The right pricing model can make all the difference to your marketing agency. As it directly impacts your marketing budget and ROI, it needs clarity.
Pricing your services isn't easy, especially when so many factors must be considered. However, your agency might benefit from a good pricing strategy as soon as you implement it.
That’s why you should start looking for one today.
Today, we're bringing together various pricing models to help you make an informed decision, affecting your agency's future.
What you will learn
- What are the most popular pricing models for marketing agencies
- When to charge your clients for the best profitability
- How to choose the right pricing model for your business
- How to grow your agency’s revenue with changes to your pricing
What is a marketing agency pricing model?
An agency pricing model is a framework that marketing agencies use to charge for their services. It can be based on various factors such as hourly rates, performance outcomes, or the perceived value of the work delivered.
Picking the right model is a big deal – it can make or break the relationship with the client and directly affects how much money the agency makes.
The right model means everyone knows what they're paying for.
The agency is motivated to do their best work, and it sets the stage for a strong, lasting partnership.
For instance, marketing agencies can offer monthly retainers for content writing services. They can also offer separate project-based services like external link building, paid separately.
Or, agencies may offer fixed fee consultations, but bill hourly for implementations. If you need a website, often nearshore software development companies are a popular choice providing a balance of cost efficiency and quality,
These companies can deliver excellent service by leveraging regional proximity and cultural similarities.
Many digital agencies mix their pricing models based on their clients' needs and market conditions.
9 marketing agency pricing models
Your agency's workflow and services, as well as the nature of your operations, will influence the pricing frameworks you use.
It’s important to choose the right one. In this section, we'll look at each pricing model and help you figure out which one is best for you – and your agency.
Here are 9 agency pricing models:
Hourly rates agency pricing model
An hourly rate pricing model charges clients based on the number of hours an agency dedicates to the project.
This model is extremely transparent. Clients pay for the exact amount of work done, and number of hours worked. Hourly rate is one of the most used agency pricing models, making it familiar to many clients and easy to understand for everyone.
Pros:
- Transparency: Clients know exactly what they're paying for, so billing isn't confusing.
- Flexibility: It's easy to add more hours required without renegotiating the contract in hourly rate pricing model.
- Fairness: The agency is compensated for all the work they do, even if a few projects take longer than expected.
Cons:
- Uncertainty: The final project price in the hourly rate model can be unpredictable in a long-term project.
- Efficiency penalty: In the hourly rate pricing model, faster work leads to lower earnings for digital agencies. The longer the work takes, the more earnings the company makes.
- The client may feel cheated in this situation if the task could be completed faster, though.
- Time tracking: Hourly pricing model might be a burden on the agency to track accurately and report hours.
For example, a marketing agency might use an agency-wide hourly rate for ad hoc tasks where the scope is uncertain.
Social media moderation for example requires monitoring comments and online reputation management, often after work hours (calculated on an hourly basis).
Project-based pricing model
In a project-based pricing model, the agency charges a set amount for a specific project. Based on the project scope, a price is agreed upon before the work begins.
A project based pricing model is often used for projects with a clear deliverable and timeline, such as a website redesign.
Pros:
- Predictability: Clients know the cost upfront so that they can distribute their budget accordingly.
- Simplicity: Project-based pricing model is easy to follow for everyone, with no need to track hours.
- Efficiency incentive: The faster the agency completes the project, the higher its effective hourly rate.
Cons:
- Lack of flexibility: Any changes to the project scope bring about renegotiating the contract or preparing extra documents.
- Calculating risk: If the project takes longer than it was supposed to, the agency has to absorb the extra cost.
- Compromising quality: The agency might be tempted to rush to complete the project within the budget, potentially compromising quality along the way.
For example, a digital agency might use a fixed fee pricing for a website redesign, with the price based on a few factors. Among them are the complexity of the site, used and installed plugins, the required features, or other associated costs.
Performance-based pricing model
Performance-based pricing ties your agency's compensation to the results it achieves.
The better the results, the higher the payment. Simple as that.
For services with easily measurable results, such as PPC advertising, performance based pricing model might work best.
Pros:
- Alignment of interests: The agency is compelled to deliver the best possible results within performance pricing.
- Risk sharing: Both the client and agency share the risk and reward in the entire project.
- Demonstrable ROI: The client can easily see the return on their investment in performance based model.
Cons:
- Organizational challenges: Results can be hard to attribute directly to agency efforts, so tracking needs to be set up and carried out properly, and the performance payout timeline needs to be adjusted.
- Short-term focus: Quick wins might be prioritized over long-term strategy.
- Uncontrollable factors: Many factors influencing outcomes are beyond the agency's control.
A digital marketing agency might use performance-based pricing model for a PPC campaign, with their fee based on the number of clicks or conversion metrics they generate.
Retainer-based agency pricing model
Under a retainer based pricing model, the prospective client pays a recurring fee, often monthly, for ongoing services. This provides the agency with a steady income and allows for long-term planning for an entire project.
Typically, it is used in the agency world for an ongoing particular service such as social media management and digital advertising.
