The Handbook: The Operations Podcast

Pricing, Profitability & Predictions with Karl Sakas

• Harv Nagra • Season 1 • Episode 28

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What if you could charge more, and keep your best clients happy?

Karl Sakas has spent over 20 years in agency operations and consulting, helping more than 600 agencies shift from reactive to strategic. In this episode, he joins us to break down why pricing isn’t just about numbers – it’s an ops play, and one that can define your agency’s future.

Here’s what we get into:
• Why time & materials pricing is on the way out, and what to do instead
• How to use “value anchoring” as a bridge to value-based pricing
• How to strategically churn clients that are holding you back
• Why you should consider raising your prices annually
• Why AI tools shouldn’t just make you faster, but more profitable too

Whether you’re raising rates, tightening up scope, or exploring performance-based models, this episode is full of sharp, practical insights to help you price smarter and scale with confidence.

📝 Articles & Blog Posts:
Karl’s Predictions for the Agency Space in 2030.

A Step by Step Approach to Raising Prices at your Agency.

How to Raise Prices – Case Study.

📚 Books by Karl Sakas
Calm the Chaos: 10 ways to run a better agency.
Work Less, Earn More: How to Escape the Daily Grind of Agency Ownership.

Additional Resources:
Karl’s Website – Sakas and Company.
Follow Karl on LinkedIn.
Follow Harv on LinkedIn.

Stay up to date with regular ops insights. Subscribe to The Handbook: The Operations Newsletter.

This podcast is brought to you by Scoro, where you can manage your projects, resources and finances in a single system.

Karl Sakas:

I am not the first person to say that hourly pricing is going away. Jonathan Stark has been saying that for years. Now, though, it makes even less sense. There's the old joke about, there's a factory, the key machine has stopped working. They bring in a engineer and they're like, we're, we're losing millions while this is shut down. And the engineer walks around and, gets out a small hammer, taps on the machine, and suddenly everything comes back and they send a bill and it's, 10,000 the factory's like, what, what? 10,000 just for tapping? And it's like, oh, okay, well here's an itemized bill. It was, 10 for tapping and 99.90 for knowing where to time and materials doesn't convey the value of knowing where to tap.

Harv:

Before we get into the interview, as you know, this podcast is brought to you by Scoro. Scoro is an agency platform that brings together your quoting, task, time, and budget tracking, your invoicing, and your agency reporting into one place. One reason I brought Scoro into my past agency was because we were a multi entity business. We had different agencies in different countries and we needed a common platform that allowed us all to collaborate across the group and have a single place where all our group reporting was done. So it made it really efficient for finance, operations and all the people in the team to collaborate. You can sign up for a free trial at scoro.Com or drop me a note on LinkedIn and I'd love to tell you about my experiences and why my team loved using Scoro. Now, back to the episode.

Harv Intro:

Welcome back to the podcast, all. If you're running an agency, pricing is one of the hardest and most important decisions you'll need to make. Price too low and you're burning out your team on work that doesn't pay the bills. Price too high, and you're worried about scaring off the client. But beyond the numbers, this is an ops problem because even with solid pricing on paper, profitability often gets eaten up by mis-scoped projects, inefficient delivery, or teams constantly reinventing the wheel. so today we're talking about how to price smarter and build a more profitable agency, Without compromising on quality or client relationships. Whether you're thinking about shifting to value-based pricing, figuring out how to raise your rates, or just wanna plug the holes that are leaking margin, this one's gonna be packed with practical advice. Today's guest is Karl Sakas, an agency growth consultant who's worked with hundreds of agencies across 36 countries. For more than 20 years, he's been helping agency leaders go from overwhelmed and reactive to confident and in control. Through his consultancy, Sakas and company, Karl Blends practical frameworks with deep operational know-how, drawing from his background and project management, digital strategy and operations. I've been following Karl's work for a while now, and he's absolutely brilliant. His site is packed with hundreds of useful articles. His latest book, Calm The Chaos, which I've just read, is full of actionable advice on running a better agency, I'm not even kidding, even his out of office email delivers value. He's super impressive. I'm so excited to have Karl in the show today. Let's get into it.

Harv Nagra:

Karl, welcome to the podcast. Thank you so much for being here.

Karl Sakas:

Harv great to be here. Looking forward to helping people

Harv Nagra:

Thank you so much. I'd love to start with you telling a bit about your agency background, if you wouldn't mind.

Karl Sakas:

before becoming an agency advisor, I served in agency operations as a PM as a Director of client services, a director of operations, and if you go way back, back to the days of dial up, I was a freelance web designer in high school and college, so I've been in the industry for quite some time.

Harv Nagra:

Amazing. And so when did you branch off and start your own consultancy?

Karl Sakas:

I started what's now Sakas and Company in 2013

Harv Nagra:

wow.

Karl Sakas:

worked for one agency and then another as a PM and head of operations. And I realized there is this opportunity where people start agencies'cause they love the work, not because they necessarily love running a business. And of course that's where operations will come in. I, I joke that operations is everything that needs to happen, but that the agency owners don't want to do themselves.

Harv Nagra:

Exactly that. I, I can definitely relate to those situations where people start an agency because they're great at something, but not because they're great at running a business. And certainly operations is not one of those things people tend to be great at intuitively, perhaps. So there's lots of brilliant things you talk about Karl, so much that I really had to think about what I wanted to focus the conversation on today. I've settled on what I'm calling pricing, profitability and predictions. Side note, for anyone listening, Karl has a really interesting article about predictions for where the agency space is gonna be in the year 2030. So we'll put a link to that in the episode notes so you can go and read that. We're gonna try to cover a lot of ground as a result today, Karl, so if you're ready, we can dive in.

