bill more hours. There are several benefits to making this significant transition for
a value-based business.

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 VALUE BASED PRICING HOW TO GUIDE

Time/Billing Model vs. Fixed Fees

Some important distinctions and components to changing your pricing model

include:

• Realizing that your services are worth more

• Finding the courage to charge more
• Increasing all prices immediately
• Offering additional services at the time of buying
• Creating a standard menu of services and fixed-price list
• Establishing prices in advance, not in arrears
• Articulating the value of each project eloquently
• Getting rid of low-margin services and low-margin clients
• Improving your language and sales skills
• Targeting more profitable clients and services.
• Using value-based fees for each service—not hours x rates

Changing from a time-based business to a fixed fee structure requires a mindset

change that will help to realign your agency for a more successful financial foun-
dation. You need to be clear on what your average project billings will be, and set
how many projects you need per year to achieve those goals with a fixed price
model. There will also be more opportunities for you to provide additional
services to existing clients. Once you set your project goals and new pricing, you
need to drive towards your new goals. The first challenge is to make sure that
your agency has project-specific financial clarity. Many agencies do not have a
clear picture of each project’s specific financial targets and actualization.

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 VALUE BASED PRICING HOW TO GUIDE

You need to know:

• if a client relationship is profitable

• how much time you are spending with each client
• the costs associated with each client
• what and how your target profit margins are achieved
• the average Hourly Earnings Per Client

Whenever I suggest this “radical” mind shift in a business that is failing to

achieve their financial targets and goals, I usually get some pushback because it’s
“industry standard” to use the Time & Cost & Billing Model, you bill by the hour,
you bill by your cost associated with the project with an agency fee tacked on top,
that’s how it is done. But I make it clear to my clients that if they really want to
accomplish their financial and growth goals, they need to make the switch.
Usually, one of the biggest fears of changing to a value-based pricing model is
that they will lose clients. Typically, in most cases, I see very few of their clients
choose to take their business elsewhere. Of course, it all depends on the way that
my client positions it to their clients. The best way to explain is to say –

“We are changing our billing model to remove the unknown for our clients. We
are aware that, from time to time, the hourly billable rate causes you to go over
budget. We are moving to a fixed fee model so that we can remove the unknown
from a budgetary perspective for you. At the start of each project we will provide
you with a fixed cost for the scope, allowing you to have assurance that you will
get the same work product without any variable costs.”

In order to make this billing transition happen, we implement a process to figure

out services and fixed costs depending on the type of creative agency,

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 VALUE BASED PRICING HOW TO GUIDE

and depending on the type of services that you’ll be offering. We’ll review prior
projects to ensure that we have an all-encompassing understanding of the
expenses that have come up for each project. We’ll talk about minimum required
income, top down and bottom up budgeting and how to use it. We’ll use their
historical data to build the cost structure of your fixed fee billing model. When
meeting with the client, you will determine what value will be provided; consider
the cost to the agency, the target margins for the company, and blend that into the
fee that you will present to the client. Then whenever they add or launch a new
project, they’ll understand exactly what the cost is going to be.

If you want to improve your business significantly, you need to reimagine it. You
need to be motivated to change the framework of how your business functions.
You want to create procedures so your business can operate without you. You
want your employees to perform all business functions systematically and easily
that it’s almost impossible to make a mistake, and it’s so second nature that it just
happens quickly and efficiently.

As referenced earlier, ‘The Power of Habit’ is a book that I recommend to clients

frequently. It explains the importance of habits and systems and processes. If you
walk into a Starbucks or a McDonald’s, the product is the same from one store to
the next, and the reason is because of their processes, their training, and the way
that they habitualize their employees. All employees are trained to function in the
same way. Store to store, business to business, you have an assembly line
organization that allows continuity and efficiency. With a product that their
customers can regularly expect, they will be ‘evergreen’ customers.

