Pricing Your Agency Services

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Pricing is one of the most plaguing questions out there when it comes to building an agency, or any business for that matter.

Setting (or changing) the pricing for your business can feel daunting. After all, the stakes are high…

What happens if you lose clients who don’t want to pay the new rates?

What if you set out with one type of pricing structure, but end up realizing it doesn’t work?

And what happens if you screw up the calculations and underprice?

These questions, and more, keep new and scaling agency owners up at night.

To help, we’ve collected some base-level information to help you decipher which pricing structure might work for you.

Let’s start with one of the more prevalent pricing structures…

Hourly Pricing

Arguably the most intuitive model, hourly pricing works much like any freelancing or employment position. Each employee at the agency has an hourly rate, and the client pays the hourly rate for whoever they work with.

Keep in mind, the hourly rate needs to take into account the overhead costs of that employee.

Calculation Breakdown

This one’s pretty simple…

Hourly Rate x # of Hours = Price

Here’s Why It’s Great

In the agency world, time is money. By charging hourly, you are getting out exactly what you put into your work. That means even if a client has a million questions, and emails you 7 times a day, at least you’re getting paid for it, right?

This pricing method works great for practically every agency because it’s flexible. Whenever you’re ready to scale, simply raise rates or hire more employees.

What’s the Catch?

Tracking hours can be a pain in the butt and can also take up valuable time. It can also be difficult to get buy-in from a client unless you have fairly accurate time estimates for projects.

Flat Rate or Project-Based Pricing

One of the more prevalent pricing systems for newer agencies, project-based pricing typically involves charging a flat rate for each short-term project you work on with a client (like setting up a website or creating some design deliverables for a campaign.)

Flat rate pricing is similar, but usually applies to more long-term business relationships. Typically, this structure charges a flat rate for long term management of projects (like SEO Management, Weekly Blog posts, or Paid Ad management.)

Calculation Breakdown

Typically, the price is determined based off the average number of hours it would take to complete the project.

Hourly Rate x Estimate # of Hours + Margin = Price

Here’s why it’s great

Straightforward pricing makes paychecks more predictable. It’s also quick to calculate and easy to understand.

Not to mention, a straightforward fee is a lot easier to convince a client to pay. So, if you’re looking to get your foot in the door, this pricing model might work for you.

What’s the catch?

Scope creep (aka when a project ends up way bigger than you first anticipated) can make it hard to anticipate how long a project will take. And if your time estimate is off, you may end up losing out on money you would have earned if you were charging hourly.

The lack of flexibility can also pose a problem. If a project needs to pivot or be killed, it can be difficult to figure out how much to charge.

Retainer Pricing

Another commonly used option, retainer pricing charges a predetermined monthly price for a pre-determined amount of work. For example, an agency might charge 10K a month for a specific number of blog posts and social media posts.

Calculation Breakdown

This pricing structure can get a bit complicated. You’ll need to meet with your client to plan out the deliverables, schedule them across an agreed upon time frame, and then set the retainer price based off either the hourly estimate, or the flat rate for each project.

Here’s Why It’s Great

Much like flat rate pricing, retainer pricing gives you a steady stream of income, which is always a plus!

Going through the process of determining pricing also helps you and your client get specific on what needs to be done, and by when—it forces them to think long term.

What’s the Catch?

Much like flat rate pricing, Retainer pricing isn’t super flexible. That’s why this method usually works best for more predictable, steady projects such as content marketing or social media.

Performance-Based Pricing

One of the more results-driven pricing modes is performance-based pricing. Typically used by agencies in paid traffic or lead gen specialties, this model charges either a flat rate per result, or a percent of the revenue earned from a campaign.

Calculation Breakdown

The key to calculating the right rate here is to make sure you’re tracking the right metric for your clients intended outcome. So, if you want to go this route, you’ll want to get crystal clear on how success is measured.

Here’s Why It’s Great

Clients want results, so paying based on the results can feel like a very equitable and easily justified option for a client.

What’s the Catch?

There are a lot of different ways to get results, some more intensive than others. That means that it can be more tempting to take shortcuts when a campaign isn’t going well.

Sufficient to say, the stakes are high when you’re getting paid based off results.

Points-Based Pricing

A more recent pricing structure that’s popped up is point-based pricing. This pricing structure is basically the agency equivalent of using tokens at a Chuck-E-Cheese. Your agency has a “menu” of services that you offer, each with a pre-determined point value. You then put together a few packages that consist of a pre-determined number of points available for use each month.

When you onboard a client, they pay the monthly subscription price, and determine how they want to spend their points.

Calculation Breakdown

Again, this pricing structure can get pretty complicated. This article, from the original creators of points-based pricing gives a brief breakdown on the calculations.

Here’s Why It’s Great

This method is great because it helps you manage your agencies capacity. By limiting the number of tokens each client gets, it helps ensure you’re not neglecting smaller-budget clients.

This method is also great because it forces your client to check in monthly and be very intentional about what projects they want to focus on. This means you aren’t wasting time on projects that may get scrapped halfway through.

It’s also great because it means you get the benefit of reoccurring, predictable revenue, but with the added flexibility from monthly check-ins and reallocating points.

What’s the Catch?

This pricing model can be fairly complicated to calculate. And if you’re not clear on how you assigned the point values to each service, it can leave your client scratching their head wondering if it’s all worth it.

Another potential downside of points-based marketing is that it may prevent smaller clients from signing on if they only have 1 or 2 short term projects.

Deciding which model works for you

Now you’ve got a better idea of the different types of pricing structures out there.

But which one will work the best for you?

Well, here’s a few things to keep in mind when determining your pricing structure…

#1 Your agency will evolve, and so will your pricing structure

As you have seen, some pricing models work really well for small agencies just starting out, But not every model scale well. Some agencies even use a hybrid of 1 or 2 of the different pricing models.

So, keep in mind that as your business grows and scales, your pricing model will most likely change as you add more clients, services, and capacity.

#2 What’s right for one agency, may not be right for you

Agencies are like fingerprints. Whether it’s a wide array of services, or an ultra-specific niece market, every agency has its own DNA that makes it unique. That means that the pricing model that works for one agency may not work for yours, and that’s okay!

Part of what makes running an agency so exciting is that you get to decide what works for your business! So, make sure you’re choosing the pricing that works best for you!

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