Episode 043. The Pricing Sweet Spot: Too High, Too Low, or Too Safe?

20 Jan

Most agency founders have been charging the same rates since 2021. You've given your team raises. Your costs have gone up. The economy has shifted. But your pricing? Still stuck at that number you picked three years ago based on vibes and what you saw other agencies charging.

Today, we're handing you the formula to stop pricing emotionally and start pricing strategically. We break down the 2x multiplier that creates your absolute floor, the 10x principle that unlocks your ceiling, and the three consecutive yeses that signal you're leaving money on the table.

If You Haven't Raised Your Rates in Six Months, You're Already Behind

Pricing isn't emotional. It can't be. Yet most agency founders treat it like a feelings-based decision rather than what it actually is: a formula backed by data, costs, and the measurable outcomes you create for clients.

We see it constantly. Founders who picked a price in 2021 or 2022 and never touched it again—even as they've rebuilt their teams multiple times, invested in better tools, and dramatically improved their results. They're stuck in a pricing prison of their own making, built on assumptions like "no one will pay more than this" or "we're only three years old, we can't charge premium rates yet."

If you've given your team raises in the past two years but haven't raised your client rates, you're funding those salary increases out of your own profit. You're subsidizing your business growth with your personal income. And that's not sustainable.

The research backs this up. Women-founded agencies are underpricing their services by up to 20% compared to male counterparts (Harvard Business Review). Studies show that agencies with clear pricing models—not pricing on vibes—achieve margins 20-30% higher than those who don't.

Warren Buffett said it best: "The single most important decision in evaluating a business is pricing power. If you've got the power to raise your prices without losing business to a competitor, you've got a very good business."

So let's talk about how to build that pricing power with an actual formula instead of fear.

Your Base Price Formula: The 2x Multiplier You Can't Go Below

Here's the foundation every agency needs: calculate all internal labor costs (including yourself as the founder), then multiply by 2. That's your absolute minimum.

This isn't arbitrary. By doubling your labor costs, you're creating a 50% gross labor margin at minimum. That margin accounts for everything else required to run your business: your tech stack, your ops team, your EA, your business development efforts, your admin work, your overhead.

The mistake most founders make? Not including themselves in that labor calculation. You'll count every contractor, every full-time employee, every freelancer—but conveniently leave out the 5 hours you spend on onboarding (including prep and follow-up), the strategic assessments you create, the sales calls you take.

Here's how to actually do this:

Step 1: Map every stage of your project or retainer. What does month one cost in actual labor? What about month two? If it's a project, what does discovery cost? Strategy? Execution?

Step 2: Include everyone's time, including the founder. That onboarding call isn't two hours—it's one hour of prep, two hours of meeting time, two hours of follow-up. Don't undercut yourself.

Step 3: Build in buffer. Agencies chronically underestimate hours. If your social media coordinator says it takes 2 hours, budget 4. If you think a phase will take 10 hours, assume 12-15. You'll thank yourself when scope creep happens.

Step 4: Multiply that total by 2.

That's your floor. Anything less than that, you're losing money. You're literally funding the client's project out of your own pocket.

We'd recommend 2.2x or 2.5x to account for the inevitable underestimation. When you're operating on razor-thin margins, every small client request becomes a burden. But when you've built in appropriate buffer, you can accommodate reasonable changes without resenting the work.

Your Maximum Price: Outcomes, Not Outputs

Your base price is non-negotiable. But your max price? That's where the real opportunity lives.

This is what we call outcomes-based pricing (please, let's retire "value-based pricing" as an industry term—it's overused and meaningless). Your max price is determined by the transformation you create, not the deliverables you produce.

Ask yourself: What happens after you do what you do so well? What kind of revenue impact does your client see over the next 1-2 years? How does their business fundamentally change because of the work you delivered?

This isn't always direct revenue. Maybe you're bringing peace of mind. Maybe you're accelerating their timeline by 6 months. Maybe you're giving them a brand that attracts better talent, better partnerships, better opportunities. All of that has monetary value—you just have to articulate it.

