Building An Agency: Service Pricing Models
Service pricing options for everyone
Agency Pricing Has Caused Me So Many Headaches In The Past.
How do you price your agency or consulting services? I’ve tried so many different models its been a real journey working out what my customers find the most attractive model. There’s really no right answer for the best agency pricing model depending who you ask.
This article will review every agency pricing method available to you and break down the pros and cons of each.At the end, I’ll detail the system I use to determine the best pricing model that suits me and my client portfolio.
Why is this such a headache for agency owners?
Here are the most popular agency pricing models.
Project Based Pricing.
This is when there is an agreement on pricing for a term based campaign for a client project. There will be a sheet of deliverables that everyone is aware of and a term sheet with start and end dates or at least a renewal date.
Pricing in this method is calculated per hour to deliver and calculated over the monthly deliverables and added up to form the yearly project cost. As an example my base rate is $150 per hour.
> 12 month SEO campaign charged per month at $1,500 for a local websites.
> $2,000 for a website technical health audit
> $450 for a landing page build
Project based pricing is great to get quick contracts moving, these can be low cost up to very large project fees. Best use case is web design or sales funnels building where you are building things with end dates and not ongoing work. Ive found that the biggest killer with this model is scope creep where the agreed deliverables keep changing and the amount everyone agreed on becomes less and less as more changes take place.
Fixed Fee Pricing
Flat fee pricing charges a flat amount for your service. I generally look at this as an ongoing scope / engagement (i.e. monthly fee), not a one-off engagement. Calculate your pricing here by either productising your services so its clear or by calculating the hours to complete this deliverable.A lot of agencies start here because it’s simple to quantify, both from an agency management and client understanding perspective. Very popular pricing model if you deliver done for you jobs.
> $100 Keyword research 50 pack
> $150 Done for you onpage SEO
> $150 Website tracking review
Great for starting your agency and taking on smaller jobs. The pricing model is very clear everyone understands the outcome. Deliverables can be ticked off and hard to mess up. Best use case is smaller jobs and jobs for set budgets. A let down is that is fixed per job and hard to grow into monthly retainer, hard to get your team to invest focus into projects that are ending and not ongoing.
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Performance Based Pricing
This method I don’t recommend for new agencies its best suited for seasoned agencies and especially those running pay per click campaigns. Lead generation is also a really good use case where you can really demonstrate the phone ringing or the products selling. That then justifies your service fees and enables you to get paid no questions.
> $40 per phone call or email lead
> $80 per phone call actual booking
> 20% of each sale from referral traffic
> Free SEO if we don’t rank you for Criminal lawyer Sydney in 90 days
If you do perform the client will be very happy. If you get the targeting wrong you wont get paid. Very highly profitable method if you can produce the leads and sales, can take up your time setting thing sup with risk of no payment if it fails. While you have the traffic you may depend on the client to convert the lead to sale. Very hard to build reliable ongoing income especially if Google updates algorithms and Facebook bans advertising for face masks or supplements lol. You don’t control the traffic delivery channels.
Value Based Pricing Model
I really don’t use this method anymore because there are better cleaner pricing models that you can use. This method swap the time resource factor for a perceived “Value” that your work can attribute to the client campaign. This is best suited for agencies that have a great network of influencers, really good developers or programmers who can build custom tools.
I like to take the stance that working with me is the value. That might sound cocky but Ive worked pretty hard to build my process library and read markets. This in itself is my value add to any campaign I put my hands on. Clients unfortunately do not understand this, and rightly so they know their product and in most cases don’t understand what we do in online marketing.
I want to stress that this is for perceived value that you can be attributed for. There is no clear tracking where you can say that you built the Ad, got the click and then the visitor signed up for the product you cna report you were responsible for that sale. This method does not work like this.
Taking a finance calculator for example, Ive been contracted to build finance calculators before and I did my part that was to code up the loan repayment calculator and include a form of lead capture so that users were turned into leads. This was the easy part but figuring out the actual value took me some time to then track users actions and how that user turned into a lead or a sale and how much $ revenue that lead was worth. This is an absolute HEADACHE.
> Influencer marketing campaigns
> Promoting press releases
> Building calculators and engagement tools
I don’t really do this anymore except when I include this in with an ecommerce services retainer. It’s very hard to clearly demonstrate you’re direct or attributed impact. This method relies on something you often cant track 100% and someone else or something else. When questioned by a client it can be hard to show your value that you directly contributed.
Retainer Based Pricing Model
This is my preferred agency pricing method. You get a retainer that is paid a month in advance and you can bank on these. If you start stacking clients this money adds up real fast. But this is great for forecasting revenue it feels more controlled from an operational level knowing every month this is the figure I get in retainer fees.
This works best when you can clearly demonstrate to the client that if they pay xxx monthly and you will do AB & C each month for them.
