This is a guest post from Lukas Hertig, SVP of Business Development at Plesk.
Many agency owners struggle with burnout and profitability, mostly because of one key issue: they offer services on an automated time and material model. These agencies scale only by delivering more hours to customers, making growth cumbersome.
It doesn’t have to be this way. In this post, you’ll explore how to improve your web or WordPress agency’s business model.
A cardinal rule in sales is to think big – 10X – for whatever you do in life and business. If you run an agency and are struggling to make it profitable, you can apply this rule to be more successful.
As an agency owner and entrepreneur, you might want to use this thinking to:
A modern option to help scale your agency by 10X is to implement as many services as possible as recurring services, in a value-based model instead of a time- and material-based model. In this model, you don’t sell your time; you sell results or outcomes.
Tools such as Plesk and DigitalOcean’s agency program have made it easy for smaller agencies to compete against larger firms by offering recurring value.
Plesk manages your websites and WordPress instances in a graphical web interface. It’s everything you need to build, secure, and run websites and applications to simplify your life as a web professional.
Here’s how this might work in practice:
An auto retailer pays $5 per month for hosting their static website created by a website builder tool years ago. Their website is not optimized for performance, and they are interested in rebuilding it with WordPress and connecting it to a modern technical marketing stack with the goal of selling more cars.
A traditional pricing model may look something like this:
ActivityCostWebsite development100 hours at $60/hour = $6,000Website content migration50 hours at $60/hour = $3,000Website hosting (shared, non-performant)$5 per monthWebsite monitoring & maintenance2 hours per month at $60/hour = $120 per monthSEO3 hours per month at $60/hour = $180 per monthSocial media marketing (inc ads)8 hours per month at $60/hour = $480 per monthTotal one-time costs****$9,000Total monthly costs****Total monthly costs$785 per month
Let’s compare that to a customer-centric, value-based approach with the same scope of work.
You might begin by asking your customer what the averages sales value is per unit (in this case, a car). Let’s say it’s $25,000. At this price, the retailer may make an average margin of $5,000 per car.
Therefore, if a website generates three additional sales per month for a customer, that would mean $900,000 additional revenue or $180,000 additional profit annually.
Let’s say you charge 3% of this additional revenue as a one-time fee and 5% of it for recurring fees, per year. In return, you guarantee a minimum of three additional sales every month.
Here’s what the numbers look like:
ActivityPriceDevelopment fee (3% of AGR)$27,000Annual support fee (5% of AGR)$45,000Total one-time payment****$27,000Total monthly payment****Total monthly payment$3,750 per month
Included with support:
Your one-time revenue just jumped by $18,000, and your recurring revenue increases by $2,965 every month!
But that’s not all:
Results may vary depending on industry and category, but there is almost always a way to create better offerings and maintain a more profitable business using recurring revenue.
In these situations, your responsibility is to help the customer understand this as a necessary investment and not a cost. You need to demonstrate why your agency is the right team for the work. By focusing on results, you show that you understand the business as the customer does. You are not thinking about hours, as everyone else does.
It’s crucial that you structure your offering thoughtfully. Here are some basic guidelines:
Happy 10X’ing :-)
Lukas is a born-in-the-cloud international senior business leader, investor, and speaker with 18+ years in IT – including 15+ years in the global cloud and hosting/IT service provider industry. He specializes in scaling tech startups, cloud, web hosting, WordPress, blockchain, entrepreneurship, investing and digital transformation.
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