Here's a real example from the episode: Melissa worked with a founder doing rebrands for $25,000. The client was on track to triple their business—growing by millions of dollars—over the coming years directly because of that rebrand. It opened doors to new retailers, new audiences, new positioning. And the founder felt guilty about $25K.

The reality? That rebrand should have been $200,000+. Because the outcome wasn't a logo. It was the runway for explosive growth.

As a rough starting point, consider 10x your base cost as your maximum. If your base is $10K (your 2x labor floor), your max might be $100K—depending on the outcomes you're driving and the client's capacity to see that return.

But don't treat this as fixed. Your max is a moving target based on:

The client's size and revenue (larger clients see larger outcomes at scale)
Market conditions and urgency
Your capacity and confidence
The specific results you can demonstrate

Between your 2x base and 10x max, you have a sliding scale. Use it strategically throughout the year.

The Three Consecutive Yeses Rule: How to Know You're Underpriced

Here's the simplest pricing audit you can do: if you're getting three yeses in a row—easily, without hesitation, without the client needing to think about it—you're underpriced.

When pricing is right, it should be a considered investment. Prospects should need to sleep on it. They should discuss it internally. They should weigh the decision carefully.

If they're saying yes on the phone without pause? That's a signal. You're so far below market rate that the decision is easy.

We know this feels counterintuitive. In most industries, lots of yeses means you're doing something right. But in agency world, it means you're leaving significant money on the table.

A healthy pricing strategy means about 50% of prospects will tell you you're too expensive. And that's okay. In fact, it's ideal. You'd rather get more nos and take on 3 clients per quarter than get all yeses and have to manage 10 clients per quarter. Operationally, the latter is a nightmare.

So if you've landed three consecutive projects without any pricing pushback, it's time to increase by 20% minimum. Test the market. See what happens. You might be surprised how little resistance you get.

Raise Your Rates Every Six Months (Yes, Really)

Meredith's recommendation: review and adjust pricing every six months. Not necessarily massive jumps—incremental increases work. Going from $5K to $6K. From $8K to $10K. The goal is consistent, strategic movement upward.

Why six months? Because it forces you to stay current with:

Market shifts and economic changes
Your own capacity and demand
The outcomes you're actually delivering
Whether your packages are still landing with clients

This isn't just about rates. It's about repositioning, repackaging, and ensuring your offers align with what the market actually needs right now.

And here's the part no one talks about: after you complete a project or finish the first month of a retainer, go back to your pricing calculator. Were your time estimates accurate? Did that phase actually take 10 hours or 20? Was the client more demanding than expected?

Use that data to correct your next pricing. That "tricky client" isn't an outlier—they're showing you the norm. Adjust accordingly.

The biggest risk to your business isn't losing a client over price. It's keeping the client who's slowly draining your energy because you underpriced and now resent the work. Don't be the agency that gets frustrated with clients because you underscoped. Price appropriately from the start.

(00:00:00) Why Pricing Emotionally Is Costing You Money

Why most agency founders are still charging 2021 rates in 2026
The uncomfortable truth about pricing based on what competitors charge
How women-founded agencies underprice by 20% compared to male counterparts
Warren Buffett on pricing power: "If you can raise prices without losing business, you've got a good business"
Why pricing isn't emotional—it's a formula backed by data

(00:09:40) The Pricing Sweet Spot Formula: Your 2x Base Price

How to calculate your absolute floor: 2x all internal labor costs
Why most founders don't include themselves in labor calculations (and why that's costing them)
The hidden costs agencies forget: onboarding prep, follow-up, strategic assessments, BD work
Why you should actually use 2.2x or 2.5x to account for chronic underestimation
How to map every stage of a project to know your true costs
The 50% gross labor margin target and why it matters
Why PR agencies can run higher labor margins than brand/web agencies

(00:26:13) How to Calculate Your Maximum Price (Outcomes Over Outputs)