How To Structure A Collaborative Pricing Deal For Creative Work

Pricing your services is one of the hardest parts of agency work. There is something about it that rarely feels like a good deal for your buyer and yet for you it’s a shoe-string budget. But if you do that deal, neither of you will be satisfied and neither of you will get the best end result.

The pricing conversation is uncomfortable. It feels like the prisoner’s dillema.

In your mind, if you reveal your cards first, they might have been valuing you higher and now they are getting a deal. In their mind, if they reveal their cards first and they are wildly off base, you might take advantage of them by raising your price to match their over-estimated budget.

(We both know that their budget is rarely over-estimated but they don’t know that and they are terrified that if they spill the beans you’ll take them for a fool.)

So let’s start with the basic premise. It is your job to reveal your hand first.

Here is why. I have been negotiating deals that range from a few thousand dollars to mid five figures since I was 23 years old, during that time I have realized that upstream and down stream, corporations, small businesses, and consumers have no idea how much money they should expect to spend. They really don’t know and often, they haven’t even thought through the potential return on investment for them. They don’t know the size of their own pie.

To be collaborative with your pricing you have to have this conversation as part of the negotiation.

Number 1. Understand that their goal isn’t to create an expense, it’s to make an investment.

People don’t just buy stuff in business. An expense is an assault on the bottom-line. When you are asking a business to buy something from you it feels like an attack on their resources.

People only decide that they need to buy something if it can give them a return on their investment, if it can save them money, or if it can buy back their time.

Your solution has to do one of those three things or they won’t be able to think about price. It will always be too expensive.

But if you can figure out what the revenue pie is, and what it could be if they use your product then you can frame the investment around what they have to gain or save. It just always comes back to money or time in B2B.

Number 2. Uncover the size of the ROI pie.

Uncovering the size of the pie isn’t always easy. Being naturally inquisitive always helps. I try to ask questions like, “What are your revenue goals?” “How much of an increase in revenue do you hope to see with this initiative?” “How many customers are you serving and what is your average sale size?”

You want to know a ballpark of how much money is on the table and people are more willing to discuss their revenue goals than they are to discuss how much they are wanting to spend.

Number 3. Determine how big your slice of the pie is.

The next question after understanding the size of the pie is figuring out how big of a slice they are willing to give you.

You obviously know they can’t give you more pie than they have so if your minimum deal size is the whole pie, there won’t be a deal. But you should know going in what your minimum or standard is and then be able to quickly put that into a percentage range of what they would be willing to spend to get the return they want.

You might ask, “Ok, if you’re anticipating raising revenue by an extra $90,000/mo, aside from our cost, what other costs do you think you’ll have in order to hit that 90k?”

Chances are they haven’t actually done this financial modeling yet so it’s actually helpful to them if you can walk them through it.

Let’s say they come up with 30% in foreseeable expenses (could be more could be less). You can help them by making an assumption that they want to preserve over 50% gross profit and that they may have another 10–15% of overhead or cogs that they aren’t thinking about. Preserving a healthy net profit margin, you know that the available pie at this point is about 5–10%.

Aiming on the high end, you’ll ask, “if our product could generate this kind of revenue for you and keep your gross profit above 50% like you want, would you be willing to spend 10% of revenue to reach your profit goals?” And that might feel a little high to them but see where they sit. You’re not giving a price yet. If you have to come down to 5% that’s fine because you haven’t agreed to anything yet.

If they walk you down to 5% and your mental math says this can be a profitable deal then you ask if they would accept a deal based on those numbers. If 5% doesn’t work for you, you have to ask them, “How am I supposed to make this work?”

Number 4. They know that you are also trying to make money. Lean into that.

“How am I supposed to make this work?” This is a question made popular in Chris Voss’s book Never Split The Difference. Sometimes your opportunities are going to ask for something you can’t give. Even if you want to. When you ask this question it prompts the other person to consider what your effort looks like in the joint venture.

You should not feel bashful about expressing that you are working toward a deal that is going to be profitable for everyone. You need enough money in the deal to give them the level of service they need and if there isn’t enough money in the deal, you know and they must know, that they won’t be eligible for the level of service they will most likely come to expect and as a result, they may not hit their revenue goals.

Most people understand you have to make money. The key, is to prep them beforehand by understanding the size of the pie and taking a slice that makes sense to them. If that slice doesn’t work for you, then tell them that but you don’t have to walk away just yet.

Invite them to collaborate on how we can change the size of the pie or adjust what is expected by the work so that they can get what they want at a price they can afford and with a commitment level on your end that is still profitable.

Number 5. Pricing is a strategy session about creating a business model around the investment.

Too often talking about pricing is treated like a game of chicken. It’s not. You want their company to be profitable just like you want yours to be. After all, if they aren’t profitable they will go out of business and you’ll lose them as a customer. So it is in your best interest that they become profitable.

This is why thinking about pricing discussions as part of the strategy is so important. You know what it’s going to take to get them to their revenue goals. You know what slice of the pie you need to help them get there so don’t dance around it. Make it a collaboration.

A collaborative approach to pricing is much more comfortable compared to a competitive negotiation. It allows the other party to talk openly and comfortably about pricing rather than eliciting that feeling of being in a fight to the death.

As long as you’re sure about what your bottom line is and you’ve begun the discussion anchored high you can keep asking the question “how” and put them in the position of coming up with a creative solution to help you get what you need so that they can get what they need.