Pros:
- Stability: The agency has predictable income, and the client has guaranteed access to services.
- Long-term focus: The agency can implement long-term strategies without risk of terminating its services overnight.
- Better client-agency relationship: The ongoing nature of the contract allows for a deeper understanding and client reporting.
Cons:
- Lack of flexibility: It can be difficult to adjust the scope of client service quickly.
- Complacency risk: Without the pressure of project-based contracts, the agency might become less motivated.
- Long-term commitment: The client may be locked into a contract even if they need some change.
Most agencies might use a retainer model for social media management.
The client is then paying a set monthly fee for a specified number of services or results. This is one of the most sustainable agency pricing models.
Value-based pricing model
Value-based pricing charges clients based on the perceived value or impact of the agency's work, rather than the actual time or resources used. When the agency's work can significantly affect the bottom line of the client, value based pricing models can be a good solution.
Pros:
- Profit potential: If the agency can demonstrate high value, then a value-based pricing model is rather justified.
- Client focus: The emphasis is on delivering value to the client, not just completing tasks.
- Expertise-based rewards: The agency can charge more for access to experts, specialized skills, or exceptional expertise.
Cons:
- Subjectivity: Determining "value" can be subjective in value based pricing model and raise disagreements.
- Justification: Agencies must continually convince clients that they are worth the fees they charge.
- Difficulty in pricing: The value of creative work can be difficult to quantify.
A digital marketing agency might use value-based pricing model for a rebranding project.
This is where the impact on the client's business could be substantial if that agency specializes in website development projects, but the time and resources required are less predictable.
Input-based pricing model
Input-based pricing charges clients for the resources the agency puts into their work, such as the total team hours committed.
While both the hourly and input-based pricing models charge based on work done, the key difference lies in their scope. The hourly model charges per hour of work.
The input-based model takes all resources invested in a project into account. This might include travel expenses, software subscriptions, and many other costs.
An often-used model for large, complex projects where scope of work cannot be clearly defined at the start.
Pros:
- Transparency: Clients pay directly for the agency's effort.
- Fairness: The agency is compensated for all the work they do.
- Flexibility: As the project evolves, the agency can adjust the resources.
Cons:
- Uncertainty: Fixed prices are predictable, whereas unpredictable costs in this model are simply not.
- No results assurance: Clients pay for the effort, not outcomes.
- Time tracking: This can be a lengthy and administratively heavy process.
An agency might use input-based pricing for a large, complex project such as a social media campaign. Even in a single campaign, the resources required can vary over time, impacting the pricing.
Output-based agency pricing model
Output-based pricing charges clients for specific deliverables, such as a marketing campaign or a website redesign.
Best for projects that produce concrete results.
Pros:
- Clarity: Clients know exactly what they're getting.
- Client-agency alignment: Success for the agency depends on the success of its clients.
- Predictability: The cost is known upfront, aiding in budgeting.
Cons:
- Scope creep: If the project expands, the agency may end up doing extra work for no additional pay.
- Quality risk: The agency may be inclined to deliver outputs urgently.
- Delayed payment: Invoices may not be paid until the results are in.
A marketing agency might use output-based agency pricing for a internet marketing campaign, charging a set fee for the creation and distribution of a certain number of posts.
Points-based pricing
Points-based pricing model assigns a point value to each service the agency offers. The customer pays for a certain number of points each month and can choose how to allocate them.
This model offers a unique way to bundle services and can be particularly effective for ongoing, retainer-based relationships.
Pros:
- Flexibility: Clients can adjust their services each month as needed.
- Simplicity: Once properly implemented, it's easy to understand and manage.
- Customization: Clients can create a bespoke package of services that suits their needs at that very moment.
Cons:
- Subjectivity: Determining the point value of each service can be subjective.
- Overemphasis on tasks: The focus is on completing tasks, not achieving results.
- Complexity: Clients must understand the point system and how to allocate their points effectively.
A digital marketing agency might use points-based pricing for a retainer client, allowing the client to allocate their points across a range of services such as content creation, lead generation, and link building.
Mixed rates
Mixed rates combine elements of different agency pricing models.
The agency may charge a fixed price for a project, and then an extra hourly rate for additional work. The model is fairly flexible and can be tailored to various clients and projects.
Pros
- Adaptability: The agency can customize the pricing model for each individual case.
- Balance: Predictability of fixed rates is easily matched with the flexibility of hourly rates.
- Individualization: Pricing models can be built in each offer to reflect the agency's unique services.
Cons:
- Complexity: Clients may find it difficult to fully understand the billing process.
- Administration: The agency must track project progress and hours required.
- Potential for confusion: Clients may not understand when different rates apply.
A digital marketing agency might use mixed rates for SEO services, charging a fixed fee for the initial audit, and an hourly price for any additional implementations requested by the client.
Due to its flexibility, it’s one of the most common agency pricing models.
Payment methods for agency pricing models
Pricing strategy is just one part of the equation - getting paid is another thing you might want to consider in advance.
Choosing the right billing method is as critical as setting the right price in a marketing agency, and these things should go hand in hand.
