In this chapter, we will be going over the three remaining pricing models for digital marketing agencies as well as the different factors agencies need to consider before selecting the right pricing structure. Before you read on, don’t forget to check out How To Price Your Agency’s Service: Chapter 1, to learn more about this topic…
4. Retainer-Based Pricing
A retainer-pricing model is when an agency negotiates an upfront fee with a client based on either a set amount of time per month or a certain number of deliverables.
Let’s look into both of these in more detail:
Time-Based Retainer: A time-based retainer will be when a client agrees to purchase a specific amount of time per month. As an example, if a client decides to purchase 20 hours per month at an hourly rate of $40, your monthly fee charged would be $800. If you are looking to work with a time-based retainer, it is important to clearly outline to the client how the time they paid for will be managed each month. For example, you might state that your client needs to use all hours paid for in a given month or else they lose the cash, or you might choose to allow them to spill hours into the following month.
Deliverable-Based Retainer: A deliverable-based retainer will be when a client pays you for a set number of deliverables per month. For example, if your agency works on social media management, you can charge your client $800 to design 3 new social media posts, 1 new video, get 10 comments, and post media across multiple platforms. The amount of time spent on each deliverable won’t matter, as long as it gets done!
Retainer-based pricing is a great pricing structure for clients who are working with set marketing budgets on a monthly basis. It is also a great way for an agency to guarantee a consistent source of income each month. However, the biggest disadvantage of working with retainer-based pricing is that if time is mismanaged, it can cause huge problems with future profitability.
Best for:
- Digital marketing agencies that work with clients with a big marketing budget.
- Digital marketing agencies that have established good relationships with their clients.
- Digital marketing agencies that have the resources to produce large quantities of projects in a short time.
5. Value-Based Pricing
Know as the most lucrative pricing model, value-based pricing is when an agency charges a client for the solution provided to their problem through the agency’s level of expertise.
This model, although very successful, will only be effective if there is a demand for that specialized service. In order to use value-based pricing, you need to ask yourself do I offer a service that other agencies don’t have? Is my specialized service better than others? Is this service something that my ideal client would need? If your answer was yes to all three questions, then you are adding value to the market.
Best for:
- Digital marketing agencies that offered specialized services and are considered experts in it.
- Digital marketing agencies that focus on specializing in services for specific niches.
6. Mixed Pricing
And lastly, a mixed pricing model looks into mixing different pricing models to accommodate your client’s needs. As briefly mentioned in chapter one, you might choose to use a different pricing structure for each service offered by your agency.
Agency pricing is something that needs to constantly be tested and evolved to fit the needs of your agency. As your agency grows and takes on more clients, you might see the need to adapt your pricing structure to help increase your profitability.
How To Charge Your Clients
Now that we have looked into the different pricing models, let’s take a step further by looking into the four most common ways you can choose to charge your clients:
Paying Upfront: Taking upfront payments means your clients will be liable to pay for all the fees before you even start working on the project. You may experience some apprehension with this form of payment as clients might not feel comfortable paying for everything upfront. If you are using the retainer-based pricing or value-based pricing model, upfront payments are commonly used.
50% Upfront And 50% On Completion: Taking payments 50% upfront and 50% on completion is one of the best ways to charge your client. Not only does it help you cover upfront costs with the initiation of the project but it helps make your client feel more comfortable with your services. This payment method is commonly used with a project-based pricing model.
On Completion: Taking the payments on completion means your clients will only pay for your services once you have delivered the completed project. Charging clients on completion can be a huge risk for your agency as some clients might disappear, try to renegotiate the rates, or simply just won’t pay. This payment method is commonly used with a performance-based pricing model.
Invoicing: If you choose to work with the hourly-based pricing model, you will need to invoice your client depending on the number of hours worked. The frequency of the invoice will depend on what was initially negotiated with the client and the frequency of the work. For exmaple, if you allocated a few hours every day to work on the project, you might find it best to invoice the client on a weekly basis. Payment terms also need to be clearly inclined to the client to ensure that you always get paid on time!
Additional Considerations…
If you are still not sure what pricing structure will best suit your agency needs, here are a couple of things to consider:
Platforms: Depending on the pricing structure that you choose for your agency, different platforms will be used to measure and monitor your success. For example, if you choose to go for the hourly-based pricing model, you might want to consider using a project management software to help you keep track of the hours you spend working on the project.
Clients: The success of your pricing will all depend on who your clients are and the relationship you have with them. If you are choosing to work with new clients, you might want to select a price structure that is low friction and has little investment until you have delivered a few projects. Once you have develop the relationship you can then increase your pricing and try and upsell your clients.
Grow, Grow, Grow…
Now that you have all the tools you need to build a killer pricing structure, all you have left to do is grow! Don’t forget to test different pricing models to see what best fits your client’s needs. Pricing is not a one-size-fits-all and so constant testing will help you see what seems to stick more with your clients.
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