Karl Sakas:

Absolutely.

Harv Nagra:

I wanted to start with pricing. There's a a few core ways you can price work in your agency, right? There's time and materials, there's deliverable and milestone based, which tends to be quite common. And then there's value based pricing. could you walk us through these covering when they're a good fit and maybe some pros and cons of each of those.

Karl Sakas:

Historically, time and materials can be a good option if you don't know how long something will take, or if you're doing sort of maintenance fee requests for a past client who did maybe a big project and they've, they've scaled back, you're

Harv Nagra:

Right.

Karl Sakas:

per hour or for some agencies by day or half day. Before the rise of AI tools, hourly or time and materials made sense in certain circumstances. If it was the first time you're doing something or if a client was happy to say, oh yeah, you know, whatever time it takes, get it done. The problem is that time and materials doesn't capture the value of intellectual property, AI tools that you've built internally or that you may be using and, and things like that. It also, and even before AI doesn't capture the value of your experience. For instance, I've worked with over 600 agencies. I do charge more certainly than when I had less experience. But, being able to solve a problem quickly,

Harv Nagra:

Mm-hmm.

Karl Sakas:

in say a, a one hour call, we're in a, couple month project that has a lot of value and time and materials doesn't capture that. And the same is true for agencies. So historically time and materials was helpful if you know you needed that flexibility. ideally though agencies would be doing the second model deliverable based, fixed scope, fixed price that

Harv Nagra:

Mm-hmm.

Karl Sakas:

for projects and for ongoing retainers. It's where the client is paying a flat amount to receive certain deliverables or, certain things that they're getting. A lot of agencies, if you're listing and you're doing time materials, you probably wanna move toward deliverable based

Harv Nagra:

Mm-hmm.

Karl Sakas:

based. The advantage there, of course, is that you're charging a fixed price for fixed scope. If you can get things done efficiently and effectively faster, you come out ahead. Of course, it doesn't work if things go way over your plan and you're still on the hook to get things done. It does require some sometimes difficult conversations with clients about scope management, because if a

Harv Nagra:

Right.

Karl Sakas:

something that's out of scope, you need to say no. Although ideally, you give them options, you could say, for instance, we're glad to do that, would you like to take care of that next month? When we have budget for it or would you like to shift some things around this month or would you like to potentially add some extra budget and get it all done right now? If your team avoids conflict, that can be a problem with, with fixed scope. Value-based has a few forms, but in its purest form, value based pricing is about charging a percentage of the value the client gets. You could think of it as a commission or a royalty. For instance, if the client gets an extra 5 million in sales and you're charging 10% of that, you're gonna get 500,000. And if they get more, you get more. If they get less, you get less. And some agencies will often charge a fixed amount plus a value-based fee on top of that. Value based pricing is a holy grail for agencies, but often if you're struggling with profitability, you're better off moving from say, time and materials to fixed price, or if you're in fixed price now, getting better at scoping and scope management rather than going to a totally different model.

Harv Nagra:

between value-based and performance-based, is there a difference in those pricing models?

Karl Sakas:

they're pretty much synonymous. Some agencies will describe themselves as performance based when they're, focusing on client performance, but not necessarily charging based on it.

Harv Nagra:

Hmm.

Karl Sakas:

instance, pay per click oriented agencies, affiliate marketing oriented agencies, they are working to drive performance. They may not necessarily be exactly doing value-based pricing.

Harv Nagra:

I mean, the whole value-based pricing thing can feel like a leap for some agencies, when they might already be feeling like it's a race to the. Bottom in terms of, competing against everyone else out there. And there's so many agencies, in a given niche. We, recently had an episode with Max Tray on how to position yourself as a strategic partner with your clients, so you can get out of that race to the bottom. But in your point of view, how do you break through to value-based pricing if you've never done that before?

Karl Sakas:

Max has great advice. So if people haven't seen the episode or checked out his books and materials, definitely want to dig in. A great starting point toward value-based pricing without leaving a fixed scope model is to do what I would call value anchoring. That's where you have a conversation with a client about the value you're trying to deliver for them, and then framing your fixed fee as a much smaller percentage of that. For instance my initial engagement is an eight to 10 week agency growth diagnostic. It is a fixed price based on the number of stakeholders involved,

Harv Nagra:

Okay.

Karl Sakas:

tends to be a proxy for the complexity of what alls is going on. you know, a particular agency reached out and they, they're interested in selling the agency, but their valuation now isn't as high as they want it to be in the future. I did some estimates. My sense was that a rough valuation was somewhere between. Two and a half to 3 million now, they wanted to sell for 8 million or more. And so I said, I, I can help you do that. It it'll take some time. You need direction on where to go and what to prioritize. That's where that initial agency growth diagnostic will help and then can help them on an ongoing basis toward that goal. Or they can do it themselves. in this case I was able to anchor

Harv Nagra:

Hmm.

Karl Sakas:

they are looking to add like$5 million in value and the price of the initial project is a fraction of it. I, I mean, almost, I, I was thinking, oh, I'm undercharging for this relative the insights they'll get, of course, they still have plenty to do. I wouldn't get credit for the whole increase. but for people who are listening, you know, and as you're working with your sales teams as an operations leader. Are they having conversations about the value the client is going to get? If you don't have those conversations, you can't value anchor.

Harv Nagra:

Hmm.

Karl Sakas:

if the client clear on what the value is, you can't value anchor.

