Shopify Theme Development is a Commodity: Pricing Strategies

You're listening to the AgencyX Podcast and I'm your host, John Cerdikowski, founder and CEO at Avax, an e-commerce agency for high growth brands. My goal is to provide insight into e-commerce, technology, business, and everything in between. Make sure you subscribe to be notified about new episodes and visit our website, avaxdesigns.com.

So today's topic is something that has been top of mind recently and something that I've been speaking to other agency founders about as well as our internal team. And that is pricing the client in this market, especially with theme development becoming more and more commoditized. So what does that mean? What we're starting to see is, well, let's rewind a little bit to two, three, four, five years ago plus where there were far less agencies in the Shopify ecosystem.

It was far easier to source or get inbound leads or projects and basically charge a premium for agency services, especially around theme development and custom theme development and replatforms. and basically be able to charge a premium for those services. What we started to see in the past few years, and there's pros and cons to this, right? This is just the way the market is, so I don't want this episode to be about complaining.

It's more about advising other agencies in the space about the competitive dynamics and how you have to make sure that you're pricing your services accordingly, both to the client and the market. But there's been a huge influx of Shopify agencies, especially smaller, even two, three-person shops or freelancers who were able to enter the market and provide quality services, but at a much lower rate. And there's benefit to that. We're not a gigantic agency either, so we're able to provide services at a more competitive rate than some of our larger counterparts.

So definitely not complaining there. And what's great about Shopify is that it has an excellent ecosystem, and it lowered the barrier of entry not only for e-commerce brands, but also for service providers, both agency and SaaS companies, to be able to go to market and offer services or a product without having to, just a lot easier than some platforms in the past. If you wanted to start up a Salesforce shop or a Magento shop, it was likely a lot more difficult than Shopify theme development, especially if you're using like out-of-the-box themes and customizing them, which we're starting to, which we continue to see a lot of brands, even larger brands, leveraging.

So it's become very competitive. And I don't want to say it's oversaturated because perhaps it's oversaturated with the offerings, but it's not oversaturated with quality agencies delivering exceptional results. So I want to break down a little bit about the competition in the Shopify agency space, how we approach, or a little bit about my philosophy of pricing the client versus pricing the project. Also, the commoditization of theme development, specifically in the Shopify world, and a little bit of a race to the bottom and how we could avoid that.

and also where you need to focus on your differentiators So starting things off with a little bit about the competition in the agency space As I mentioned before we seeing a lot more smaller agencies come in, but also some agencies that have been around for quite a while that maybe focused a lot on Salesforce or Magento, and they're switching to Shopify. And they're able to bring a lot of expertise there. And, you know, today it's beneficial to the merchants because with the economy the way that it is and more cost-conscious clients, they need more options.

So it's really good that there's competition out there for our agencies and many others. And there's absolutely a place in the market for agencies that are doing theme setups or lower cost builds, and then, of course, larger agencies that are doing more complex projects. So what we're seeing is almost like two sides of the spectrum, is either brands will come to us for just theme development and theme setups, and sometimes we'll explore those, And if we feel that we could add additional value outside of just theme development, all the way to large scale replatforms, which essentially are digital transformations.

So when we see a project like that, we typically try to price the client, meaning we're basing our pricing on the perceived value of the client. So size, budget, brand, and not as much on the actual scope. Of course, we're going to scope something out and see what we're delivering. It allows us to be more flexible.

And the reason is, is because if we have a large client who's going to see a larger ROI, or it's extremely valuable to their brand, because they're a much bigger brand, there's going to be more effort that goes into certain aspects of that. Potentially even more team members involved, different reviews, different rounds of revisions, a higher level of effort. So essentially where, you know, it could be the same type of scope, but we know that that client is likely going to need additional support and services.

So we're going to price it accordingly. Whereas when we're pricing a project, we could have a very similar scope. And if it's for a smaller brand, we have a lever that we can pull to either increase or decrease the pricing. And look, there's risks to pricing purely based on client size.

So we might under deliver, we might over deliver and don't want to do either of those. And there's also a risk of pricing purely by project. You might leave money on the table, especially with some of the larger brands, and nobody wants to do that either. You need to be able to balance your pricing towards either client size or by project.

Now, really, that starts with understanding client expectations, internal costs, and just overall the long-term value that you're delivering. And have some different tools in your toolkit when it comes to pricing models. So project fees, hourly retainers, value-based fees, performance-based incentives. There's various ways that you can do that rather than just trying to fit everyone into the same box.

Because at the end of the day, if you're delivering a lot more value to that client, then in my opinion, they should be paying more for that because otherwise we lead to commoditization, which is essentially where we are in theme development. Now, don't get me wrong. There's good theme development and bad theme development but we're we've seen the budgets go down considerably for just theme development whereas our projects that involved digital transformation and a lot of consulting around tech stack or full user experience conversion rate optimization and strategy engagements those add a lot more value to theme development So that's where we're able to explore different ways to increase budgets and deliver more value to our clients.

but some of the the projects where it's hey we just need you to create a theme and we're not you know it's they're even providing the designs and they don't need our additional value when it comes to solutions engineering or in-depth quality assurance testing or user testing cro strategy retention marketing etc if it doesn't include those things then really you're just it's just going to be a race to the bottom with other agencies in the space because there's always going to be an agency that We'll deliver it more affordably.