Upon embracing the strategy behind replacing the Time & Cost & Billing model
with value-based pricing there are additional areas in which an agency must take

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 VALUE BASED PRICING HOW TO GUIDE

action to help fortify the financial foundation. As noted above, train your team to
maintain habits that ensure consistent and efficient delivery of your offered
services. As the owner, you will also need to be clear on how to budget, design
your chart of accounts, prepare financial projections, assess, and close out
projects, achieve consistent improvement, improve your profit margins, and
manage scope creep. GENCYSUCCESS.COM | CREATIVEAGENCYSUCCESS.COM | © 2020
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 VALUE BASED PRICING HOW TO GUIDE

How to Budget
This is where the financial and analytical sides come into the picture in order to
optimize the business and allow for consistent improvement. Many times, agency
owners have someone from an accounting office running the numbers and they’re
not even looking at their reporting, they are only focused on closing deals and on
their creative functions. While they are also very important, a business owner
must be closely watching the financials, driving improvement. A lot of
businesses are run by the seat-of-the-pants. They’re not paying attention or
having oversight over the management of a project. They may say, “Hey, you
need to spend whatever you need to spend to manage this project.” This means
that, frequently, businesses don’t have established processes. They haven’t set up
a process around making sure that their accounting team is reviewing purchase
orders, expenses, and project profitability. They aren’t able to determine where
they are and what has been spent vs. a specific budget. They are leaving their
businesses' futures up to chance.

Let’s say that you’re managing the creative and graphic work for a national
campaign. Whether you have contractors executing or you’re using an internal
team, there are high costs associated with every hour. You need to understand
how your costs will impact the project budget. Let’s assume you are using
external resources, so you’re hiring someone to do some graphic design work for
a splash page on their website and then you’re working on building some
creativity around a couple of different magazine ads. And while you have this
team that’s executing this project for your client, they are doing so and exceeding
the budget amount without any understanding as to why that’s happening, as they
too are billing by the hour without direct oversight. In a lot of these instances, I

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 VALUE BASED PRICING HOW TO GUIDE

find that a systemic cause for this budget overage is scope creep; make sure you
have a defined scope and adhere to it. The accounting team, account executive,
and management should be able to notice and say, “Hold on, you’re exceeding the
budget.”

You need to know why your team is exceeding the budget. Did you budget incor-
rectly? Will you have to go to your clients and say you have to increase your fee?
Your accounting team, your account management team, your creative team, and
your business development team all need to be in better communication with each
other. You must also have a process around making sure that you’re bidding and
paying the amount that you should appropriately pay for those specific expenses
so you don’t go over budget. I often find that account service teams and creative
teams are not focused on fiscal responsibility; they are focused solely on client
satisfaction and retention; many times, to the detriment of the company, lowering
already below-target margins to keep a client happy. So, it is important to not
have a fiscal responsibility aspect, or a fiscal part of a business to be managed by
someone that isn’t typically expected to be fiscally responsible. This is a key
reason I recommend budget templates that take the thinking out of the mix and
help the business development team to bid appropriately and consistently.

How you price your services will have a significant impact on the financial
success of your agency. Charging for the value you deliver, rather than the
amount of time you initially hoped it would require, is a more logical and
beneficial business model. This, of course, requires that you have an accurate
awareness of what benefit this will bring your client, what it will cost you to
provide your services and stay on-budget while achieving the desired result.
Then, if you’re able to save a percentage of the time it requires for you to provide
your various services, then you’ll significantly increase your average hourly

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 VALUE BASED PRICING HOW TO GUIDE

earnings for each project. You can continue to refine and save 5, 10, 15, or 20%
year-over-year on each client. Continuing to refine your process is the way you
will take your business to the next level. When you change your business model
to value-based, there’s more motivation to improve efficiencies and margins. Your
entire team is encouraged to find more efficient ways to deliver services in a
consistent and routine way.