Number 6. Talk money early, and don’t leave the conversation without a model they find comfortable.

Being able to talk openly about money early is helpful when you are talking to people who are a good fit to begin with. But that’s another article. As long as you have the right people in front of you, they won’t be afraid of your pricing. They will find it reasonable.

I find it best to use ranges and ballparks up front and to reference other contracts you’ve done with similar use cases. Say something like, “Based on what you’re telling me regarding your growth goals and objectives I can tell you that our other clients that are in a similar ball park are spending between X and XX with us on a monthly basis. As long as that range works for you I think we can help you get to where they are.”

This does two things. The first is that it anchors your pricing high so that the lower number is more palatable to them. The second is that it uses social proof to show that not only are other people comfortable paying this price, but if they choose you, you will help them get to where others have been with you.

You always want to position money as an investment and disassociate it from costs. If money is looked at as a cost, then it takes from the bottom line. If it is looked at as an investment, it will give to the bottom line. That’s really all that matters at the end of the day. Will your service make them money? Or will it be a wasted effort?

Number 7. No surprises. Find the middle path and stick to it.

The last principle is to have no surprises. Your minimum pricing offer and or range should be visible on the website. The other side should never be shocked by the price on the proposal.

Sticker shock makes people coil back and get defensive. You have to figure out a way to apply Number 6 as early on in the process as possible.

The problem that most service sales professionals have is that they think that they need the opportunity to do their song and dance and show enough value during the sales process that when they finally reveal the price tag that that will somehow soften the blow.

That is plainly incorrect. I have literally had conversations where I’ve presented a price as low as $99/mo and have had people scream at me in out rage and I have presented ranges between $3k-$4k/mo and have had people tell me “oh, that’s not bad at all”. Same service.

As long as you are in front of the right people, price isn’t the problem. It’s the expectation of the price compared to the reality of the price that is the problem.

To avoid this catastrophe you cannot think that the proposal comes at the end of the sales process. Price actually starts in the consideration stage, not the conversion stage. You want to move the conversation of price from the end of the sales process to the end of the marketing process. In a perfect world, they will know the price range before they get to the sales call. That way we can avoid the question of whether they can afford to purchase and we can have an open collaboration on where within that range makes the most sense for them.

I am borrowing the term the middle path from Buddhism, which means the general avoidance of two opposite extremes. The two extremes in this case are the low price expectations of any reasonable buyer and the high price expectations of any reasonable seller.

It’s best to think of the middle path not as merely splitting down the middle and each person only getting 50% of what they want. Rather, the middle path is more wide than it is narrow. You just need to land somewhere on the middle path that avoids the extremes which can break down any negotiation.

You know what your extreme boundary is (i.e. the low point would cause you to walk away) but you don’t know what their extreme boundary is unless they have told you. Again, because opportunities like to hold their cards close to their chest, going back to principle number 2, uncovering the size of the pie, you will have to piece together what their extreme boundary is so that you can stick to the middle path.

Once you know what the middle path is, you can have a comfortable discussion just left of their extreme boundary and still be in a safe zone for negotiation.

Closing the Deal

I try not to ship a proposal unless I know that they are going to accept the deal. How do I do that? I talk about the details with them. I come up with a price structure collaboratively and I ask, “If I put together a proposal for $4,000 per month and $25,000 in design fees, is that a deal that you feel comfortable with signing?”

Usually, they will say they have to consult with others in the company and that’s fine. Sometimes you can get that person on the call right then if they aren’t already. But if they say that I will come back with, “as long as your business partner feels good about the proposal are you comfortable with this deal?”

If they say “no” or “I don’t know” then keep talking don’t tell them to “think about it and get back to you”. Talk about how you can change the scope to get it in range so that they feel comfortable getting buy in from others in the company. Because if they aren’t convinced, they will not be able to do the same sales job as you did. But if they are convinced, they will do a much better job at selling it than you will.

Don’t waste your time writing a proposal unless you know they are 80–90% likely to close. Try to get the verbal agreement first and begin the process of collaboration as if they are your customer treating the proposal as one check box on a list of things to get done. Obviously don’t do work without a proposal, but begin the process of collaboration so they develop that relationship of trust with you as their guide so that they will do whatever it takes to make the money work for them.

Send the proposal electronically, preferably using a software like my friends at Proposable, so that you can track view time and continue to collaborate on the document as they make requests to amend the scope to fit their budget and goals.

When following up, do your best to set up the next appointment at the end of the last appointment, every time. That should be your company policy, that you don’t leave one meeting without setting up the next no matter how far off into the future it is. If in the event that they resist hard, use your CRM to set reminders for reaching out or even put together a cadence of emails. I like Keap for this type of thing. The primary goal is to just keep the momentum going with regular meetings that keep providing value all the way through to acceptance and delivery of service.

In short, once you laid your cards out on the table just ask for the sale.

Torlando Hakes is an author and director of business development at Periodic.is. Follow Torlando on LinkedIn to keep up with his writings.

Periodic is the custom scheduling system that will help you generate more bookings. Scheduling meetings is central to the workflow of closing high ticket deals like mentioned in the article above. Periodic enables mid-market and enterprise companies to integrate advanced scheduling functionality across departments in a true enterprise solution. Design a site that books with periodic.is.