Agencies & Brands

Money on the Table: How to Price Your Agency’s Services

Isn’t it funny how much of a difference pricing can make? A t-shirt that costs $12.00 may seem overpriced, but $9.99 seems so much more affordable, even though the actual difference is only two dollars.

Pricing is so much more than numbers and monetary value. It can say a lot about quality of services, competition, and value. And, it’s a tricky thing. If you price too low, you may not be able to sustain growth and you’re less likely to go the extra mile. If you price too high, you get beat out by a lower-cost competitor.

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It’s no wonder, then, that it can be a challenge to figure out how to price your agency’s services. You want to make a profit, but stay competitive enough to get new clients. And, you sure don’t want to leave money on the table.

That’s why research is so important. The first step to pricing your agency’s services is to conduct a financial audit of sorts. Take the time to understand your business costs, financial business goals, and the current agency landscape in your industry and city. Some things to consider: your agency’s fixed and variable costs, how much profit margin you would like to make, national and local pricing averages of similar agencies, and how your services are perceived (do people place a lot of value and importance on SEO? How about content?). Create a matrix of all this information to easily reference.

Once you have an understanding of your finances, it’s time to consider pricing models. Here are four common agency pricing models and some pros and cons of each:

Billable hours

The client is charged on how long something takes to complete. The benefit for agencies is that it guarantees profitability, regardless of the scope of the project. The downsides are that there are few incentives for your agency to be efficient and the client can feel like they’re “on the clock.”

Project-based

For this one, you would come up with a set price for a project based on the expected resources required. Clients usually prefer this because they know the total cost in advance and if the project takes longer than estimated, the risk is on the agency. For the firms, this model requires efficiency and meeting deadlines, or the project could become unprofitable.

Value-based

This model bases price on the value of the services, rather than the time to complete or resources needed. For example, strategy and market research are perceived to have a high value because they are worth more. This model drives profitability, but it can be difficult to differentiate services from lower-priced competitors and to justify this value-based approach.

Retainer

This is a very common model for large PR and marketing agencies. Clients are charged a fixed monthly or quarterly fee for ongoing services. With a retainer model, the agency really becomes part of the client’s extended marketing team and it can help agencies avoid cash flow issues. In order for agencies to successfully have a retainer model, it must have a well-defined, broad range of services.

Now, we’re not in a position to give you a number. As you’ve read, it depends on your agency’s finances, how many employees you have, and your desired profit margin (among other things).

But, we did some research and have pulled together these average industry prices and billing rates to give you an idea:

600+ SEO Agencies’ Pricing and Costs

Moz, a marketing analytics software company for search, links, social, and brand, released a survey in 2012 of more than 600 SEO agencies sharing their pricing models and cost structures. Here are some highlights of what they found:

  • Hourly SEO costs vary across countries, but $76-$200/hour is most common.
  • By-the-project pricing is most popular and most commonly between $1,000 and $7,500.
  • Monthly retainer pricing has the widest distribution. The two most common were $251-$500/month and $2,501-$5,000/month.

PR and Advertising Industry Billable Rates

StevensGouldPincus, the merger and management consulting firm specializing in the PR field, surveyed 111 PR agencies to find average rates.

  • $565/hour for CEOS of agencies with $25 million or more in revenue.
  • $296/hour for CEOS of smaller agencies.
  • Account executives average $150/hour.

Second Wind, a thought leader for the advertising and marketing community, released its “2013 Annual Agency Survey Report,” surveying more than 750 agency members in small-to-midsize ad, marketing, graphic design, PR, and interactive firms.

  • The average hourly rate for account service is $183.
  • The average hourly rate for art direction is $143.
  • The average hourly rate for account planning is $133.

There are a lot of options with agency pricing, and you can even make up a model with a combination of pricing models. Understand your costs and the amount you need to bring in to grow your business. Then, if possible, find out what your competitors are charging (or at least research average rates in your area). And remember, pricing is more than just a number, it also represents the value you put on your services and your agency.

Which pricing model do you prefer? What have you learned about agency pricing? Tell us in the comments!

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