Question

Topic: Strategy

Customizing Markeintg Pricing Structure

Posted by Anonymous on 2/17/2009 at 9:10 AM ET 500 Points
Hi,

In this tough economic time, customers/clients are tighter fisted than ever which makes us marketers come up with more creative ways to present and sell. I am a sole proprietor marketer/graphic designer and have been in business for two years now (but in the industry for over 15). I have a two fold question that I would love some advice on:
1. I am the "creative" mind...The designer and I "partner" with a marketing person who is the marketing brain. He helps me put together marketing plans for clients and I do the creative to support these plans. We presented a rough plan to a client that involves a retainer to take us on to build and implement their marketing plan. The retainer consisted of a set amount to be paid up front for the first month (to build the plan) and then we required them to lock in to at least a two month retainer so that we could work closely with them and their staff to help implement the plan over the next month (including creative work). Problem for the client is that their marketing budget for the year was right around what our two month retainer would cost them. They had trouble laying out that cash up front for two months when they expected to pay over the course of the year for marketing. Has anyone ever worked on NO retainer and on a percentage of sales? I would love to scale the retainer back and perhaps structure it so that we get a percentage of their sales over the course of a period of time to pay for the amount we would have charged for the retainer. Has anyone done anything like this and what is recommended....To make these services affordable for small businesses?
2. Second part is regarding my marketing associate. What is fair compensation/percentage for his efforts in building the plan and doing the marketing end of all this. The lead and client belongs to my company but couldn't do it without my marketing associate (who is not an employee...Just an associate that I partner with for projects that involve marketing efforts). What do you recommend the percentage split being?

Thanks much for any advice!
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RESPONSES

  • Posted by CarolBlaha on 2/17/2009 at 9:18 AM Member
    I think you are asking for trouble with a percent of sales. It is impossible to track and will just bring conflict. As you know, it takes someone multiple times to see a message to come to action. If you did coupons, the client can say "they've been here before-- only new clients count". There is no way you can audit their numbers.

    Why not do an hourly rate vs retainer?

    If your retainer is more than a client's budget, you should consider this company may not be a prospect for you.

  • Posted on 2/17/2009 at 9:38 AM Author
    Thank you for your response. I considered the hourly rate but really the retainer gives client so much more for the time we'd be putting in on it versus what the hourly rate would chalk up to. It's a leap of faith for the client...I understand that, however they must be willing to make that move and what growth. Perhaps this may not be the prospect...You're correct, but I always try to structure and work within anyone's parameters where possible. I see such value and room for much improvement where this company currently is and what I can do with them that I'd love to see it work some how.

    The percent of sales could work if detailed properly in the initial contract. Meaning ALL sales. It's really a payment plan for them to pay when they get paid more so than "getting paid on results". It's a method of making it affordable when they "can't afford it".
  • Posted by Mikee on 2/17/2009 at 10:03 AM Member
    I think a fixed bid is a good idea, as long as everything is really spelled out.

    Perhaps you need to break the entire project into pieces. This way the client can choose which parts they want done to fit within their budget. If you do a great job and they like the results there is a good chance they will ask you to do more of the pieces. Do not try for the home run on the first pitch.

    I hope this helps,
    Mike
  • Posted on 2/17/2009 at 10:09 AM Author
    Mike...Certainly very great suggestions there, thank you. Could you clarify "fix bid is a good idea"? When you say fixed bid, are you saying a set retainer agreement? Obviously this is the path I prefer but I believe it's going to have to be drastically scaled back with a percentage of sale worked into the mix to recoup the balance, over a period of time.

    Also what is your experience with splitting the percentage of profit with a partner on a project? I also have to consider the person that set up the meeting who gave me the lead so I must provide them with a finders fee/commission as well. What do you think are good percentages for these people?
  • Posted by wnelson on 2/17/2009 at 10:37 AM Accepted
    Creative,

    First of all, I'd advise you to get "these tough economic times" out of your mind! We business owners should be doing exactly the same things in good times and bad times. The only difference is that in good times, we can afford to be sloppy and complacent and we will still make money. In bad times, we don't have that option. The thing to do first and foremost is keep your eyes external - e.g. on the customer - versus internal - worrying about how to cut costs and bottom line. We still have the top line to focus on or the bottom line doesn't matter much. Sure, businesses are going out of business - but the reason isn't the economy, it's because of bad management! And if you were to check, you'd find that NO ONE is actually SAVING money - they are still spending it. They are just spending it on different things. For instance, instead of going to a restaurant for a $100 evening, they are going out for two $50 evenings. In the US, 2.5% of the people definitely have less income (the increase in unemployment). 97.5% still have the same income. At worst, things should be 2.5% down, right? And you know what? Those of us that are smarter than our competitors can make up that 2.5% by stealing their customers!