And you really don't want to get into that battle of negotiating down strictly on price. And sometimes we know on the agency side that it's not comparing apples to apples because your agency could be delivering superior services or you have a different approach and process in your team. And so when we tend to come up against projects like that, we really want to qualify the meta and identify if they're a good fit for us. Because if we have the opportunity for the merchant to meet our team, to understand our process, to look at our additional value adds, then we have a greater chance of winning.

Whereas if it's strictly just based off of sending a proposal and a number into the abyss and waiting to hear back and the main decision is based off of just the cost alone and just the deliverables, then that might not be a project that we want to take on. And look, there's a lot of agencies that could say, hey, we're going to deliver good service and we're going to be the cheapest in the market. But chances are they're not delivering a ton of value while also being the cheapest.

Usually you could deliver two or three of those things, one or two, of either deliver on price, service, or quality, but you typically can't do all three of them. It's very difficult to be able to say, hey, we're going to have the best level of support and service. We're going to have the highest of quality. We're going to get it to market fastest, and we're also going to be the cheapest.

Those just don't work out together. You could have two or three out of those four, but you're not going to get all of them. So really identify what do you want to focus on? Do you want to be the agency that does it the cheapest and the fastest, but it's not necessarily the best service or quality?

Or do you want to be the one that delivers the highest quality at the most affordable rate, but it's just going to take longer? So really understand where you want to sit in the market and who do you want to compete against and and what what hill are you going to die on essentially like if you don't want to sacrifice any quality or timeline or anything like that then maybe price is where you um where you're okay with being flexible and that's totally fine that could be your differentiator uh but if you were if you really don't want to make it a race to the bottom and sacrifice price and you have a certain amount that you're willing to go down to, then you should stick with that and maybe adjust some other levers when it comes to certain deliverables or the amount of attention the client is going to get.

There has to be some sort of lever that you could pull there to remove something from the scope or from the services if that budget is going to go down. Now, that kind of leads to differentiators and standing out in the market. You could have the strongest design portfolio and great creative work and that could make you attract new business but it not always going to close the deal What typically ends up closing the deal are things like what value are you adding outside of the design and the creative the cost, and the relationships that you have with the buyer.

So those are the things that really stand out because if you're working with larger brands, chances are they're already speaking to a handful of agencies with great design portfolios and creative work and theme development work. likely with similar services. So you need to weigh on some of your strengths, whether that's SEO or marketing or CRO or UX or integrations or consulting, whatever it is, it shouldn't just be the design and the development. You just can't do that anymore.

Otherwise, it is going to be a race to the bottom and it's not really a differentiator. Just focusing on Shopify is not the differentiator anymore, whereas it used to be The Shopify agencies were basically specialists and not generalists, but now with so many in the space, especially with so many brands looking to re-platform to Shopify or launch stores on Shopify, there's a lot more options nowadays. Case studies could be a good differentiator, especially in a specific vertical, if you help solve specific problems.

building long-term relationships, not just on projects, but how to position yourself as a true partner, especially for a growth partner, if it's around marketing or CRO services. And it could also be a niche vertical. So if you have a ton of CPG work or a ton of fashion and lifestyle clients, perhaps focusing on that niche to be a differentiator and leveraging things like audits and land and expand motions to be able to close smaller deals where you could show, and this could even be a smaller theme development, to show the value back to the commoditization side.

Maybe you work on a project that is delivering at a lower cost to show them your value and how your team works in place and how you can bring strategy to the table and marketing services or SEO services, et cetera, and then be able to work with that client long-term. So kind of circle back and close things out. Yes, it's very competitive in the space right now, especially for Shopify agencies. What we are doing and what we see a lot of other agencies doing is pricing the client rather than the project and also focusing on the differentiators.

There's a lot of great agencies in the space. And if you list out the top 10 agencies that are doing Shopify website builds and CRO and marketing services, none are identical. They all have a bit of a differentiator. I like to think we do as well.

So having a differentiator outside of just theme development is really important because we don't want this to be a massive race to the bottom unless price is your differentiator. and that's totally fine. But we really are starting to see that in this space. And it's just kind of a part of an ecosystem growing.

And I think there's some growing pains happening right now with merchants trying to figure out which agencies to work with and who adds the most value and what they actually need. But it's a great space to be in. And it's just signs of growth within the market. So let me know what you think about some of these tips.

If you're an agency owner or working at an agency, an operator, let me know if you're experiencing these as well. I'm happy to have a discussion about theme development, how is it becoming commoditized, and how agencies could stand out in this market in 2025. or visit our website, avicsdesigns.com.