> Local SEO $1,500 monthly for 5 hours
> Social media marketing $2,000 monthly for 10 posts a month on 3 platforms
> Facebook Ad management $1,100 monthly to manage Facebook Ads with media spend of $4,000 monthly
I find this the best pricing model that works for me. If I understand what it costs me per hour to do the work and I know how long my team takes to deliver the work I can start to see per month what my expenses are verse what my ideal price point is and calculate the revenue. Boom Im now able to understand how my business is financially if I build this model and scale my client base.
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Hourly Pricing Model
This makes a lot of sense to use hourly pricing IF you have a very systemized service list. Understanding your services as products will help you charge for these by the hour. This compliments the retainer model.
I want to know for every person in my team, how much do I need to pay them per hour. Then I need to know what their output is per person like 6 hours a day or more. Then how many tasks they can do in 6 hours and then how many services can we deliver x team members x hour x day and so on. This helps me clearly see what I have to pay internally and what I can deliver on verse what I can charge and fulfil.
> Website Audit takes 8 hours each hour charged at $150
> Build local website 25 hours of development charged at $170 per hour website sale cost $4250
This works for me and works really well along side the retainer model. I am a processes nerd and need to itemise my services so that I know how long it takes to deliver and then how many I can deliver per day. The hourly pricing model is the smart way to price up your agency services. But the upfront work of listing and documenting your time to deliver so you can calculate expense verse revenue.
What Pricing Model Do I Suggest?
I am a big fan of combining the hourly pricing model with the retainer model. I need my services to be listed like ecommerce products because I can list the features and how long it takes me to fulfil these per month and tell my client that this is the hours we put in and how long it takes to make this work or deliver this work. The delivery plan is clear includes what I am going to do and how long it takes me and its very easy to see my hourly rates and how long it will take to do everything and the price makes sense based on hours.
Clients have all the information they need in front of them and can make the call if that suits them. I also offer a MacDonalds style small medium and large hours package that the client can choose the hour allocation that fits their budget or their need to feel that their campaigns are getting attention.
Now I want to give you some more reasoning why I like this combo so you can really understand and build this into your agency. I want you to build a financially strong agency and still be here in 2 years.
I have experienced alignment issues between my sales team, my finance/admin team and then my service delivery teams and the root cause of this alignment issue is pricing.
> Universal billing and sales systems: You want to use a sales system thats simple. Everyone needs to understand the pricing model and how it’s being billed. It’s common for sales people to throw in freebies or decrease sale amount to get the sale signed, this is often not communicated to the person who will be billing the client.
> Using hours to scale: When you use hours package its very easy to ask clients to increase the hours per month. Its also a common question from clients “why does this take so long?” well perfect mr client if you could increase the hours I can spend working on this campaign I can give you more attention and do more for you. Very easy way to turn a client on the small hourly package to a large hourly package.
> Adhoc client requests: You wouldn’t be an agency if you didn’t get those adhoc client requests with tight deadlines. This works so well with hourly pricing because all you need to do is say ok mr client that will take 3 hours thats 4150 per hour to do this do you agree with this, I’ll send you the invoice and BAM! extra 3 hours work added accounted for and managed.
> Transparency: The agency model has such a black cloud hovering over it because of the cowboys doing things with shortcuts, making a quick buck and just being shit in delivery of actual marketing services. When you can come to a meeting with a client have a marketing plan laid out, how many months estimate to hit target, how many hours per month to deliver the work and how much per hour that will cost to get the end results YOU look like a superstar because everything is in the open.
> Resource tracking: hours are the best way to track your agency resources. If you have a process that is eating too many hours you can review it and decrease time to deliver. If you have a team member who is really slow to deliver you can identify why and try and improve productivity. Ive applied some CRO to my delivery when Ive identified a task that was eating delivery hours once we looked at it then we could optimise it. Reduce time spent to deliver increased productivity and the expense to deliver.
I think it’s critical that you know your cost per seat of team members and then time to complete tasks so you know how to calculate delivery. This removes the unkown you will have a plan for when to add new team members or hold hiring and when to look at outsourcing verse keeping it all in-house for delivery.
“Maths Don’t Lie!”.
To truely scale your agency you need clients and its not so easy to just add more clients. Why I pay attention to my internal systems so closely is because by doing some simple optimisation of my people and systems. Knowing when to make strategic moves can be the difference between you making $5k a month or $20k a month (more if you follow this blog).
The biggest takeaway you should have from this is
1 Itemise your service list
2 Know your cost per seat
3 Build those delivery estimates
4 Use hourly pricing model with retainer model
Use the agency pricing model that best suits your business and don’t just blindly follow me here as I dont know your business. Take stock of what you have currently and identify if you need to focus on anything before you start to grow. If you have an agency already this is aimed at you review your processes, review your team members hourly allocations and then look at your pricing models.
New agency owners this was built just for you to help select the methods you use to charge for your services. I hope this helps you make a successful agency that ranks and banks.