    Remind your clients that marketing is an investment, NOT a discretionary expense. It feeds the bottom line with higher payback than it costs. If you cut the marketing efforts, more money flows away than you save. It's a downward spiral.

    The reason I focus on this is because if you have the "bad economy" mindset, you will communicate that to your prospects. How many customers will spend their money if you first remind them that they should worry about their money first? It's a mindset that brings an attitude. We business owners have to stay positive.

    Now, I'll get off my soapbox.

    In answer to your first question - perhaps you need to trim your customer base of those smaller customers who can't afford your services. Go after bigger clients and even charge more by showing them how you grow their business many times more than your fee. You bring not only the creative, but through your strategic alliance with your partner, you bring the the whole package - just like one of the big advertising companies that P&G use. But, your fees (that are now higher than they are now) much lower because you have much less overhead. The key to sell these folks (even the little guys) is to show the value. When they invest $1 in you, they will see at least $10 in bottom line results.

    Percentage of the sale is a loser of a proposition! Unless you are totally in control of the execution including closing deals, the business owner defines the success or failure of everything you do. You can bring in the customers, but if the owner can't close, you don't get paid. Hourly is another loser. Then the business owners are tracking the hours and are looking at the value based on how much time you are spending on their premises. You have to spend time carefully tracking your time and convincing the owner of what you did with the time. The best way I have found is to make the fee a non-issue by talking the value you bring.

    If you have a passion to help the small businesses (as I do in my business), then you have to pre-package for them. You can offer them a less customized approach that generally works for most businesses, pull it out of a box and hand it to them with instructions on how to "do-it-yourself" to make it right for them. This way, you have minimimal time in the specific job and can charge less for it because you are spreading the effort to come up with the pre-packaged offering over many clients. For instance, you could develop a custom logo in various sizes and color schemes (b&w, 4 color, 2 color), and give them a series of ads laid out camera ready in Word format. All they have to do is plug in words and paste in the logo and they can deliver it to the ad place. Keep in mind this is just an example - you being a creative person, I'm sure you can figure out a package idea that makes sense.

    As far as the split between your partner and you - if you are both bringing in clients and sharing them equally and the work you do is split roughly 50/50 - then why wouldn't you split the fee 50/50?
    If the number of leads that you both bring in are not equal, then skew the fee toward who owns the lead - 60/40 to the one who brings in the lead. If the workload is not equal, then split the fee according to the effort. Otherwise, make it 50/50 would be my first inclination.

    I hope this helps.

    Wayde
  • Posted on 2/17/2009 at 11:15 AM Author
    Wayde,

    That's some good insight...And although I am not allowing the economy to effect my business it truly is in the mindset out there. I do understand it's a matter of changing that mindset and convincing them it's an investment in the growth of their company but a lot of customers can't get past the initial hurdle of a retainer up front...It's tempting because I know we're almost there with this client and realize I could probably bring them in if I adjusted to make it more "Affordable" or appealing to them. I now need to decide if it's worth it for me to now take on some of the risk for a new project/client. They are a wholesale product based client that already is successful so I could essentially set them up with a sort of percent of sales approach to make it more affordable...And this could be based on any and all sales...Not just new.

    The prepackaged idea is not an option for most clients I run into because they really don't know what they're doing and need hand held. Certainly it's always an option though.

    The percentage split is a tricky area because it is my lead but the overall responsibilities will end up being half and half at the end of the day....Just looking for common practice in typical corporate settings. The split will be based on after I pay the finders fee to my referral. Not sure if you've ever paid out referral/finder fees but I typically pay between 6 and 10%.
  • Posted by wnelson on 2/17/2009 at 2:47 PM Member
    As you say, the whole question you have is a matter of what you're comfortable with. In every ingagement, you define the rules that work for you and the client either accepts those rules, or not. If they don't, you either find other clients who do or you adapt your rules. I related what I do and it works and I am comfortable with it. You have to do what you are comfortable with.

    Same with the split with your partner. "Common practice" only matters if you are comfortable doing common practice. I do what's comfortable for me with some input from other practicianers with whom I interact. For referrals where I do all the work and the referral partner doesn't add anything, I give up to 1/3 "commission." I figure that's the cost of "marketing" myself and if they provide me with a client, I don't have to market myself. I provided you the feedback based on this and ultimately, you have to do what works for you. If what works for you doesn't work for your partner, he/she and you have to move on and find other partners, if applicable.

    Wayde
  • Posted on 2/25/2009 at 8:25 AM Author
    Thank you all so much for your helpful advice and my best to you all for a prosperous year.
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