CASE STUDIES: 3 pricing strategies we employed on our way to £12m in 3 years

Lately I’ve been helping a few marketing agencies with their pricing strategy as part of my work as a business development consultant, so now seems like a good time to share some of the pricing strategies we employed at Rise at Seven to get to £12m billed in our first 3 years.

Case study 1: increasing price points in line with demand

At the end of its first quarter, Rise at Seven had ~8 retained clients, each paying between £2,500 and £12,500 per month: the biggest client (£12,500) was 5x bigger than the smallest 2 (£2,500 each). At the end of its second quarter, Rise at Seven had ~16 retained clients, paying between £2,500 and £25,000 per month: the biggest client (£25,000) was 10x bigger than the smallest 3 (£2,500 each).

It isn’t possible to be equally good at the extremes. Either:

• You give the large clients the service they are paying for and the small clients get almost no output as a result; or
• You service the small clients the way you did when they were a bigger chunk of your revenue and you feel like you have to give the larger clients 10x as much.

At this point, Rise at Seven resourced to a blended day rate of £800 (more on this in a second): this meant that the smallest clients got ~3 days per month and the largest got ~31. A small client might be able to afford one campaign every three months; a large client could therefore expect three campaigns every one month.

This caused two major problems:

• When we had 6 staff working on 8 clients and a difference of 5x between client fees, we were able to give a small client a campaign every month or two, so we’re literally reducing our service as we grew; and
• When a client had three campaigns to get through in a month, each with feedback and amends and more moving parts because there was more budget, they would monopolise the designers and developers and everyone else, so if amends were needed for a client who was working on their quarterly campaign, it naturally falls back to the bottom of the queue.

So, when those £2,500/month contracts came up, we let each other go. I remember some conversations where the client thanked us for their full pipeline and said they’ll come back when they can afford us; I remember one conversation where the client said “we just think you like Missguided more than you like us.”

…but Rise at Seven wasn’t one of the fastest growing agencies of its time because it kept adding £2,500/month retainers; it grew quickly because it kept adding £25,000/month retainers.

(The obvious question is how…and the answer is in the heading: we invested a lot of time and money in constantly increasing demand. Carrie Rose is, after all, the absolute best at this.)

Case study 2: the economic denominator

Like most agencies, Rise at Seven initially had a dashboard full of metrics we were interested in. Unlike most, we were convinced that several of the metrics we were raised with just didn’t apply to us.

I’ll give the example of “revenue per head” or “revenue per FTE”: in my last couple of years at Branded3, we were told that yes, revenue and profit needed to increase in line with the forecasts we’ve given, but the target that mattered was £8,000 per person per month. Naturally, we took that benchmark with us and, even going into our third year, we had revenue per head on our dashboard.

The problem was, our revenue per head number was abysmal: I remember someone on Twitter (RIP) pointing out that, since we claimed that we’d billed £4.2m in our second year of trading (we did); and that we’d just sent out a job offer to employee number 100 (we had); our revenue per head must be £3,500 per month…less than half of what “good” looks like.

We pointed out the £300k difference in monthly revenue between month 1 and 12 but, even so, it wasn’t a metric that was in any way useful to us: for skills we’d freelanced out, like development, we hired a full time member of staff the second it would be cheaper than the freelance bill (which probably did equate to £3,500/month); for skills like PR, where we were in the early stages of an arms race, we said “we’ll always need more great PRs” and hired everyone we could find.

So, we dropped it a few months later and anchored the agency to something more useful. I wrote about one of Jim Collins’ concepts last week and here’s another: we decided our economic denominator should be “revenue per client”.

We said “we want every client to pay us £20,000 per month” (and we said it often)...and we increased average client billings from £11,000/month to £14,500/month within a quarter. Three things happened:

1. We went all in on the big deals we had in the pipeline and let go of the smallest ones, winning one of our biggest clients in the process (thanks Matt Holmes, again);
2. We parted ways with our smallest clients (by then paying £7,000/month minimum), in most cases declining to renew contracts and, in some cases, declining to repitch for more project work (we finished the quarter with 7 fewer clients than when we started);
3. We tasked the (by the way, brilliant) client services team and Heads of Department with cross selling; proactively taking lots of new ideas and opportunities to our clients.

In the run up to this point, we found it straightforward to add a client at our lowest price point every two weeks, but we were starting to find it impossible to add staff quickly enough, so we felt this decision was necessary. It’s ultimately one of the reasons that we finished our third year with a £3.1m increase in net revenue and only ten more staff on paper.

Case study 3: un-blending the day rate

Shortly after we entered our second year, we actually decreased our day rates.

We initially used a blended day rate of £800 for all staff, thinking that it would allow us to move quickly if we wanted to change something in a client’s roadmap: if we determined that a day we had booked in with someone wasn’t optimal, we could simply switch it to someone else without messing up any calculations…

…but it actually just meant that our executional staff didn’t have enough time to meet their objectives. PR staff, in particular, needed more time than budgets allowed for in order to hit their targets, so they just…spent more time. Then, as we tried to reduce overservicing, they continued to spend more time and just didn’t log it.

Obviously, this is not good for anyone, so we started costing things at £600 for execution and £800 for strategy. We didn’t tell a single client, because nobody knew our rates.

Agencies can charge for three things:

1. Inputs (like time and materials)
2. Outputs (like documents and campaigns)
3. Outcomes (like revenue increases or coverage)

Rise at Seven never charged for inputs, so we never had a conversation with our clients about how much our time cost (with the one exception of Boohoo’s procurement department, although I’m not sure they ever passed the info onto the clients themselves). Our fees were a mixture of outputs and outcomes: both are valid, and I believe you should treat pricing like a portfolio, with some of this and some of that. Not every client is able to buy based on value, so when I’m helping agencies to implement value-based pricing, it’s never the single way of pricing.

Pricing is a creative act

I’ve previously written about some of the more common pricing mistakes I see, so although I’m happy to say “don’t do the things I wrote in that piece”, I’m not prepared to say “go and implement the three above.”

Revenue per head, for example, is a perfectly reasonable metric for some agencies and not for others. Every agency needs its own pricing strategy, so if you’re broadly thinking about how to increase fees faster than the rate of inflation; or how to get away from time and materials based pricing, given that AI is making that increasingly difficult; or which financial metrics are the right ones to have on your dashboard; drop me an email and let’s work something out.