Earlier this month, I sat in on the Optifiy webinar, How to Price Your Digital Marketing Services. Rob Eleveld (@RobertEleveld), CEO of Optiify, and Jon C. Stone III (@jcstone3), CEO of Revenue Architects, presented.
This post highlights some of webinar’s key takeaways. Before we start though, keep in mind that your pricing will evolve with your business, and it should be continually refreshed based on changing market factors, service offerings and historical data.
Note: For additional pricing insight, watch the full webinar on demand, or download Optify’s accompanying ebook.
Agency Pricing Prerequisites
Before you set out to create, or update, your pricing model, you must first have a clear understanding of business basics, including:
- Fixed and variable costs: Know how they relate to profit margins.
- Market conditions: Research national and local billing rate averages.
- Service perceptions: You can charge more if something is considered high value, even if it takes less time to deliver.
- Service delivery model: Are you a trusted advisor whose main deliverable is advice, a delivery partner who supports an internal marketing team, or a solution builder who shapes and defines the strategy? Price accordingly.
Use this insight to guide your pricing structure. You don’t want to undercut yourself and not be able to pay your bills, or overprice and scare away clients. Seek out the sweet spot between profits and client satisfaction. Often, it takes trial and error, and speaking with others in the industry to perfect.
Marketing Agency Pricing Models
In the webinar, Rob overviewed four pricing models that are common in digital marketing agencies, along with the pros and cons of each. Note that you don’t have to commit to just one model, and that it’s often preferable to switch between them to best accommodate the project and client at hand.
- Time and material: This is the model behind billable hours; the client is charged based on how long something takes to complete. The benefit for firms is that you can maintain profitability, regardless of scope. The downsides are that clients feel like they are always on the clock, and there are no benefits for the firm to be efficient. That said, this model is good if you are unable to scope deliverables at the start of the engagement, as it guarantees profitability.
- Fixed-bid projects: Here, agencies scope the project and provide a set price based on expected resources required. Clients like this approach because they can budget in advance, and the risk is on the agency. In this model, it becomes key that the agency manages expectations throughout the entire project, however, or else it can become unprofitable.
- Retainer: Charge a fixed amount monthly or quarterly in exchange for ongoing services. Retainers help agencies avoid cash flow crunches and really become an extension of a client’s marketing team. However, to avoid scope creep, deliverables must be agreed upon upfront. Retainers also require agencies to have well-defined services and industry credibility (via client references, thought-leadership content, case studies, etc.).
- Value-based: Price based on the value offered by the service, instead of the hours or resources put into it. For example, you could probably charge more for strategic counsel, market research and other high-value services because they are perceived to be worth more. Value-based pricing drives higher gross margins for agencies, but it requires firms to be able to differentiate their services from their lower-priced competitors.
Service Delivery Models
How you deliver your services also informs pricing and drives efficiencies; it may also protect agencies and their clients from some of the risks outlined above.
Jon advocated for agencies to develop a standard delivery model for their services. This creates consistent, repeatable processes that give clients confidence and lead to greater agency efficiency. He recommends using one of two models based on the project.
- Solution services: Define the scope of the project and apply standardized pricing. For example, if pricing a blog post, define assumptions upfront (e.g. number of words, topic complexity and design), and then assess a fee for the complete project based on these pre-set components. If the assumptions change, adjust pricing accordingly to prevent scope creep.
- Project services: Define and scope the first step of the project, and then use the results of that to guide subsequent scope and pricing. For example, provide a quote for a website creative brief, then use the findings from that project to guide the set price you give for website design and copywriting. This phased approach minimizes the agency’s risk, while still giving the client better budgeting capabilities and higher comfort levels.
How Do You Price Services?
What lessons have you learned pricing services? Which pricing and delivery models do you use? Where have you been successful and where have you gotten burned? Share your experiences in the comments.
For more on agency pricing, check out chapter one of The Marketing Agency Blueprint by Paul Roetzer (@PaulRoetzer).
Image Source: 401(k) 2013
