I received a call from an agency principal about pricing. The principal was concerned that he was pricing a service too high.
“I really need this business,” he said. “If we don’t win this assignment, our year will not be very good; but if we are awarded the work, our year could be very good indeed. So… I’m debating whether to lowball our proposal to ensure we get the volume and make some money.”
What do you think about this strategy? I hear some variation on this every few weeks. Business is tough, and new business is much tougher than it was a decade ago. But…
Here is what I told this principal. I’ve put it in all caps because it is that important.
IN ALL MY YEARS IN THE AD AGENCY BUSINESS, I HAVE NEVER SEEN AN AGENCY WIN AN ASSIGNMENT OR AN ACCOUNT SOLELY DUE TO PRICE.
Companies do not decide to work with agencies based solely on price; it’s absurd to think so. Selections are based on a range of things including industry knowledge/experience; creative reputation; ability to deliver on time and on budget; and chemistry. Most importantly, agencies are selected because they demonstrate an understanding of the problem, and propose a solution that makes sense.
Determine your prices based on what a project is worth, not on what it costs. By framing the proposal correctly, and clearly aligning the objectives and measurements, you can sell a project based on what it will mean for the client’s bottom line. You’d be amazed how ready clients are to spend marketing dollars when you learn how to sell proposals by speaking the language of business, not hoity-toity creative fluffery.
Remember that price is just one factor in winning new business the next time you think about lowballing a proposal. Undercutting your pricing is not necessary. If you do pitch your services too cheaply, you may find the client will devalue your agency’s overall worth.
If you want to get some idea of how your prices compare to other smaller agencies, take a look at our most recent Production Pricing Survey Report.