How to Protect Your Margins Before the Sale Begins
Many agencies are forced to fix their margins through efficiency during the work. That is a hard battle to win. If you haven't done the underlying math before the contract is signed, you are likely financing your client’s business rather than running your own.
I joined Jamie Nau and Jody Grunden on the Creative Agency Success Show podcast to discuss "preventative medicine" for agency margins—strategies to set yourself up for success before the work begins.
Who is Albert Banks and what is his background?
Jamie Nau: Hello, everybody. Welcome to today's show. Today we have one of our longtime friends, Albert Banks, on the show. Quick story about Albert before we get into the podcast: I was at my first SoDA event. We were doing an intro—
Jody Grunden: Jamie, this isn't a pre-show. This is an intro.
Jamie Nau: I have to tell the story because it's a good one. The first SoDA event I was at, I was at a bar, and for some reason, Jody and Adam weren't there. I think we had different events we went to. I walked into the bar, and the first person I saw was Albert. I thought, "I’m going to go talk to this guy; he has a friendly face." We started talking for 15 minutes, getting to know each other, and he said, "By the way, I’m a client." I had no clue that Albert was one of our clients; I think it was because he was only on the tax side. Since that moment, I always found Albert at all of our SoDA events, and we’ve had some long conversations and lunches together. He is someone I respect, and I’m excited to hear his perspective today. Albert, why don’t you tell us a little bit about your path to where you are today and what you're working on now?
How did Albert grow from a developer to an agency leader?
Albert Banks: Absolutely. I had a fun time working with Dave for many years on your side, so I appreciate the shoutout there. He’s been great. Obviously, I got to know you and Jody through SoDA; they have been very valuable partners to us as we were trying to manage our businesses when we had no idea what we were doing. Speaking of which, I started my agency right out of college, 20-plus years ago. I was a developer, starting on the technical side, while my partner was more creative. We rode that initial wave of web design and development through Flash, and then I worked my way out of doing client work to focus on running the business. I got my MBA on the fly and have been doing everything "back office"—anything non-billable that isn't sales, such as finance, operations, IT, legal, insurance, and resourcing. I really got to know how to run the business while also being a part of the leadership team.
We merged with a local competitor in Charlotte, North Carolina, about eight years ago. That was a great opportunity for us to grow, scale, and mitigate client risk. It allowed me to personally focus on the operational side of the business. We went to market and sold that agency about three years ago to a global company. I continued to run the Charlotte office as well as lead the integration, which was pretty intense. For the past year or so, I’ve been consulting full-time with other businesses, using the experiences I’ve had going through transactions and growing through various thresholds of business size. It’s been a great time; I’m at that stage of my life where I want to give back and help those who are going through tough challenges.
How do you protect project margins before the work begins?
Jamie Nau: You can always tell when someone knows their stuff. Anytime Albert is in the room at a big event, people gather around him asking questions because of the success he’s had with his business and his consulting work. Today we’re going to talk about how to make margins prior to the sale. I’m excited to hear tips on what you can do in the sales process and before the project even starts to set yourself up for success. Albert, do you want to introduce that topic?
Albert Banks: Absolutely. There are always things that can go wrong during an engagement or a project. But I wanted to address "preventative medicine"—things that can be handled a certain way before you ever start the project. I’ve divvied that up into five areas. The first is about the underlying math: making sure you know what you’re charging and you’re built for margin. Second, bringing yourself to the table as an expert to show your value. Third, mitigating risk by finding "unknown unknowns." Fourth, how you price using anchoring and options. Finally, tips on how you might negotiate the sale so you’re set up for success.
What is the ‘Floor, Table, and Ceiling’ pricing framework?
Jody Grunden: Have you found that with AI becoming more popular and helping out operations by getting things done faster, the hourly bill is going by the wayside in favor of value-based pricing?
Albert Banks: Absolutely. I recommend people move from time and materials to more fixed-fee or retainer-based models. But you’ve got to understand your underlying cost because we are in the service business. You have an hourly cost for every team member, so you’ve got to start there. I always say: decouple price from cost, but you still need to know the cost. I use a concept of "Floor, Table, and Ceiling."
Your Floor is the minimum you need to charge to break even. That’s looking at each person’s salary or role, adding in overhead and non-billable time—what many call the "fully loaded cost." You multiply that rate by relevant hours to find your Floor. Then there is the Table. This is where you make your margin. Whether that target is 20% or 50% based on your goals, that is your table stakes. You need to be charging at least that to hit your margin. Finally, there is the Ceiling, which is the maximum a client is willing to pay. Your goal is to reach as high as possible above the Table. If you charge anything less than the Table, you’re cutting into your own profit. If you charge below the Floor, you are effectively subsidizing your client’s budget. Once you know those numbers, you can have very clear conversations with your PMs and new business folks about what the math really looks like.