Harv Nagra:

Hmm.

Karl Sakas:

instance, I had a client as a director of client services that was a cosmetic dentist that a general and cosmetic dentistry. Their ideal was to sell a smile makeover, which adjusted for inflation would be about$50,000 today. But I introduced them to the concept of lifetime customer value or for them lifetime patient value. And I, I told'em about the idea and I was like, do you have a sense of what that amount is? And they said,$4,000. And they said, and that's usually in the first four to five years after that, we have maxed out their mouth. It was a little

Harv Nagra:

Okay.

Karl Sakas:

talking about maxing out your

Harv Nagra:

Yeah.

Karl Sakas:

Got it. So for instance, if I could say, you know, in a month we had helped them generate 20 new patients who were worth 4,000 a piece that was 80,000 in value, and they were paying less than that in their retainer. That helped anchor the value. So I would start by value anchoring before you jump directly to value-based pricing or full performance-based pricing. It'll help set the stage.

Harv Nagra:

Mm-hmm. Is it possible that when you're doing that value anchoring if you don't attain the results that you were aiming for, does that happen in, how do you avoid that kind of situation?

Karl Sakas:

The idea is that you're doing a relatively small percentage of the total value, if you're doing 10% and they only get half the value, they still paid you 20%

Harv Nagra:

Got it.

Karl Sakas:

amount and they received 80% instead of 90%.

Harv Nagra:

Understood. That makes sense. When you're working with existing clients, agencies that you consult with, are people able to make that transition from fixed price, fixed scope projects to value based with their existing client base? And if so, what kind of advice do you have to get people, to make that transition.

Karl Sakas:

Agencies sometimes can make a transition to value anchoring or even value based.

Harv Nagra:

with

Karl Sakas:

current clients, a challenge is that your current clients are used to working with your agency in a certain way. So if they're used to saying, you know, yeah, we'll, we'll get this done, it'll take three hours, and you've charged them an hourly rate, and now you're suddenly saying, well, that'll be a percentage of this, and a percentage of that. Hmm. Clients were used to how you're working before, that can be a tough sell. Of course,

Harv Nagra:

Mm-hmm.

Karl Sakas:

can go in other ways. I, I had a client once who would, anytime he would send a request, he would say, oh, I think that'll take you about an hour.

Harv Nagra:

Mm-hmm.

Karl Sakas:

and we did time and materials. I was like, well, actually that'll be eight hours. Based on my discussion with the team, He was like, oh, eight hours. I could have done it myself. I'm thinking, no, probably not. well, even if you could, you

Harv Nagra:

asked us

Karl Sakas:

to do it. So it's eight hours.

Harv Nagra:

Mm-hmm.

Karl Sakas:

some of those clients who are. Cheapskates or maybe don't have a good internal focus on the value of their work may not move to it. It's a lot easier to move to value anchoring and higher prices in general with new clients. But you can say to existing clients, I talk about this in an article, I wrote for the Shopify partner blog that applies to any kind of agency about raising your prices. One of the keys is that if you don't raise a particular client's price, make sure they know that other people are paying more. You could say, for instance, as a heads up, new clients are now paying, 30% more. We enjoy working with you. You're locked in on a client loyalty discount through the end of the year or

Harv Nagra:

Right. Mm-hmm.

Karl Sakas:

at that point their price goes up 10 or 15% instead of 30%, and they're like, oh, we're getting a good deal. It all depends on the client. It depends on the relationship. It's a lot easier to switch any kind of model or pricing with a brand new client, but you can make it work with current clients if you make it worth their while.

Harv Nagra:

Definitely, and I read that article by the way. Really, really excellent advice and examples on how to make that transition with your customers and also being okay with losing certain clients over time as well, I think.

Karl Sakas:

the key there is, uh, you know, as you saw in the article, it's a portfolio approach to price increases. It is not that every client gets the exact same increase because they all have different scopes, different histories, goals, things like that. But the idea is that you are raising the price to the appropriate, suitable level that's gonna be higher for some lower, for others, maybe no increase. It also gets into whether you wanna keep the

Harv Nagra:

client Mm-hmm.

Karl Sakas:

I have a concept I call strategic churn. That's where you replace previous or current clients with better new clients. If it's a client, you're okay to lose, maybe they're gonna get a higher increase if they wanna stick around or a, a higher increase if they want to keep working with, say, the owner of the agency, where maybe the owner used to work with lots of clients directly. Not really anymore. If clients wanna keep working with the owner, they're gonna be paying a lot more

Harv Nagra:

for that

Karl Sakas:

that premium service.

Harv Nagra:

I really, really love that Karl and I've never heard anybody put it that way that, if there are customers that you're less happy to work with, kind of price them out and be okay with that. But also the example of pricing your senior team or certainly your MD or CEO at a much higher rate is so good'cause sometimes that happens where clients are like, I refuse to work with yourselves if I don't get to work with so and so any longer.

Karl Sakas:

Yeah. Well, and, and you, you, you're not forcing them to stop working with, the senior person. But now it's like, well, you've been paying 7,000 a month. New clients are now paying 15 to 20. If you want to continue at that price, we'll need to make some changes to the, the team and the strategist on the account, or if you're willing to go up to 12 or 15, we can continue with the current team. Which do you prefer? I call that reason, options, choose. Give a reason why. Give them two or three hand selected options that you've identified and then let them choose.

Harv Nagra:

Excellent. One of the predictions you had in your article for 2030 is that we're gonna see a rise in performance-based pricing. could you just briefly go over again where this works well if there's certain kinds of scenarios where this kind of model tends to work better?