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 VALUE BASED PRICING HOW TO GUIDE

Designing Your Chart of Accounts

In order to accurately budget for projects and campaigns, you will need to fully
understand the various components of creating an effective budget. It starts with
designing your chart of accounts so you can prepare accurate financial reporting
for all client projects and systematically actualize spend. In my experience of
consulting with clients to accurately structure their financial reporting, we have
seen increases by as much as 36% in profitability. So, you can see how important
this function can be to your agency’s success. When you review your project
records, you’ll be able to determine your average product value, average hourly
earnings, and determine where adjustments are needed.

Then you can project such as – “I’ve got X number of clients. We do an average
of Y projects a year. For each one of those clients, we average Z projects a year
with an average profit of $x amount.” You can determine how many projects are
needed, or what adjustments are required to meet your financial goals. You need
to know your average product value or campaign value to set that goal and make
initiatives to drive towards them, whether that’s increasing the prices across all
projects or increasing the value per sale with your clients. Make sure you
understand what that goal is. Set that goal and drive towards it. As Pearson’s law
dictates, what is measured is improved. Make sure that you are offering the
services that your clients need and the services that you want to offer.

You also must attack and leverage your average hourly earnings. For example:

Let’s say that:

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• you have Gross Profit before Payroll of $3.5 million

• you have fifteen employees, which is 31,200 hours
• you’re making an average of $112 an hour

If your goal is to raise average hourly earnings to $175 an hour for all hours
worked, how are you going to do that?

Let’s assume:

• you’re going to increase efficiency by 35%

• and 20% by increasing your price

Set your goals and work towards accomplishing them daily. Creatives provide a
lot more value to their clients than they give themselves credit for. Without you,
the product or service that your client is selling would not be in front of their
target demo. You need to realize that your services are worth more, and you’re
worth more, so find the courage to charge more. Make sure that you’re offering
all the services that your client needs to achieve their goals at the time you sign
on a new client. It will help your client achieve their goals. Provide them value,
increase your retention, all while improving your profitability. This is easily
accomplished by having a standard menu of services that you offer and a
corresponding price list, increased only by the value you will provide. You have
to price your services for each project in advance. Period. Eliminate your
low-value, low-margin services, and your low-margin clients today.

I had a client that freaked out at first because he “fired” 25% of low-margin
clients. Some of his clients were actually costing the business money and I
advised him to go on and purge those clients. At the same time, I suggested that

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he brings on some additional employees. He had some capital that he was willing
to invest in the business, and he started working on a marketing campaign to
make it happen.

After about 3 months of providing notice to his low-margin clients, the team had
significantly more time to work with the preferred clients. The employees were
much happier. They got rid of all the pain clients.

There was time to prep and train employees to be ready for all the new clients that
they anticipated bringing in. They were able to service them, and service them
well, as they started to bring on ideal clients and their value-based fixed rates.
Around the forty-fifth day, the client said, “Robert, I think that you may have
driven me in the wrong way here, I’m really afraid, I’m freaking out.” I assured
him he was doing the right thing to boost his business. That 25% that he fired was
worth half a million dollars in revenue. After 180 days, they brought in new
clients worth $3.2 million in new, annual revenue. They had higher-value clients.
They reduced their overall client load. The margins were higher. The employees
were happier.

The actions that I suggest and the concepts that I go through with clients
sometimes seem drastic. Sometimes they even seem scary, but they are designed
to challenge you. The point that I made to the above client was, “What’s the
worst-case scenario? If you were to lose that 25% of your revenue and you don’t
end up replacing it, you lose all the clients that were earning you almost no
money or even costing you money… you’ve eliminated the need for a couple of
staff members, and you’re making more money than you were making before…”
Less work and more money, not a bad case scenario for me.

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So, make sure that you target more profitable clients and more profitable services.
Never bill by the hour. When designing your chart of accounts, create an excel
document and a process for your Business Development team that allows them to
input all the different components that may potentially be involved in each of
your campaigns. Build a process around being able to make sure that you are
removing the human error and the forgetful aspects of the budgeting process. Be
sure that you’re properly budgeting and building in enough margin into your
projects so that you essentially remove any chance of error. You can use
something as simple as an excel file or build out a CRM (Customer Resource
Management) tool. CRM such as Salesforce allows you to build it directly into
your CRM creating a proposal that’s sent out directly to your clients,
systematically and automatically. One of the best aspects of this is that all actions
taken are reportable, allowing for your analysis and improvement.

