How to pick the best pricing model for your agency
Marketing is one of the most important parts of any business, and it takes a lot of work to get it right. That's where your marketing agency comes in. Depending on the focus of your agency, you could be doing comprehensive marketing services or specific tasks like market research, creating a new ad campaign, establishing a brand, making new graphics or anything else related to marketing.
As with any creative field, marketing agencies have to face the difficult question of how to price their services. Specific prices will depend on factors like your area, the years you've been in business, your area of expertise, the number of employees at your agency and the current market value of your services. For an idea of the current prices in the market, look at the results of this independent study on agency pricing in the U.S., U.K. and worldwide, or read through this 2017 marketing cost guide from Jason Falls.
As an agency, there are pricing model options you can choose from: an hourly model, project-based model or value-based model. Each has its own pros and cons, and the right one for you will depend on several different factors. Here's how to choose what's best for your business.
A common way to price services is by charging an hourly rate per person working on a particular project. This is a good way to price if you're just starting out as a marketing agency. It ensures that you get paid for the work you do. However, make sure you and your client agree on a projected number of hours for the project, and confirm with them before you go over that cap.
The different people in your agency who work on a project are likely paid different hourly rates internally. For example, a market researcher with 15 years of experience is likely paid considerably more than an entry-level content writer. Instead of charging a client different hourly rates for each employee, most agencies charge a flat blended rate. A blended rate is somewhere between the hourly rate of your lowest-paid and your highest-paid employee. The blended rate is charged per hour per person working on the project.
If you have an efficient team and you're good at estimating the scope of a project, you can charge a per-project fee rather than an hourly fee for the work you do. This pricing model works best for agencies that produce quality content quickly and don't want to be underpaid for their work just because they work fewer hours. However, if you underestimate how long a project will take your team, the project-based pricing model might become a problem. For example, if you estimate that a task is only going to take your team 40 hours, and you charge a flat fee for the project that roughly equals that amount of time, but then the project takes 80 hours, you're losing money on the project. Be sure you understand how to scope projects and that you have confidence in the amount of time it'll take to complete tasks before you try this pricing model.
With value-based pricing, you are only paid based on the results your work produces for your clients. Some agencies require the client to pay some of the percentage upfront and then have the rest paid to you as your campaign is successful for your client.
Many customers prefer this pricing model to the other two described above because it aligns your goals with your client's, and your client probably hopes it will cost less overall. However, you should be careful when choosing this pricing model. The amount of money you'll make from this model depends entirely on how well your work performs for your client. If you're not extremely confident that your work will drive sales for your client, steer clear of this model. On the other hand, if your work performs extremely well for your client, you may end up making more money from this pricing method than others.