Understanding the Correlation Between Value and Pricing for Agency Owners

By Hannah Roth, mad scientist and strategist, Predictive ROI

Ahhh, pricing strategy…

Setting the price for your products and services can be one of the most enigmatic decisions that agency owners struggle with. After working with agency owners every day, I often hear things like:

• What if I’m priced too high?
• How do I sell something at that price?
• I thought I should charge X, but they gave me pushback, so I sold it for Y!

Interestingly enough, what I have started to hear from those lamentations sounds more like this:

• What if I’m not worth it?
• What if I’m not worth it?
• They didn’t think I was worth it!

Pricing your agency’s services can be daunting, especially if you’re unclear about the intrinsic or direct value (think functionality) and extrinsic or indirect value (think time-saving) your products and services provide. 

In this blog, I want to unravel some of the complexities of value perception and pricing strategy so that you feel empowered to make informed decisions when it comes to pricing your products and services.

Knowing Your Worth: Identifying High-Value Services

To set the right prices, you must first identify your high-value services — those offerings that resonate deeply with your clients and deliver desired results. Understanding what sets these services apart is crucial for crafting compelling pricing.

Keeping both intrinsic and extrinsic benefits in mind, a few questions I would advise you to answer are:

• How does X product or service make my client’s life better tomorrow than it is today?
• Does X product save my client time and/or money?
• What is the emotional benefit that X product or service is providing?
• How do I measure and convey the impact of X product or service?

The Value Grid: A Framework for Pricing

Now that you’ve thought about the value that your products and/or services provide, you need to think about the profit margins associated with each. 

Let’s categorize your products or services using a simple square with four quadrants. Each quadrant represents different levels of value and profitability. By categorizing your products/services into these quadrants, you gain clarity on where to focus your pricing efforts.

Aim to maximize offerings in the top-right quadrant—high value and high profit. (Side note – if you have a high value product or service that is not also yielding high profit margins, you may need to reevaluate your processes to see how they can be streamlined to maximize profitability).

Psychology of Pricing: Balancing Perception and Profitability

After working through that exercise, you’re probably realizing something you inherently know – pricing isn’t just about numbers; it’s about psychology. While it’s easy to understand this concept when it comes to the products or services that YOU invest in, it’s sometimes more difficult to see that the same is true when it comes to what you sell.

It may be tempting to underprice to attract clients, but doing so can also undermine perceived value.

Striking the right balance between affordability and profitability is key to cultivating trust and credibility with your audience.

Adding Value Without Sacrificing Profitability

Increasing perceived value doesn’t equate to slashing prices. Instead, focus on enhancing outcomes, reducing risk, and providing meaningful solutions to business issues and challenges.

Ask yourself how you can increase the intrinsic and extrinsic value. And then, how will you communicate that value to your audience?

By aligning pricing with perceived value, you create win-win scenarios where clients are willing to invest more for superior results.

Setting Pricing Parameters for Sustainable Growth

Establishing informed pricing parameters – like making sure your products and services are highly profitable and have a high perceived value – ensures healthy margins and sustainable growth. These parameters guide strategic decision-making and help maintain a balanced revenue stream.

In conclusion, understanding intrinsic and extrinsic value perception and implementing strategic pricing is essential for agency owners navigating the complex pricing landscape. By aligning pricing with perceived value, you position your agency for long-term success and profitability.