Your reporting needs should be designed around how you’re spending money on
your campaigns. Let’s say that in one instance you have a budget for model brand
ambassadors. So you should have a GL account specifically for the talent you
have, and you make sure that you also have a GL account for the uniforms you’re
going to spend on those models, a GL account for parking fees, a GL account for
the premiums that are going to be handed out, a GL account for the gas and the
mileage that you’re going to have to reimburse for the toll fees and other
transportation fees, etc.

Make sure that you design the chart of accounts around the sort of services and
the sort of expense that you’re going to have while executing your services. With
this, you are able to generate a report that provides you with a detailed
comparison of how the project is performing to budget, with as much, or as little,
detail as you need. You then can use that information and that analysis to be able

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to shrink down those financials into an executive-level view. In some instances, I

have had clients suggesting that this level of detail in their reporting is more than
what they needed. When it comes to reporting, it is much easier to summarize
than create additional detail that wasn’t previously available.

You’ll be able to expand your financials, so they are helpful for the management
and for the team that’s actually executing that project and that campaign. You are
able to get an executive-level view of those financials so that you can make
high-level overviews and business decisions, rather than deal with why someone
paid $10-$15 for parking fees.

The key value to accurate budgeting and reporting design as you execute each
campaign is that you will learn from each project and you can budget better the
next time. With access to detailed reporting, you will be able to take away lessons
from each executed project and continue to improve your accuracy and
profitability. Knowing what it costs your team to deliver each service will also
help you to charge what you are worth, and have better control of your margins
and profit.

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Financial Reporting
Project financial reporting is very important to your agency. One of my clients is
an experiential marketing agency in Los Angeles. When I first started working
with them, they had decent margins, but with ample room for improvement. So,
what we did was institute a budgetary process at the beginning of a project and
then we started to produce a weekly report for the team. We basically said, “Hey,
this is what your budget was, this is how much you’ve spent so far, and this is
what you have left.” We designed the purchase order and expense process with
them. My team helped oversee, process, and report to their team and the
management allowing them to make adjustments. This also allowed them to keep
projects in check, especially when they stray from the original scope. They were
also able to oversee a three-bid process properly for larger budgetary items for a
specific campaign. As a result, they experienced a 36% increase in their gross
profit margin, on a business that was generating $10 million a year.

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Closing Out a Project

Interestingly, a lot of people and businesses alike don’t harness the power of
failure. They essentially allow failure to go untapped or unused. Creative service
businesses don’t take each project and look at it as an opportunity to improve the
business in different areas: whether it’s financial, technological, functional
(processes), or operational. And often, it is the financial reporting that reveals
areas that can be improved. You should document your successes as well as your
failures and improve upon them. This is an aspect that so many businesses are
lacking. Successful businesses use their failures to drive their business to achieve
greater success. After all, it is in your failures that you will find ways to adjust the
business to allow for it to reach its goals.

In order to fully assess the financial result from any project, to see if there is room
for improvement, you will need to close out the project. At the end of a campaign,
or of a project, you should have an internal meeting to talk about your successes
and failures. You need to be able to recognize what happened, what went well,
what didn’t go well. This invaluable insight will help you to improve your
process, to recognize if you didn’t account for enough spend in a certain area, and
to identify other technological and procedural issues that you can correct. Then,
the next time you execute a similar campaign, you’ll have a more accurate budget
proposal and process.

The closure process of any project, depending on the type of service or work that
you're doing with a client, may change slightly with each agency. Typically, a
closing process starts with a checklist of items that need to be done in order to
actually wrap up a project.

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• Do you have assets that need to be delivered or returned to the client?

• Are there items that need to be stored?
• Do you need to charge the client for that storage or for the following
year's campaign or activity?
• Do you have digital assets that need to be saved, archived, or returned to
the client?
• Review Sales Budget, Working Budget and Actual Spend
• Were client objectives achieved? Why? How could we improve the results?
• What was the feedback from the client?
• What was the impact, internally, on the team?
• Did this project meet internal objectives?

