If you are publishing prices for hourly rates, or telling clients your rates for particular people or services, you may not be making as much money as you could. And, you may be subtly affecting your relationship with the client. How so? Let’s look at the issues.
Clients always want top management involved in their accounts, but they seldom want to pay top management rates. In this case, one of three things happens. Either agency management decreases the rates for top management, decreasing agency profits and ultimately damaging the relationship. Or, agency management insists that top management receives justifiable rates and the client feels put-upon, again damaging the relationship. In the third scenario, the agency says they will decrease top management rates, but they bill 1.25 hours or some such multiple for each hour worked: the client feels as if they have received a discount, but the agency realizes full profit on the hour. Very dangerous. Not only does the increased multiple affect the overall price of jobs, it hangs out there just begging to be found if the client ever insists on an agency audit. That may not happen very often, but larger companies have been known to audit agency time sheets and invoices periodically. Regardless, if you are ever caught with your hand in the till, you’re dead!
Many of our member agencies solve this problem by offering clients one blended rate for all agency services, and for all agency personnel. Clients like having an hourly rate they can be comfortable with—rather than sorting through specific agency functions and related personnel costs. This is particularly relevant in the case of top management billing. Blended rates decrease what the top people have to charge to make money on the account. Simplicity is the key. One rate covers every agency service, and all agency personnel. But that’s not the real advantage of blended rates. The real advantage lies in what happens after the client agrees.
You see, the secret to making money on blended rates is to get the client to agree to a satisfactory blended rate, which in most cases is lower than what top management would normally bill, but higher than what many of the other staff would normally bill. After the client is on board, the agency pushes as much daily service responsibility downward to mid- and lower-level employees as possible. Top management puts in the brain time, and makes appearances at the account when needed, while mid-and lower-level agency people do the daily work. This allows the lion’s share of the hours to be billed at rates higher than those in a by-function or by-person billing system. Here’s a chart showing you why this works:
