Profit check your Rates
An agency should be reviewing it’s pricing policy at least once a year. The most common times to do this are: in line with the new financial year; or at the start of a new calendar year.
My preference for a rate review is 1st of January, two of my prime motivators are:
1. January is usually a quiet month, so potentially the higher rates will have minimal impact on your client due to the lower volume of work.
2. There is an opportunity to encourage your client to commit to a longer period of time, if you communicate with your client prior to Christmas that the annual rate review will take effect on January 1st, however if they would like to secure a 12 or 24 month agreement, then it would be possible to lock in at current year rates if they can sign prior to 31st December.
Critical foundation – your 2020 Budget
Armed with your latest budget, you will be able to compute your cost per hour rates for your billable team for the year ahead; and compare them to sell rates.
There are five key factors to consider:
Triple check that when you apply actual productivity percentages, that your cost rates are less than your sell rates.
Senior resources with low productivity levels may be a challenge, so consider any of these people with say less than 30% billability to be overheads, as a shared resource.
The moment of truth:
Focusing on just fee income: can you actually achieve your billings target when you apply current client rate cards and ‘actual’ productivity levels across the billable team?
Once you are happy with your final rates, make sure that you update your employee cost rates in your job management program. If there are internal sensitivities, rather than actuals per employee, you may like to consider rate ‘bands’ for say: seniors, middle management, support crew.
I recommend updating cost rates whenever there is a significant change to your cost base, such as new staff, or moving premises.
Take it to the next level – Value Based Pricing
With your standard cost and sell rates updated; your next step in your Pricing Policy review is to look at bundling, and value based pricing (VBP).
Pricing is the responsibility of the business owner and finance team, so when you are tackling this business-critical project, and you think that it would be wise to invest in some external expertise to add value: book a seat at the forthcoming KMint 2020 Rate Card breakfast keynote event, or call me – I’ll be happy to help.