Why is a discovery phase essential for project profitability?
Jamie Nau: I’m curious about external factors. If sales are really good, do you only take the Ceiling? If it’s a "must-have" industry logo, do you dip to the Floor?
Albert Banks: In theory, you should fundamentally decide on a target margin for your business. If you take anything less than the Table, it has to be a strategic conversation. Is it because we don’t have enough work and just need to break even? That’s a viable path in tough times. Or is it a great logo where the first engagement has a low margin but leads to a vertical where you want a case study? There are factors for dipping below the Ceiling, but ideally, you stay above the Table. This ties into the expert mindset. I credit Blair Enns for a lot of this. You aren't a vendor taking orders; you are being hired as a knowledge guru. One pivot that worked well for us was never pricing or bidding on the "big build" blind. We shifted to selling a Discovery and Strategy phase first. It’s a fixed fee and generally repeatable, so you’re protecting your margin. More importantly, you're diagnosing the problem before giving a prescription. It results in better scoping accuracy for the larger project, and the client is aligned with you early on.
How do you identify ‘Black Swan’ risks in a deal?
Jody Grunden: We identified long ago that data is crucial. Once you know how long things take, you can quote the exact same way across the leadership team. But how do you identify difficulty levels for a prospect without having worked with them before?
Albert Banks: That brings us to Black Swans, a concept from Chris Voss’s Never Split the Difference. You have to dive in to discover the "unknown unknowns." If you assume you know the full picture because "you've seen this type of project before," that’s a mistake. You have to assume there are at least three things you don't know that could blow the project up. Your job is to go on that hunt. Discover their "Why." Ask, "What happens if this fails?" You might learn their boss's job is on the line or they have a hard launch date for a specific event. Suddenly, it’s not about features; it’s about the timeline. Now you can adjust your scope or even charge a premium for a rush timeline.
How do you use anchoring and tiered options to maximize price?
Jamie Nau: We do a two-week discovery process now to ensure our sales call estimates are accurate. Sometimes it even lowers the price if we find the work is easier than expected. Albert, how do you handle the actual pricing and negotiation?
Albert Banks: For maximizing price, start by anchoring high. Don't negotiate with yourself or assume you’ll be disqualified by a high number. Providing options is key. If you provide a binary "yes/no" price, it’s easy to get a "no." If you provide options, a "no" is much harder. Option 1 is your "safety net"—a low-risk way to meet basic requirements. Option 2 is your core option, which is what you really want them to buy. It should be based on value and include a premium. Option 3 is the high-value anchor. It’s the "all-in" version with accelerated timelines or exclusivity. It might be 1.5x to 3x the price of Option 2. It makes Option 2 look reasonable by comparison. Most people end up somewhere between 2 and 3, but you avoid the "no."
What are the best negotiation tactics for closing a high-value deal?
Jamie Nau: Once the SOW is out there, how do you actually close?
Albert Banks: The biggest piece of advice is: be prepared to walk away. You are the expert and the prize. In the negotiation, use "calibrated questions." If a client says their budget is 10K but you quoted 20K, ask, "How am I supposed to do that?" Put it back on them to find the solution. They might admit it’s unreasonable or find a way to cut the scope or increase the budget. Use "labeling" to address their emotions. If they have sticker shock, say, "It seems like you’re worried this won't justify the investment." This gets them to reveal the specific ROI they need to hit. Sometimes, just call out that you are expensive right at the start: "Before I share the proposal, you're going to think we're expensive. We'll explain why." When they actually see the price, it’s often not as high as they had imagined.
What are the best foodie towns for digital agency leaders?
Jamie Nau: To wrap up, we’ve all traveled to cool locations with SoDA. What is your favorite "foodie town"?
Jody Grunden: I love fish, so any Caribbean island. We recently went to Curacao and the food was awesome—fresh fish and octopus. My wife is very picky, so it’s always a curveball finding something she likes, but for me, the Caribbean is great.
Albert Banks: If I’m on my own, I love the Mediterranean diet—Greece, Spain, and Lisbon have amazing fresh vegetables and fish. But for a US city, we were just in New Orleans. Cajun food isn't the healthiest, but man, it is delicious and unique.
Jamie Nau: I agree on Greece—I could eat seven meals a day there. For the US, I think Albuquerque, New Mexico, is underrated. I love green chili and Mexican food; some of the best meals of my life have been down there. Albert, this has been a great talk. How can people get a hold of you to learn more about your new business?
Albert Banks: Check out the website Apertus.co or email me at albert.banks@apertus.co. I love problem-solving and helping founders through the emotional challenges of acquisitions and integrations. There’s no pressure; I’m just happy to make a connection and share what I’ve learned.