One very important aspect of the closure process is conducting a financial review
with the account team, the operational team, and the accounting team. The first
step of this process is a review of the financials specific to the project, making
sure that the operational team and account team have reviewed the financials to
ensure that all expenses related to the project have been documented. Any
expenses that should not be tied to the project are corrected and clarified. The
next step is for all involved teams (account service, operations, finance, etc.) to
review and document all of the project’s successful and unsuccessful results.
Upon reviewing the failures during the project, the teams should create plans to
improve service, product, deliverables to the client, etc.

So many agencies have had no, and do not actually have, project or campaign
wrap-up meetings with their clients, despite the undeniable benefits of having
one. There are numerous benefits of showing the client the successes of the
campaign while reviewing what the goals were at the onset. There is an

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opportunity to showcase the accomplishments and show the client the areas
where further improvement is possible on the next campaign or project.

One of the most important and pivotal pieces of the wrap-up meeting is to include
your business development team. An estimated 40-50% of these meetings yield
additional bids and proposals when the business development team is present to
facilitate discussions on new initiatives and objectives. Without a wrap-up
meeting, this potential business could be missed. So, there are clear benefits of
closing out a project. You will see how you can improve your efficiency and
success, you will fortify your relationship with the client, and you may yield
additional business activity that would have otherwise been lost.

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Consistent Improvement/
Improving Profit Margins
As you build habits into your business that help you to continually improve your
efficiencies and financial budgeting, there will be opportunities to improve your
margins and your overall profit potential. The key is to consistently focus on
improvement. A lot of businesses have the idea that they want to earn 15%, 20%,
30%, 40%, or whatever that number might be for them on the gross margin on
their campaigns and their services. But the thing that a lot of people are lacking is
the understanding of what their business actually needs to earn to cover their
expenses monthly, their burn rate.

On a monthly basis, the company must earn the target gross profit to cover
administrative expenses and yield profits. Whether it’s a six-month or a
month-long campaign, whatever that might be, the minimum margin that they
must earn per month, must be clear and achievable. This understanding plays a
crucial role in the budgeting process, and when building your quoting and bidding
process. For this reason, you should review and improve your budgeting process
semi-annually. You might determine that you need to increase marketing spend in
order to achieve your goals or that you need to bring on three new people in a
department. Your entire team needs to be aware of your margin requirements, and
whether the margins are being met. So many businesses have no idea what their
margin is, and they are completely off track on being able to hit that margin and
being able to make sure that the business is profitable or can reach its true
potential. Without this, achieving your goals is unlikely.

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There also needs to be systematic ways for your team to be able to measure its
success with each of the initiatives. For example, if a company has a goal for the
quarter to have an average of 30% or 40% gross profit margin, how are they
going to know when they're bidding on a job what the margin is going to be?

Many creative agencies that I've worked with have had issues being able to
determine how much time it's going to take to accomplish a job. There are two
reasons for this. The first being that they're working on items that are not well
within their wheelhouse. The second reason is that they don't have a process or
procedure around how to gauge and understand the amount of time that it's going
to take to invest in a specific campaign. They may also not be clear on what
activities will be required to achieve the client’s goals.

One of the things that I've implemented with a number of clients to avoid these
challenges is setting a budget sheet in the initial budgeting process with any
campaign, rather than trying to determine the number of hours that it's going to
take for a creative campaign. Think in terms of what percentage of a team
member’s time will be needed to deliver the project objectives. Once you've gone
through the process for a number of campaigns in a number of projects, it's a lot
easier and much more accurate for you to determine your budget and target
margins. This will help you to ensure that the budgets you create will allow you
to hit your margins and deliver successfully without overburdening your team.

