How to know if you’re ready for the next phase of pricing
In the last lesson, we recommended a phased approach to pricing:
- Start by offering your new services on an hourly basis.
- Transition to project-based pricing as you build efficiency in delivering the service.
- Upsell to retainers when you're ready to scale your services.
- Extend to longer-term retainers once you can demonstrate consistent client success.
Now that you have a framework for evolving your pricing strategy, let’s get more granular. How do you know you’re ready to move to the next phase of your pricing model?
Whether you’re shifting from hourly to retainer pricing or refining your existing retainers, these key indicators will help you determine when it’s time to transition:
Alpha to beta: Moving from hourly to project
Goal: Become more efficient.
Starting with an hourly pricing structure is a smart move for freelancers and small agencies. It allows you to gauge the time required for key tasks and refine your processes.
Key metrics:
- Time to completion
Track how quickly you complete tasks. If you’re getting faster, it’s a sign you’re ready for project-based pricing. - Client satisfaction
Use monthly NPS surveys to understand what’s working and what’s not. High satisfaction means you’re ready to scale.
Action step: Review your time tracking and client feedback. Are you seeing efficiency improvements? If yes, start planning your transition to project-based pricing.
Beta to controlled availability: Project to short retainers
Goal: Scale your business.
As you build efficiency and wins in your projects, consider transitioning to a project-based pricing model or a short retainer.
Key metrics:
- Project efficiency
Are tasks becoming more streamlined, even as your team grows? What tasks take longer with scale and what enablement can you put in place to reduce those tasks? - Utilization rates
Can your team take on more projects without compromising quality or timelines? If not, evolving to a retainer model will maintain your project margins without extra spending on new hires. - Time to value
Are clients achieving their goals quickly, setting the stage for retainer conversations? - Client satisfaction
Continue your monthly NPS surveys to identify happy customers and areas for improvement.
We consistently hear from our partners that the most challenging transition is from a project to a retainer model.
Action step: Evaluate your project workflows and client outcomes. If you’re hitting your targets, begin planning for short-term retainers.
Controlled availability to general availability: Short to long retainers
Goal: Prove client success and early wins.
This phase involves transitioning project-based clients to short 3-month retainers to ensure a good fit before committing long-term.
Key metrics:
- Performance
Track early indicators like open, click, and conversion rates. Aim for monthly list growth of at least 2%, a consistent flow order rate of above 2%, and an average order rate of above 0.4% per campaign*. These metrics will help you to project your client's potential ROI if growth trends continue. - Renewals
Once you meet key metrics, project these over the next 3-6 months, outlining actions needed to sustain growth. This projection will show the potential ROI and the effort required for continued success*.
Note: Remind your customer that this is a projection only and that you are only using existing data to make this assertion.
Action step: Use your performance data to demonstrate success. Prepare a plan to propose longer retainers to clients who are seeing results.
*These numbers were identified as optimal through a deep analysis of existing Klaviyo customers.
General availability: Long retainers and tiered pricing structure
Goal: Grow long-term.
With long-term retainers, it’s crucial to continually prove your value to clients.
Key metrics:
- Performance
Regularly update clients on key trends, patterns, and top-performing campaigns. - Client success
Continuously communicate how your work drives results.
Action step: Set up regular performance reviews with your clients. Highlight successes and propose future strategies to keep them engaged.
Note: When it comes to pricing, we encourage you to experiment with your clients. You do not need to exclusively offer 1 type of pricing model; rather, you can continue to offer both project and retainer work. Additionally, trying a tiered pricing structure can help drive business to the retainer side of the business, especially in a price-sensitive economy.
Do you need to raise your prices?
Even with a solid pricing model, you might need to adjust your prices over time. Here’s how to evaluate whether it’s time for a price increase:
- Run the calculations
Are your expenses still aligned with your profit goals? Consider new costs and inflation. Ensure your pricing maintains your desired profit margin. - Assess perceived value
Have you enhanced your service offerings or built a stronger reputation? If so, your prices should reflect this increased value.
We really love the framework Shopify created for raising prices. As the article says, “This advice works best when you have happy clients that are getting results, a strong sales pipeline, and several months to implement the transition.”
Here is what this framework looks like for a Klaviyo agency:
Step 1: Select a new price
For example, ABC Agency adjusted their hourly rate from $155 to $170, a 10% increase, after considering rising costs and maintaining profit margins.
By developing strong relationships with their clients, ABC Agency was able to ask them frankly: What are the other prices in the market? This industry is notoriously tight-lipped about pricing, so it takes a little bit of relationship building and asking around, secretly of course, what agencies are charging.
Step 2: Test the adjusted price with new leads first
ABC agency started sharing this with new leads that came in through inbound or cold calls. This allowed them to control the messaging and gauge market response without leaking the message to existing customers.
A couple of customers bristled at the pricing, reducing their close rate, which brought some hesitation from the ABC Agency team. After doing an industry benchmark analysis, Jose came back to the team and let them know that their close rate was too high in the first place.
If you’re winning over 80% of your business, you can raise your prices a bit; aim for 75% closed opportunities. Many Klaviyo partners have shared that their win rates increase because of their higher perceived value.
Step 3: Code customers by satisfaction and create a script for each bucket
Like the Shopify article shared, ABC Agency coded their customers into 3 buckets: happy customers, neutral customers, and unhappy customers.
They wrote a script to guide these conversations, as they know how delicate they can be. ABC Agency was most accommodating with their happiest customers, sharing a strategic discount if they chose to sign on a long retainer. Then, ABC Agency was less accommodating with their more difficult customers, knowing that there was a chance they may churn.
Each script gave clients about 3 months to prepare for the change, so no client felt put on the spot.
Step 4: Share price increase communication in phases
ABC Agency decided to share the price increase news with their happiest customers first: those who showed strong account health, consistently gave high NPS scores, and who they've already moved the needle for.
Their messaging highlighted the reasons for the price increase: rising labor costs, inflation, and agency growth. They offered these customers strategic discounts if the client chose to sign a long retainer.
With their difficult clients, ABC Agency expected some strategic churn but was confident in their sales pipeline to make up for lost customers.
Step 5: Iterate, iterate, iterate
If the small group responded poorly to your script, take a look at your messaging. Ask yourself:
- How can you tweak your messaging to better explain the reasoning behind your price increase?
- Will having higher prices ensure higher content quality because your firm won’t need to acquire more clients and reduce quality?
- Can you introduce a tiered structure with fewer deliverables to offer an alternative to your new rates?
Communicating price increases is an art and a science, so keep iterating until your message is locked down.