Sarah owns a small business that’s struggling to generate leads online. Her current website is outdated and barely converts visitors into customers. If someone could wave a magic wand and give her a website that consistently generates £100,000 worth of leads per year, she’d be willing to pay up to £10,000 for it.

(i.e., Sarah thinks she has a £10,000 problem with £100,000 annual potential.)

Scenario 1: Bob’s Cost-Based Approach

Sarah first calls Bob at WebBuilders Digital Agency. Bob inspects her current website and business goals. He calculates that to create a high-converting website with ongoing optimisation, his costs in time, expertise, and resources would be around £20,000.

To make a profit, Bob quotes Sarah £25,000 for the project.

Sarah is shocked by the price and asks why it’s so high. Bob explains all the components involved: the strategy development, user experience design, custom coding, content creation, SEO optimisation, and ongoing conversion rate optimisation.

Bob’s explanation doesn’t change the fact that Sarah perceives this as a £10,000 problem, so she’s not going to buy a £25,000 solution from Bob.

The crucial point: Bob’s explanation of his costs and processes has no effect on what the solution is worth to Sarah. Bob’s costs are Bob’s problem, not Sarah’s.

Sarah thanks Bob for his time but decides not to proceed.

Scenario 2: Tom’s Value-Based Approach

Next, Sarah calls Tom at WebWizards Digital Marketing Agency. Instead of immediately calculating costs, Tom asks Sarah about her business goals and current challenges.

Tom sees the potential for much more than £100,000 in annual leads, given enough time and proper execution. He proposes a partnership model:

1. An initial setup fee of £10,000 to cover the basic costs of creating a high-quality, conversion-optimised website.
2. A performance-based fee structure:
   • 20% of the value of leads generated in the first year
   • 15% of the value of leads generated in the second year
   • 10% of the value of leads generated in years three and four
3. A minimum monthly retainer of £1,000 for ongoing optimisation and management.
4. No cap on earnings, recognising that successful projects can continue to grow in value over time.

Tom explains the rationale:

“Sarah, we’re confident in our ability to deliver results, but we also know that significant online success often takes time. Some of our most successful clients didn’t see major traction until 9-12 months in, but by the 48-month mark, they were seeing returns that far exceeded their initial expectations.

This model aligns our success with yours. We’re taking on the risk of the initial investment and ongoing work, so our reward should reflect that. If we only generate £100,000 in leads annually, you’ll pay less than you would with a traditional fixed-price model. But if we generate £500,000 or more in annual leads by year four, which we believe is possible, we’ll both be thrilled with the results.”

Tom shows Sarah case studies of similar businesses where his agency’s websites started slowly but ramped up to generate £500,000+ in annual leads by year three or four.

To address Sarah’s hesitation, Tom offers a guarantee: if the website doesn’t generate at least £50,000 in leads in the first year, he’ll waive the monthly retainer for the second year.

The Outcome

Sarah agrees to partner with Tom’s agency. The results exceed both their expectations:

• Year 1: £80,000 in leads (Tom earns £26,000)
• Year 2: £250,000 in leads (Tom earns £49,500)
• Year 3: £400,000 in leads (Tom earns £52,000)
• Year 4: £600,000 in leads (Tom earns £72,000)

Over four years, Sarah’s business generates £1,330,000 in leads. Tom’s agency earns £199,500 plus £48,000 in retainers, totaling £247,500. Both parties consider this a tremendous success.

The Moral of the Story

1. Costs are the service provider’s problem, not the client’s. Explaining your costs doesn’t increase the perceived value of your service.
2. Focus on the client’s potential gains, not your potential costs. Frame your service in terms of the value it can create for the client.
3. In digital marketing, the true value of a well-executed strategy often reveals itself over time. By aligning your pricing with long-term client success, you can command higher fees while delivering exponentially more value.
4. A partnership model that shares both risk and reward can lead to much greater success for both parties than a traditional fixed-price model.

This approach transforms the conversation from haggling over costs to investing in shared success, allowing agencies to command higher fees by demonstrating and delivering real, long-term value.