The payment system should make transactions quick, clear, and easy for both sides. Here are six common billing payment methods to use in any marketing agency.
Upfront billing
This method involves the client paying the full amount before the agency starts work.
It's a blessing for cash flow and reduces the risk of non-payment. However, some clients – especially brand new ones – may be hesitant to pay everything upfront without seeing any results.
Billing upon completion
With this method, the payment comes through only if and when the project is completed. There are no pre-payments or installment payments during the project.
This can be appealing to clients as they pay for the finished product, but it doesn’t come without drawbacks for agencies.
This billing method can put a strain on the agency's cash flow, especially for long-term projects. As a result, agencies may have to chase the payments, which adds to their financial project management.
Half upfront, half upon completion
This is a balanced approach with the client paying 50% of the cost upfront, and then the rest upon project completion.
It might be a win-win for both sites.
The client gets some assurance that work will be completed. The agency gets some immediate cash flow.
This might also attract clients who are still hesitant about using your services.
Pre-advanced discounts
This method involves the client paying for some period, for example a quarter, of the project in advance. This comes often with a discount, to encourage early payments.
This could be a good way to encourage upfront payment while spreading the other costs out over time.
It can help smooth out business development while also building a sense of commitment from the client.
It is very useful if you need some extra cash for internal projects, quickly.
Deposit payments
This method requires a small initial payment from the client. The rest – usually, the majority – is due upon project completion.
A deposit payment is a low-risk option for clients.
For agencies, though, it can be challenging if the deposit is too low for the work provided.
Staged payments
For larger projects, it might make sense to break the payment down into stages. For example:
- 25% upfront,
- 25% after the first phase,
- 25% after the second phase,
- and the final 25% upon project completion.
This evenly distributes the cost for the client and provides a steady source of income for the agency – even though getting a flat fee might be more profitable.
Make your agency more profitable
You may not be able to maximize your agency's profitability even with the best pricing model if you overlook a few primary factors.
Take a look at our list below to see what else can be done to increase the profitability of your agency.
Improve efficiency
Cut down on time spent on repetitive tasks by simplifying your processes and using automation tools. This way, your team can focus more on strategic work that, first, is properly tested, then – brings in revenue.
Investing in efficiency can also save you money.
Automating some tasks rather than hiring new people brings extra savings.
Upskill your team
Investing in your team's skills can pay off big time. The more skills your team has, the more services you can offer.
And more services mean more revenue per client, more tangible value, and more competitive advantage in the sales process.
It's a win-win.
Retain clients
Keeping a client is usually cheaper than finding a new one. So, put some effort into both client satisfaction and client retention.
Happy clients stick around and pay some sort of fixed fee to your business. And this also makes it easier to upsell your clients.
Upsell your clients
Don't be shy about offering clients more services. If you think they could benefit from something else you offer, let them know.
Upselling is an excellent method to increase revenue from existing clients in a natural and valuable way for both sides.
Provide more services
Think about offering new services or marketing packages that complement what you're already doing.
This can boost your revenue without adding too much to your workload – especially if you’re doing something similar already.
Partner with other agencies offering complimentary services if you aren't able or willing to expand your own offer.
If you work together, you're more likely to land bigger clients than if you worked alone.
Monitor financial metrics
Keep an eye on key metrics like profit margin, client acquisition cost, and average revenue per client.
You can use these insights to make better decisions about future pricing, change of services, recruitment process, and client management.
Numbers simply don't lie. Just read them!
Optimize your costs
Keep your costs in check. Look for ways to cut unnecessary expenses without reducing the quality of your services. Every penny saved is a penny earned.
For example, think about your business's technology needs.
Instead of buying expensive digital marketing software outright, look into subscription-based services.
SaaS platforms often provide the same functionality at a lower, more predictable monthly cost.
The subscription fee also includes regular updates and maintenance.
Also, examine your business's travel expenses. With the rise of virtual meeting platforms, it's worth considering whether really all business trips are necessary.
The cost of travel and accommodations can be reduced by replacing even a fraction of in-person meetings with virtual ones.
Communicate your agency’s value
Make sure clients understand the perceived value you're providing. The more value shown, the more clients you may get.
Present your achievements and show them how your work is helping their business.
Share testimonials, case studies, or success stories regularly. When clients see your tangible value, they're more likely to stay loyal to you.
Key takeaways
- There are various agency pricing models you might want to apply to your agency. Number of hours spent on the project, value pricing models, performance pricing agency services, monthly retainers or pre paid fee – you have loads to choose from.
- Your pricing model should not only cover your costs but also reflect the value you're bringing to the table. Think about value based model for high-impact projects. Value pricing is all about showing clients they're getting their money's worth.
- Pricing models differ depending on the agency services. Each of them still has to consider chasing payments and optimizing operational costs on top of their pricing strategy.
Conclusion
It's not easy to pick the right agency pricing model - and chances are, even if you pick something now, you might have to change it later on. Select a model that satisfies both you and your clients.
Be flexible when you present your pricing model so that you can meet at a point that is conducive to both your bottomline and the client's budget.