Karl Sakas:

Performance-based pricing works well when the client has a clear idea of their own internal value, the value of a lead, for instance, or a sale if they're doing direct sales and things like that.

Harv Nagra:

Mm-hmm. They

Karl Sakas:

also have good attribution to know that things came from your agency's efforts and ideally from a particular campaign or particular program.

Harv Nagra:

Hmm.

Karl Sakas:

An agency is good at doing the work, right, that you can get it done effectively and efficiently. And ultimately, the client trusts you because there's a risk if you're adding a performance based component. Is the client going to be truthful in the results? They got to make sure that you're getting paid

Harv Nagra:

Right.

Karl Sakas:

Usually they are. I mean, because ultimately they're making way more money than the money they're, they're paying you. But, when it comes to risk management, I, I recommend looking at, at three things. One what is most likely to happen? If If it's likely to happen, you should have a plan for it. What is not likely to happen, but would be catastrophic if it did.

Harv Nagra:

Right.

Karl Sakas:

that's why people get homeowner's insurance or renter's insurance or, or things like that where like your house probably isn't going to burn down, but if it did, it would be really

Harv Nagra:

Mm-hmm.

Karl Sakas:

you want the insurance coverage. The third thing though, to look at, so what's most likely to happen? What? What would be catastrophic? Unlikely to be catastrophic. The third thing is what if it goes really well? What if things, go beyond your wildest dreams? And in that case, they might be paying you millions in performance-based fees. Are they setting aside the money?

Harv Nagra:

Right.

Karl Sakas:

are, are you set up to receive those payments?

Harv Nagra:

Yeah.

Karl Sakas:

Is your bank gonna think that you're receiving some sort of money laundering payments or something like suddenly getting all of this money? I would give your banker a heads up if you're about to get a, sudden million or multimillion wire transfer. The thing though is that if they're paying you somehow millions in performance fees, it's because they're making likely 10 or 20.

Harv Nagra:

Right.

Karl Sakas:

30 million themselves. So are, are they ready for

Harv Nagra:

Mm-hmm.

Karl Sakas:

themselves? Is the client able to fulfill

Harv Nagra:

Yeah.

Karl Sakas:

All these things to

Harv Nagra:

Mm-hmm. is that just a conversation to make sure that they're set up for that, or is there anything else that you can do to make sure that's all in place?

Karl Sakas:

Ideally, you're running some sort of attribution process or system so that, and you have access to their CRM or their sales system or things like that. I mean, it's, it's easy in e-commerce where you're able to track pretty closely where a particular sale came from. If they are getting phone inquiries, you'll need to work with their team to make sure that their recording, where the in inquiries came from and things like that. With the, the dentist office example, we did some training with the office staff. About how to log things when new patients came in and actually were able to get a new field added into their internal CRM but that does raise, you know, if you're questioning the ethics of a client, You definitely don't wanna do a performance based deal with them.

Harv Nagra:

Absolutely. Good point. So what, makes you confident that this is gonna become more common and prevalent in the next few years?

Karl Sakas:

It's all about incentive alignment,

Harv Nagra:

Hmm.

Karl Sakas:

clients want to grow, whether that's selling more services or products or reaching other goals of their own. Maybe, maybe they're growing to have an exit or something like that. The more you can tie what you do to what they want. The

Harv Nagra:

Mm-hmm.

Karl Sakas:

better aligned you are toward their goals. And performance-based pricing can be a way to create that incentive alignment in a way that the traditional models of time and materials and milestone-based don't uh, in the same way.

Harv Nagra:

that kind of leads us to my next question, which was another kind of bold claim that you've made is that time and materials pricing is gonna disappear by 2030. So what makes you think that is gonna be completely on its way out?

Karl Sakas:

I am not the first person to say that hourly pricing is going away. Jonathan Stark has been saying that, for years until the rise of ai, though I, I was more agnostic about time and materials in the sense that, well, you know, if you haven't done the work before, if the client's happy with the model, that can be fine.

Harv Nagra:

Mm-hmm.

Karl Sakas:

Now, though, it makes even less sense. It goes from neutral for time and materials to a negative. if you can solve all of their problems in an hour, it's probably worth more to them than what they paid for that hour. There's the, the old joke about, there's a factory, the key machine has stopped working. They bring in a engineer and they're like, we're, we're losing millions while this is shut down. And the engineer walks around and, looks at a few things, makes some measurements, gets out a small hammer, taps on the machine, and suddenly everything comes back and they send a bill and it's, 10,000 or something like that. And the factory's like, what, what? 10,000 just for tapping? And it's like, oh, okay, well here's an itemized bill.

Harv Nagra:

Hmm.

Karl Sakas:

It was, 10 for tapping and 99.90 or what have you for knowing where to

Harv Nagra:

Right.

Karl Sakas:

time and materials doesn't convey the value of knowing where to tap.

Harv Nagra:

Really good point. And it brings us back to what you were saying earlier with AI and kind of recent conversations we've had on the podcast as well, is that if these tools make us more efficient, we should not be passing on all those savings in time and efficiency onto the client.

Karl Sakas:

There's even an opportunity to potentially charge more. If you can get it done in a shorter duration, you can get things turned around

Harv Nagra:

mm-hmm.

Karl Sakas:

People pay for convenience. If you think about, baby carrots versus regular carrots, like you pay more per pound for the baby carrots, but they're pre peeled. They're pre-washed,

Harv Nagra:

Yeah.

Karl Sakas:

to eat. Labor has value, and you pay for convenience.