You need to understand where your expenses are in the business to be able to
operate and achieve your goals, and then be able to recognize if you’re achieving
the revenue numbers to be able to support your team and your monthly burn rate.
If not, then you need to make adjustments and creatively think of how to reduce

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your expenses. Ensure that you have the minimum margin you need, and you’re
bringing in the revenue that you need to yield the profits you need to achieve your
goals.

Making sure that your team is aware of the company successes and failures for
each campaign allows for consistent improvement. This also encourages your
team to focus on their own personal successes and failures so that they can make
individual improvements. If you don’t do this, you are the only person rowing in
a boat full of people. You must learn to leverage your entire team.

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Establishing & Communicating Scope

In order to be confident that both you and your clients are not unhappy with how
the projects unfold, it is important to establish and maintain good communication.
This is especially important as you onboard a client and clarify the scope, the
services you will provide, and the budget. The project scope must be
communicated to your team as well as the client.

The scope of the project must be contractually outlined and clearly

communicated. But what often happens is the client very frequently wants more
services throughout the course of the project. As issues and tasks come up, you
might have additional needs to be able to serve the client, which is great, and you
may be happy to provide that additional service. But your team needs to know
that, so they can communicate it to either your account executives or your BD
team, so they go back and submit a proposal to the client for the additional work
that is outside the scope of the contracted work. Otherwise, you will start to have
your budget overrun by scope creep and not meet your targets.

In addition to clearly communicating the scope of the project and all of the
services that are included, it is important to establish and maintain effective
communication with the client throughout the project. Perhaps the number one
issue with service-based companies is that they’re hung on not communicating
their successes to their clients as well.

However, the value of the successes to them, when working under a fixed-fee
pricing model, is significant. Clearly, it is important to realize that you need to
know and understand how a campaign was either successful or not. This will

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obviously influence your client’s satisfaction with your services.

When charging value-based fees, the value you deliver must be clearly
communicated to the client. Your successes help to fortify the value that you
bring and can help to support potential increases in your fees. Failing to
communicate the value could easily jeopardize the renewal of that contract. The
majority of agency owners presume that the client already knows it. But it is
irrational for anyone to assume anything about someone: what someone knows,
how someone would respond, how someone would believe, or how someone
thinks, etc. So, I suggest that you communicate frequently with your clients. I
have some clients that meet with their clients weekly. Determine what cadence is
best for your business and put it into action.

More frequent meetings are better. Have a quick 20-minute or 30-minute check-in
with your client on a weekly basis, especially on your larger accounts. It is
something that is a completely reasonable thing to do.

Also, if you recognize that a client isn’t happy with the overall campaign because
they aren’t getting the expected ROI that they wanted, then you need to be
proactive in communicating with that client to discuss how to revise the campaign
to improve results. At the least, you need to analyze and learn from the results so
you can make future adjustments to improve effectiveness for all of your clients.
What could you have done differently? Why are your results different than in the
past? Are there societal or demographic changes that are now impacting your
results? If so, what can you change to correct your process? What changes can
you make to assure that you are giving your clients the value-based results that
they are expecting? The answers to these questions start with prioritizing
communication.

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Managing Scope Creep

Finally, it is essential to understand how scope creep can wreak havoc on your
budget and profit margins. A lot of agencies have not spent the time or invested
the money to have a clear contractual process and to have their scope very clearly
delineated in their contract. So, the first part of being able to manage scope creep
is being able to say to a client, “Here’s what was actually included.” If you don’t
have that spelled out in the contract, it creates a problem. If there’s no real scope
that’s outlined in the first place, there will likely be situations where your agency
becomes vulnerable to scope creep, and all of the expense and financial issues
that follow.

Case Study – Increasing Gross Profitability by 36%

We began working with an experiential marketing agency that had the same
billing structure as most marketing agencies in the United States…

They operated on a cost-plus-time model. This meant they charged an hourly rate
plus the cost of the outside fee and the agency fee.

Sound familiar?

This is the exact model that creates the potential for scope creep. Over the course
of six months, we worked with this client to help them understand that this model
isn’t sustainable. The only way they could increase gross profitability was to
increase their utilization ratio or upping their hourly bill rate.

