Different Marketing Agency Fee Structures

There is a plethora of planning that goes into starting your own marketing agency and growing your agency business. Your agency business model and pricing strategy are unquestionably among the most important decisions you will have to make. 

For any agency owner, the primary concern is to make sure that the agency makes money. Competition is fierce in the world of digital marketing, which means you will need to have competitive prices so that potential clients are attracted to your agency. 

Nevertheless, you still need to make a profit in order to keep your digital marketing agency up and running. Additionally, a profit is an exceptional incentive that every business requires to flourish and grow.

This can be one of the most challenging questions faced by those starting a digital agency. In digital marketing, the how what, and when an agency charges its clients dramatically affects the overall business relationship. To ensure that your agency rates are not unrealistic, you need to look at your pricing options very closely and find an agency pricing model that works best for you and your client base.

Table of Contents

#1. Time-Based Agency Fees

#2. Fixed-Fee Pricing

#3. Retainer Fee

#4. Value Pricing

‍

#1. Time-Based Agency Fees

Charging by the hour is extremely common in the service industry because it is very uncomplicated and easy to explain. Using a time-based method you would set an hourly rate that lets you earn a profit. For example, if your hourly rate is $150 and you work 10 hours on a project then you make $1500. 

Pros:

• Hourly rate pricing is very easy for customers to understand. 
• Because it is easy to figure out, it can help you create your first invoice faster. 
• Clients like it because they know exactly how much they will be spending per hour.
• As long as you accurately estimate how many hours a week of work you can count on, you will have a way to predict your cash flow. 
  

Cons:

• Your client will not be comfortable with the fact that you have limited incentive to finish work quickly because the faster you complete the work the less you get paid.  
• You will get paid the same for complex projects as you do for simple tasks. There is no reflection of skill or experience in your pricing. 
  

#2. Fixed-Fee Pricing

The fixed fee pricing is arguably the favorite pricing method of agency clients. The client can easily access the advertising agency rates and make an informed decision. It is also simple for the agency. A staffing agency pricing model based on project pricing makes it easy to give a quote based on the estimate of the costs and the markup for the work on the project. The client can accept or refuse it, but either way, they can do it with little time wasted.

Pros:

• Agencies are not under the watchful eye of their clients as much when using fixed-fee pricing.
• It is easier to compete for jobs when agencies can give a decent estimate of the total costs for the project.
• Fixed fee incentivizes speed and quality, the quicker an agency can finish the project, the more time it has to devote itself to another one.
• The deliverables, as well as the rates, are negotiated upfront, which can be a safeguard against scope creep and additional requests for work outside of the original contract.
• Fixed fee pricing allows agencies to ask for a part of the fee upfront.

Cons:

• Making a profit using fixed price is highly dependable on the agency’s ability to gauge a fair price for their work. Inexperienced agencies are in constant danger of losing clients because of overcharging or losing profits due to undercharging.
• There is no mechanism in place for charging for additional work, every addition needs to be negotiated.
• Agencies need to break up large projects into stages and negotiate payments per stage if they need a steady flow of funds.
• Any issues that happen during the work need to be assessed for their impact on the workload and addressed in a renegotiation of the price.

Fixed fee pricing is a great pricing method for an established and experienced agency working on a contract with few variables and unpredictable happenings. When something unexpected happens, or when the client decides to change the direction and the scope, the agency needs to go back to the negotiating table and work out their fees again.

#3. Retainer Fee

A retainer fee is where you make yourself available to a client a certain number of hours a month for a set price. Retainer / Contingent fees are when you put together a customized plan for each client. This can give you the most elbow room to price plans according to their actual scope of work and have flexible rates so that you do not over or undercharge for services. Under a contingent fee schedule, you will usually get a deposit and then payments at approved milestones throughout the project. 

Pros:

• You can be sure that you are not undervaluing your work or getting shorted if a project takes longer than expected. 
• You can be flexible in your pricing to accommodate businesses of different sizes with different budgets. 
• The client might see this as performance-based pay which could be appealing to them. They will feel you are incentivized to do quality work by each milestone. 

Cons: 

• It is all custom pricing, it is tough to standardize your pricing using this model.  
• You have to customize for all clients regardless of the budget amount.
• It can be difficult to correctly estimate the time or involvement of each project before you start actually working on it. 
• The final cost could be more than the client was expecting unless you have a cap on overages. 

These are the three main types of pricing typically done by marketing or creative agencies. Whether you are launching your marketing agency or pivoting your business, think about how these pricing methods could impact your business.

#4. Value Pricing

Value pricing is one of the trickier pricing methods an agency can use. It also requires a more intricate agency pricing model. Instead of pricing based on hours or set fees, or any other type of input that goes into the project, the client eventually gets billed based on the value they get from the work performed.

Pros:

• It strongly incentivizes the quality of work products because the more value the agency delivers, the more money it can potentially earn.
• Clients might perceive this type of pricing as performance-based, which might be appealing to them in some cases.
• The agency has more freedom to set its prices and it can expand its client base to those who otherwise would not be able to afford them.

Cons: 

• It can be difficult to correctly estimate the value of the work.
• The agency has to take on a lot of risks.
• Circumstances beyond the agency’s influence can reduce the value of the work and the agency’s profit.

When you get to the core of it you must know your value. The biggest mistake you could make is to undercut existing prices in your market. It will not give you the quintessential success you are striving for because there will always be a newcomer to the market that will undercut your low prices. Charging less can not be your unique selling point, period. Never underestimate the psychological effect of pricing, for the majority of people around the world cheap prices are always linked to low quality so do not sell yourself and your brand short. Find your unique selling point, and do not be afraid to ask for a price that reflects your agency’s value.