How-to increase the revenue of your digital agency with value based pricing and a few psychological tricks.
Why are SEOs charging too little for their services? Because a) they’re trying to compete on price and b) they use cost-based pricing.
There’s no point trying to compete on price, unless you are THE cheapest provider in the niche, bar none. If you decide to go down this route, know that there will always be someone who’s hungrier than you and willing to work for less.
Cost-based pricing means you price something based on labor costs and materials. It works for commodities like bread and milk. Selling services this way is about as effective as a cat door in an elephant house.
Let’s discuss value pricing instead.
Value Based Pricing
The value of a service depends entirely on the client, the size of their business, their niche and their unique situation.
To determine how valuable your expertise is to your clients, you need to ask yourself what kind of clients are you working with:
- Business owners who want to get into Google but don’t know how
- Marketers who know the basics of SEO but can’t (or don’t want to) do it themselves
- SEO resellers who work with the first category above
A small business owner will benefit more from your experience than a reseller who’s looking for somebody to do the manual work. This is why a reseller can buy a service for pennies on the dollar and sell it to the right client for a lot more.
Packages or Custom Quotes?
In our research we found that 9/10 top ranked SEO agencies do not display their pricing online. We looked at agencies ranking for terms “SEO Agency” and ignored a few agency comparison sites.
These general search terms are bringing in a wide range of prospects: from individuals to big businesses. Naturally, they want to be quoting each client based on the size of their business and the value the client will be getting.
If you’re selling through a single medium (like forums), you can attract a lot of similar clients. In this case package pricing makes sense, because you can predict how much value your average client will receive.
High-ticket services are, more often than not, sold over the phone or in person. When the deals are big it makes sense to close them this way. Clients need that extra attention and at that price point you can afford to give it.
Other services can sell like hotcakes even with a low-touch sales process like a website or an advert alone.
If you use our software, clients can place orders online and get their login details automatically. From there they can enteir their project info in a form and get a message when the order is complete.
Everything you do trains the people around you.
If you’re known for giving discounts left and right, people will always expect you to do so. These clients typically need excessive hand holding and are more trouble than they’re worth.
Sometimes they even promise to bring you a lot of business if only you do this one gig for free. In clients’ eyes a free service is not as valuable as one they’ve paid full price for. This introduces a whole set of problems in the client-professional relationship.
Bundles and package deals are a great way to boost your average order value. It makes sense to bundle related products and services that clients frequently buy together.
An example of a package deal is press release writing + distribution. You can also do bulk discounts and yearly subscriptions to entice larger upfront orders.
These are some pricing gimmicks you can test to give your conversion rates a quick boost. Here are some of my favourites.
Magic number pricing
The reason “marketing gurus” price things ending with 7 is because everybody else is doing it (lol). It’s the industry norm and if you want to be associated with that industry, go ahead and price your services at $7.
If we look at the retail industry, the prices often end with nines or fives. At least there are studies supporting it (here’s one from MIT).
According to this study, 42.9% of respondents believe round prices are more honest and communicate higher quality. This stands true for high ticket services, which are often priced at round numbers like $500 or $5,000.
Price and perceived quality relationship
If customers don’t understand a product or service, they are more likely to judge its quality based on price. This doesn’t apply to high priced items only. In fact, pricing a service way below the competition can raise suspicion (“Is this a scam?“).
Furthermore, this research states:
Perceived variability in quality within a service category (..) may enhance the role of price as a cue to quality.
Clients looking for search marketing services are aware of low quality services that can get them penalized, which is where the perceived difference in quality comes in.
Notice, we’re discussing perceived quality, not the actual quality of a service.
When making decisions, humans have a tendency to rely too heavily on the first piece of information offered (source).
In pricing we can use a first, higher price as an “anchor” indicating the actual value of a service. We can then show a lower price, which seems smaller in comparison.
This works similarly in pricing grids.
Add one more higher level tier to your pricing grid. Even if nobody buys it, it’ll make other tiers seem cheaper in comparison.
Here’s another trick.
The Wall Street Journal has two subscription levels at the exact same price:
So now all of a sudden the decision is not whether you should subscribe or not. Instead you’re thinking about getting Digital + Print, because it seems to be a better deal.
The main takeaway – charge what your service is worth to the client not how much labor it requires on your part. Learn who is buying your services and how much value they’re getting out of them.
If catering to a broad market, price projects individually. Use package pricing in narrow markets. Avoid pointless discounts and try to work with people who value your expertise.
Pricing things with sevens can make you seem like one of those fake “gurus”. Nines are a safer bet, while zeros communicate high quality and fair pricing.
Ultimately, don’t do things just because everybody else is doing it. Do your tests and blaze your own path.