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 VALUE BASED PRICING HOW TO GUIDE

And there are always limits to both!

On top of that, the client had a problem with its larger projects. As projects grew
in scope, agency fees tended to decline. This is an indicator of scope creep as the
client ended up doing far more work than its fees indicated.

They needed to rethink their billing model.

We introduced them to a fixed billing model where they charged based on value.
This allowed them to create fixed rates for projects based on the value created.
And within that fixed rate, the client could clearly define the scope of the work
that they would carry out.

That meant no more scope creep.

It also helped with setting client expectations, understanding ROI objectives, and
outlining the true value provided by their work.

The client spent 18 months moving all of their clients over to this new model. The
result was a 36% increase in gross profitability. For context, if an agency
generates $1 million in top-line revenue, this one action would lead to a $360,000
increase in profit on that revenue.

The first step in managing Scope Creep is by aligning your internal team on the
contractual scope and what the inclusions and exclusions are. This is typically
done during the handoff meeting held between Business Development and
Operations. This meeting will cover the proposal, client goals, scope, budget, and

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 VALUE BASED PRICING HOW TO GUIDE

client communication expectations. This meeting establishes the foundation of a

successful project and ensures that the entire team has the information and tools
needed to expertly execute their job.

You need to review your MSAs (Master Service Agreements) and your Boiler
Plate language to ensure that:

• you’re protected from liability

• your assets are protected
• you’re able to collect fees and charge interest on unpaid balances
• you have clearly communicated the full scope of the project and the
exact services that are included all of the work you will do for the client
• you have clearly explained your value based pricing and the financial
terms of the agreement
• you have outlined the process for handling any out of scope (scope
creep) requests and the additional costs that would be involved

I deal with this every day and say to my clients – you have a specific defined
scope of work that you’re going to be doing for each specific client. Let’s say you
have an experiential agency that is hired to execute a specific event. But they’re
only hired to execute the logistics for that specific event and then the client says –

“You know… I need some updated tents. I need some branding. I need some
digital design work. I need a landing page for a website…”

The scope of the project is building. Now, you have branding, graphic designs,
and landing page; all these items are outside the scope of the project. It is
important for agencies to recognize the risks when this occurs. You need to tell

Robert@CreativeAgencySuccess.com | CreativeAgencySuccess.com | © 2020 Patin & Associates

 VALUE BASED PRICING HOW TO GUIDE

I deal with this every day and say to my clients – you have a specific defined
scope of work that you’re going to be doing for each specific client. Let’s say you
have an experiential agency that is hired to execute a specific event. But they’re
only hired to execute the logistics for that specific event and then the client says –

“You know… I need some updated tents. I need some branding. I need some digi-
tal design work. I need a landing page for a website…”

The scope of the project is building. Now, you have branding, graphic designs,
and landing page; all these items are outside the scope of the project. It is
important for agencies to recognize the risks when this occurs. You need to tell
your client that this is outside of the scope of the original project plan. As a result,
you’ll need to actually go through a few examples to see what the costs are
associated with the additional services, assuming that this is a service that you
offer. If you make the mistake of just throwing it into the mix without fully
assessing the costs and impact, then you risk increasing your costs without
increasing your revenue.

What you’re going to find on an ongoing basis is that as a plant grows, as a plan
needs change, whatever may happen with a specific client, you need to be
prepared to respond to these requests and have a process to handle them. Such as:

“That’s great. I’m happy to provide that service to you. We will provide
you with a proposal for the additional services…”

You also need to make sure that your creative service team informs either the
sales rep, the client experience manager, or the account manager about those
specific items requested.

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 VALUE BASED PRICING HOW TO GUIDE

Then, your business development team can communicate to the client the price
for the additional services. Ensure that each and every member of your team
understands each project’s specific scope and what to do when out of scope
requests are made. This will help keep your projects from costing you money and
involving work that you may not want to do.

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Robert@CreativeAgencySuccess.com | CreativeAgencySuccess.com | © 2020 Patin & Associates