Harv Nagra:

So Karl, let's talk about price reviews then. Are there any good rules of thumb about how often you should be reviewing and adjusting your pricing?

Karl Sakas:

I would review your pricing at least once a year,

Harv Nagra:

Mm-hmm.

Karl Sakas:

and that's looking at what you're charging new clients as well as what you're charging existing clients.

Harv Nagra:

Mm-hmm.

Karl Sakas:

with existing clients, it's gonna be a, a portfolio of prices. Not everyone is necessarily at the exact same price'cause everyone's in a somewhat different situation, but ultimately you would likely raise prices for new clients and then do that portfolio approach of different increases for existing clients. I probably do that once a year. You may conclude that you don't need to raise prices. Though there is value to doing some sort of a, even a modest increase every year so that clients are used to it. As opposed to suddenly they're like, oh, it went up 15% and it's like, oh, if you had done 3 or 5% a few years in a row,

Harv Nagra:

Right.

Karl Sakas:

You, you would've been closer to that an easier to digest way.

Harv Nagra:

Really good point and a great opportunity right now to mention, again, that article on raising prices that we'll put in the episode notes. I really think that there's a lot of value to be gained by reading that. But should you be afraid to lose clients over your pricing? What are your thoughts?

Karl Sakas:

If it's a client that you want to, as I would say, strategically churn

Harv Nagra:

right?

Karl Sakas:

give them a higher price if they wanna renew, or a higher price, if they want to keep working with the owner or, or the senior most team members. On the other hand, if it is a client where you feel like you can't afford to lose them sometimes that's the case where if you have a client concentration problem, which I define as getting 20% or more from a single client.

Harv Nagra:

Okay.

Karl Sakas:

for those listening, I, I was speaking with an agency, COO. I was talking about the idea of client concentration her goal was to bring me in to help and, you know, I had mentioned the 20% and you can't, you know, be like, well that's a different department of this company. And, and it's funny, she had been trying to get her bosses to understand that different departments don't matter. It's all about the company. I'm like, well, you can say that I said it right. I've worked with 600 agencies. Karl says 20% from the company, no matter the department, that's a client concentration problem. if you're concerned that the client would just go away then you may not press as hard.

Harv Nagra:

Right.

Karl Sakas:

but I would at least let them know even if they don't have an increase. That new clients are paying more. They're getting a client loyalty, discount, and tip, put that discount into every invoice they get, every auto draft receipt they get and things like that. Because if your client contact leaves and a new person comes in, they don't see that they're getting a special deal, they'll assume it is a normal deal.

Harv Nagra:

Whereas

Karl Sakas:

if they're like, oh, they're getting a 10% discount every month, they may still expect some sort of deal, but at least they can't claim they had no idea.

Harv Nagra:

exactly. And it's funny how quickly clients, even the clients that you've been working with a lot or for a long time, easily forget that they had that discount if you're not spelling it out on that invoice every single time. Now about that 20% rule that you were mentioning, is that all about risk and mitigating that if, if that client were to disappear, what's your point of view on that?

Karl Sakas:

So the idea of client concentration is that if you become overly dependent on any one client. If you lose them as a client, you're probably gonna have to do layoffs. I spoke with an agency where they had about 40% of the revenue from one client. They

Harv Nagra:

were a long

Karl Sakas:

time client. They also weren't incrementally a, a very profitable client. Like the overall profits were good'cause they were a big client, but they were at the lowest rate that the agency was charging'cause the client had been around for a while. They were

Harv Nagra:

getting

Karl Sakas:

volume discounts. The agency hadn't been raising prices. So if you lose a 40% client, you're gonna have to do layoffs.

Harv Nagra:

Right.

Karl Sakas:

have to make some really difficult cuts. The other thing is maybe the client doesn't fire you, but you wanna fire them. You're gonna feel trapped because you can't suddenly, easily lose 40% of your revenue

Harv Nagra:

Mm-hmm.

Karl Sakas:

doing layoffs and owners cutting their pay and, and things like that. So the goal is to avoid getting trapped in, in a situation where you couldn't afford to lose them if they initiated or where you feel like you can't afford to cut ties with them.

Harv Nagra:

Mm-hmm.

Karl Sakas:

at.

Harv Nagra:

So we're gonna shift gears a touch and I wanted to pick your brain about profitability. Besides sales pipeline anxiety, profit tends to be something I hear a lot of agencies worrying about. What are the key levers that can be pulled to improve margins?

Karl Sakas:

The biggest overarching driver for your margins is your labor ratio.

Harv Nagra:

Okay.

Karl Sakas:

What percentage of your revenue are you spending on team members? But if we're setting aside changes to your team, we can look at delivery profitability, and there are three levers there.

Harv Nagra:

Okay.

Karl Sakas:

It's pricing, second is scope, and the third is scope management. here's an example. I was working with an agency in Austin, Texas several years ago. owner said, I've been running my firm for a decade. I thought I'd be making more money at this point and that I wouldn't be working quite as hard. That was before I had released my work Less Earned More book, but she definitely was in the target audience for that.

Harv Nagra:

Mm-hmm.

Karl Sakas:

And so I, I dug in using what's now the agency Growth Diagnostic, and I found a series of problems. She was undercharging, she was delivering too much scope, and her team was not managing the scope very well. she did not wanna make any changes to her team. I was working with her and her director of operations. I said, well, here are the three levers right now you're charging about half of what similar would charge for this type of work. Ideally you would raise prices starting with new clients and perhaps transitioning part of the way they are for existing clients. Her response, remember she's working too much and not making enough. She's like, oh, my clients could never pay that much. I can't raise their prices. I'm like, Hmm. I, I mean, I'm thinking some of her clients were smaller, but I think others would've been willing to pay more and she could also potentially look at somewhat, instead of micro businesses, smaller businesses as an option. But she didn't wanna do that.

Harv Nagra:

Mm-hmm.

Karl Sakas:

you could also reduce the scope of what you're providing. instance, she was selling and, and her team were selling a package that was a brand identity package. A website and all of the copywriting for the website what other agencies would charge just for a website

Harv Nagra:

Oh, wow.

Karl Sakas:

for brand package.

Harv Nagra:

Mm-hmm.

Karl Sakas:

said, what if you set aside the copywriting as an add-on where they didn't get it automatically? They could, but they could add

Harv Nagra:

Mm-hmm.

Karl Sakas:

price. She's like, but then the website would have bad copywriting. Okay, but I'm thinking if the client's not paying for it,

Harv Nagra:

Right.

Karl Sakas:

are they getting it for free?

Harv Nagra:

Yeah.

Karl Sakas:

or you could say maybe it's the website and the copywriting, but the brand identity package is separate and that's a, a first step for

Harv Nagra:

Yeah.

Karl Sakas:

She's like, well, if they don't do that, then it's gonna have a bad brand. And I don't want that to be in our portfolio. I'm thinking like, if you can't convince clients to pay for value, you're, you're not gonna make more money. I said, well, there's a third lever, right? I'm talking with her and her director of operations, and I said based on my calculations, they were regularly going over scope by about 80%. Clients were getting almost double of the, of the scope. And I said, going forward you can stop going over scope. The team will have to be more firm about what is and isn't in scope charging for, scope creep and things like that. And the operations director said, how over scope can we go?

Harv Nagra:

Oh dear.

Karl Sakas:

And I'm, I'm thinking, how much money do you wanna lose?

Harv Nagra:

Yeah.

Karl Sakas:

actually a case where I recommended stopping the project halfway through refunding the rest of the project.'cause they didn't seem to want to make changes. And I laid that out as a boundary and they were like, no, no, no. We, we wanna follow it. And I, I foolishly believed them

Harv Nagra:

Mm-hmm.

Karl Sakas:

going and. I don't think they made changes, so I had some new things to keep in mind for my screening process.

Harv Nagra:

that's interesting. Where does that mentality come from? they seem to be wanting to run a design charity or something like that, where they're giving away work.

Karl Sakas:

Yeah. I've started in my intake process, I'll ask clients about what is their relationship with money.

Harv Nagra:

Hmm.

Karl Sakas:

some things from their childhood that are still showing up now

Harv Nagra:

Interesting.

Karl Sakas:

'em in trouble? I think in her case it was around seeing the idea of like money or having money is bad,

Harv Nagra:

Mm-hmm.

Karl Sakas:

was inadvertently making choices that undermined

Harv Nagra:

Wow.

Karl Sakas:

making money.

Harv Nagra:

Mm-hmm.

Karl Sakas:

Another client I'm working with, they mentioned they were often overloaded with client requests and things like that, and tons of slack messages. And what emerged is that part of their value proposition is that clients get direct Slack access to the agency team, which is not a good idea.

Harv Nagra:

Hmm.

Karl Sakas:

the team is getting overwhelmed. One of the things that I've noted is like, gotta stop doing that. And the agency owner is like, well that's really important. That's why people hire us.

Harv Nagra:

Hmm.

Karl Sakas:

yeah, that's why they hire you.'cause no one else is doing that. Or very few are doing that. if they are, they're charging two or three times as much per month

Harv Nagra:

Hmm.

Karl Sakas:

you know, As I'm finalizing my advice for them, is stop doing it or charge way more. Pick which you want and

Harv Nagra:

Yeah.

Karl Sakas:

you can make it happen.

Harv Nagra:

Mm-hmm.

Karl Sakas:

I have a book recommendation, which is Overcoming Underearning.

Harv Nagra:

Okay.

Karl Sakas:

Barbara Stanley,

Harv Nagra:

Hmm.

Karl Sakas:

mostly on people who are in salaried roles of like how to negotiate, getting more money, getting what you're worth. It does work for owners. For instance, I recommended it to a client several years ago where as soon as she read it, she reported back that she'd raised her salary, like 50%, that she was underpaying herself. It also works, Overcoming Underearning, on charging more for your services. Like, okay, it's worth it. People need to pay for it. Or at least, certainly new clients need to pay for it. And you'll work on increasing. So Overcoming Underearning.

Harv Nagra:

Excellent. Do you see any kind of common ways agencies lose money without realizing it and how can they stop that if that's the case?

Karl Sakas:

I've written a whole article on profit leaks,

Harv Nagra:

Okay.

Karl Sakas:

And, and how, how things can go wrong. I, I would say as a starting point, look at your net profit margins. If your net profit margins are 20 to 30% after market rate owner compensation, you're probably doing fine. On the other hand, if your net margins are 10 or 15% or or less, client came in recently where they were in the single digits. You wanna dig into why. Overspending on labor can be a big factor, especially if you have a slower than projected year. You've got the team that you expected if it was a bigger year. And you don't make any staffing changes. That can be a big factor, but I would start by looking at what are your net profit margins? If it's below 20%,

Harv Nagra:

You've got profit leaks somewhere

Karl Sakas:

It could be staff, it could be how the team is logging their time. It could be something else. But, as an operations leader, that's a sign to dig deeper.

Harv Nagra:

good advice. Karl. We're gonna come back to predictions. There's a lot of change in experimentation with ai. You have some strong points of view on how we can use these technologies and the efficiencies they bring to our advantage. Something that you've said is don't just use AI to be more efficient. Package it as a new, high margin service. So that I think is fantastic advice, but I'd love to hear what that looks like in practice.

Karl Sakas:

That's gonna be unique to each agency and your

Harv Nagra:

Mm-hmm.

Karl Sakas:

I would start by looking at what are your clients trying to accomplish both professionally and personally? ran a CMO networking group for five years. I was the only non CMO in the room. And because I only worked with agencies, I had nothing to sell them,

Harv Nagra:

Mm-hmm.

Karl Sakas:

Because they weren't my, my target market. And, there were themes that came up around attribution that kept coming

Harv Nagra:

Mm-hmm.

Karl Sakas:

what can your agency do attribution wise? What could you do to coach your clients on it where maybe they're using AI tools and you're helping them sort through customization at their firm. Maybe you're building custom GPTs or agentic AI type agents for the client, and then they're running it. Or something like that. Or you're helping maintain. You could be building out tools or you could be providing services. It's gonna depend on what your clients need.

Harv Nagra:

Hmm.

Karl Sakas:

the personal goals piece. the CMO trying to get promoted to become the CEO?

Harv Nagra:

Right.

Karl Sakas:

can you position yourself to get there? That could be AI related. It might not. I, I had a client years ago where, they were a marketing manager at a large corporation and they had an associate's degree and they were going back part-time to get their bachelor's

Harv Nagra:

Mm-hmm.

Karl Sakas:

And I would ask like, what classes were they taking that semester?'cause then I could tie the work that we were doing and upsell opportunities to their classes. And so it, created a, a win-win.

Harv Nagra:

Hmm.

Karl Sakas:

So the exact solutions are gonna depend on your clients and also on your agency skillset. On the other hand, if people are listening and they're like, more, you know, more of that, or, or the owners of the agency where you work are like ai, do we really have to, that could be a sign that it may be time for the owners to sell the business and move on rather than keep running it. Like things are gonna keep changing. not going to stop. And if an owner is tired of dealing with that. It may be a sign that it's, time to sell the agency and move on. will say, I, I ran a, a workshop and then now it's available on demand training, on control and maximize your agency exit.

Harv Nagra:

Hmm.

Karl Sakas:

for the live attendees, I asked, these were all agency owners of independent agencies, under a hundred people. What would they ideally do after they sell their agency? And about half of the respondents said they would start a new business.

Harv Nagra:

Hmm.

Karl Sakas:

Yeah, so you know if, if you're noticing that your boss doesn't seem fully engaged in the business anymore, maybe it's time for them to sell, and by the way, that's an opportunity for you to move up. Maybe it's to move up to become the CEO if you want, or managing director or something. There are probably some opportunities there, but it starts by having that

Harv Nagra:

Mm-hmm.

Karl Sakas:

Call out what you've

Harv Nagra:

Mm-hmm.

Karl Sakas:

and see how you can help them.

Harv Nagra:

Interesting. One of your kind of related predictions on AI was also that while clients may push back on implementation costs, they'll increasingly pay for expert strategic insights to make sense of AI generated data and marketing noise. Another prediction was agencies that package AI driven execution with deep human expertise will thrive. Can you unpack those a little bit?

Karl Sakas:

So think about your services. Agency services fit into three main categories. I think of it as think, teach, do, think is strategy. Tell me what to

Harv Nagra:

Mm-hmm.

Karl Sakas:

Teach is training and empowerment where the client's like, I wanna do it myself. Show me how,

Harv Nagra:

Mm-hmm.

Karl Sakas:

help me hire people to do it. then think, teach, do, do is about implementation. It's about implementing the work. So think about your agency's work. What could you use? AI tools including building things internally, whether that's building custom GPTs, building ai agent related tools, things like that, or using off the shelf tools. What can you do for implementation there? But it still needs to be guided by strategic insight, though probably strategists that are assisted by AI as

Harv Nagra:

Mm-hmm.

Karl Sakas:

right? Feeding in all of the data is a great, you know, into an AI tool can be a great way to get a summary of things, notice things you missed and things like that. But at least at this point, we still benefit from human involvement. So the idea there is that you're selling insights with AI support and assistance. And you make money doing it

Harv Nagra:

And this is a fantastic time, an opportunity to really get ahead of the competition as well if you really lean into this, using these tools to your advantage in becoming that strategic partner.

Karl Sakas:

and also, I mean, you know, I, I've, I'd say I'm sort of intermediate on AI at this point. There are events and programs and people where you can learn from them. I, I'm helping organize the AI in your agency event in August of 2025.

Harv Nagra:

Amazing.

Karl Sakas:

San Francisco, I went to the first one as an attendee two years ago I recommended it to to clients last year. This is through the Bureau of Digital, or the Bureau, Where I, I'm involved as a member. The speakers there are super plugged into what's going on. It's about AI in your operations, in ai, in your services. So I know that I'm gonna learn a lot. I learned a lot before, and

Harv Nagra:

Right.

Karl Sakas:

You don't have to invent it all from scratch.

Harv Nagra:

Yeah, really good point. Just make sure you're plugged into those networks and those groups, having those conversations, and learn as much as you can. Karl if you had to give one piece of kind of parting advice to an agency ops leader, does anything come to mind?

Karl Sakas:

Make sure you understand the unique values, goals and resources(VGR) to follow. usually that'll involve speaking with the owner or owners of the agency. Values would be around how should you approach things, how do you approach work goals around where to go. Understanding their goals, ideally, both professionally and personally so that you can support them on that. And then the resources in terms of time, money, people, software. Things like that to get things done. The more you know about that, the more you can help, your boss or bosses achieve their goals. And ideally that'll help you with your goals as well. So understand where you're going, how they want you to get there within reason and the resources available. It'll go a lot better for everyone involved.

Harv Nagra:

really good advice. I mentioned your latest book in the intro, Calm the Chaos which has just come out. I had the pleasure of reading. Fantastic. There it is on screen. But you've written a number of books as well, haven't you, Karl? And I think relevant, today's discussion might be Work Less, Earn More, which you were showing us a few moments ago. Could you be briefly tell us what we can find in each?

Karl Sakas:

Yeah, well, Work Less, Earn More is my third book looks at Helping Owners is the subtitle says, escape the Daily Grind of Agency Ownership. It works whether you are looking to sell your agency to have an equity event. Lately clients are saying they wanna sell for five to 10 million. Though I have some clients who are, on track to sell, say 40 million. Another client is seeking a hundred million as as their exit. That's gonna be a, a bit further out. or if you wanna run a highly profitable lifestyle agency where you're making above market salary, great profit margins, things are running smoothly, you're doing the work you want. That's the idea of Work Less, Earn More, making

Harv Nagra:

Okay.

Karl Sakas:

increasingly optional as an agency owner. But for everyone who's listening as an operations leader, part of that is the owner is rewarding their best team members.

Harv Nagra:

Right.

Karl Sakas:

Are opportunities for you to move up. For instance, I have a client where the owner wanted to step back and five years ago we built an initial succession plan and had a key team member who was very promising, so steps to move up, account manager, director of client services, vp, president. And earlier this year the employee just got promoted to CEO. And

Harv Nagra:

Wow.

Karl Sakas:

the owner is working just a few hours a week

Harv Nagra:

Amazing.

Karl Sakas:

point.

Harv Nagra:

Mm-hmm.

Karl Sakas:

Yeah. So Work Less, Earn More for the owners. Yes. But while rewarding the best team members, that's an opportunity for operations leaders to get promoted, to get new responsibilities, more pay both now and potentially with Phantom stock if they're heading toward an that's Work Less, Earn More. You can go to worklessearnmorebook.com. You can get all of the Amazon links. It's available on Amazon, worldwide, different formats. Print, Kindle, and an audio

Harv Nagra:

Mm-hmm.

Karl Sakas:

The most recent book Calm The Chaos, which just came out this year in, in 2025. And you can get the links for that at calmthechaos.Xyz. That takes a lot of the lessons from Work Less, Earn More, and focuses on leadership and management. It's calm the chaos, 10 ways to Run a better agency is really about leading people, about delegating, about building a great team, about giving people a chance, but not too long. And also about improving meetings. I've kept it intentionally short. It's about a hundred pages or if you listen to the audiobook I, I narrated, it's about a little under two and a half hours. And you can learn more at CalmTheChaos.Xyz.

Harv Nagra:

Excellent. We'll include that in the episode notes. and like I said, it's an excellent book. I really enjoyed reading it. Karl, where can people go learn more about you and reach out?

Karl Sakas:

Feel free to

Harv Nagra:

I,

Karl Sakas:

my main website, which is SakasandCompany.com. That's S-A-K-A-S-A-N-D, the word company.com. Or if you go to either of the book sites, it'll, it'll get you there as well. There are hundreds of articles on agency growth, management and operations. Some of my clients joke that I have an article for everything. I, I mean, it, it's approaching 500 articles, but I still have a few hundred article drafts to develop

Harv Nagra:

Amazing.

Karl Sakas:

there's always more to come. And also a newsletter, like if you want to get, helpful tips twice a week that more than one agency owner has described as the, only email they read every time. So. That's all at sakasandcompany.com, click on free resources and you can, you can get everything.

Harv Nagra:

And I can confirm an article for everything'cause I went down that rabbit hole a few weeks ago.

Karl Sakas:

Yeah.

Harv Nagra:

Karl, it's been an absolute pleasure having you on today. Thank you so much.

Karl Sakas:

Thank you and good luck everyone.

Well, there we have it, a masterclass on pricing, profitability, and what the future might hold for agencies. The biggest takeaway for me, pricing isn't just a finance decision. It's an operations strategy for moving away from time and materials to using value anchoring as a stepping stone to value-based pricing From packaging AI into high margin services to being more intentional about how and how often you review your rates. It's clear that if agencies want to grow and stay profitable, they need to be braver, sharper, and more strategic in how they price and deliver their work. I really appreciated Karl's reminder that not all clients are worth keeping. Sometimes the most powerful thing you can do for your business is to price out the ones that are holding you back. It's not the first time we've heard that advice on this podcast. So if this episode struck a chord, maybe you're undercharging, over-servicing or still stuck on hourly, now is the time to rethink your model. If you have any follow up questions from this episode that you'd like me to put to Karl, drop me a note podcast@score.com. Lastly, if you've enjoyed today's episode three actions for you, please share the episode with someone who would enjoy the conversation. Please join the conversation when you see me talking about this episode on LinkedIn and subscribe to the Handbook Operations Newsletter by going to scoro.com/podcast. The newsletter signup form is at the bottom of the page. We send out a newsletter every other week with the key takeaways from the episode so you have a cheat sheet in your inbox. That's it for me for now. Thanks very much for listening.

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