For any business owner, the primary concern is to make sure that their business makes money. Just like every other industry, competition is fierce in the world of digital marketing.
That only means you’ll need to have competitive prices so that customers are attracted to your agency. But you still need to make a profit in order to keep your digital marketing agency up and running.
Moreover, a profit is a healthy incentive that every business requires to thrive and grow.
Which criteria should you use to decide the pricing structure of your digital agency?
This can be one of the most challenging questions faced by those starting a digital agency. As a general business rule, the product’s price must be such that it covers the cost of the service rendered and the overhead expense. In digital marketing, you can base your pricing model on the cost of the specific services you provide.
But remember, your digital marketing agency pricing model can either make or break you. It can influence various aspects of your agency, from who you hire to how you pitch. So it’s imperative that you choose a pricing model that aligns with your long-term goals.
Selecting a reasonable price
Digital agency rates can vary, especially those that outsource their work. They can afford to cut prices without dipping significantly into their profit margins. But how do you quote a price that is in line with customer expectations and covers the cost of running your agency?
Here are a few factors that will help you determine how much to charge.
1. How much does it cost to run the agency?
Several expenses influence this figure, such as:
- Office expenses- Whether you work from home or have a dedicated office, operational costs include rent, utilities, equipment, maintenance, supplies, etc.
- Production expenses- To run efficient campaigns, digital agencies have to invest in multiple tools and software. The list is endless, but common ones include office productivity software, task management software, CRM, SEO tools, email marketing, social media automation software, etc.
- Employment costs- Besides salaries, digital agencies need to take into account things such as benefits, insurance, and bonuses.
- Professional fees- Running a business comes with its own bucket load of expenses, from government licensing fees to corporate taxes to attorney fees. These should never be overlooked.
- Additional expenses- Every business needs extra capital to help it grow. Digital marketers need to allocate an amount that allows them to cover variable costs of marketing such as advertising, conference fees, directory listing fees, etc. This may also include travel and accommodation expenses. For others, it could also involve loan repayments.
2. The digital marketing agency pricing model you wish to implement
As a digital marketer, there are various pricing structuresthat you can use to charge your clients. Whether you decide to charge your clients upfront, 50 before 50 afterward, or on completion is up to you and the services you are offering.
Here are some of your options:
1. Hourly-based
This is the ideal approach for agencies that are just starting out and are unsure of how long a project can take. Moreover, it’s the simplest way to bill your clients, especially those who ask for lots of edits or revisions.
The important thing here is to remember that your hourly rate needs to be such that it maintains the agency’s upkeep. However, make sure to inform your clients on how long the project could take, keeping a few extra hours leeway for yourself. More importantly, if you want to scale, you may end up raising digital agency pricing or move to a different pricing model.
Pros:
- Simple and straightforward
- Easy for clients to understand how to stay within the budget
- Lengthy projects are a great way to earn cash
Cons:
- You need to track and document the hours you work in order to get your worth
- No incentive to work faster
2. Project-based
Charging a flat fee for any project is a simple way to run a digital marketing agency, especially if you have the skills and resources for a particular service.
So instead of invoicing the time you spend, you base it on your expertise. To accurately price the cost of your projects, whether it’s developing a social media ad campaign or a brand-enhancing identity package, have an estimate of how many hours it could take.
Pros:
- Comprehensible pricing model
- Allows clients to test the results of small tasks before agreeing to long-term commitments
- Easier to scale than an hourly pricing model
Cons:
- May be difficult to predict how long a project may take, which influences your profit at the end of the day
3. Retainer model
Once you’ve established a relationship with your clients and are able to produce a large volume of work each month, you can move onto a retainer pricing model.
This is where your customers agree to a prepaid sum. Depending on what your job is, it could either be a fixed amount of time (hours-per-month retainer) or a set number of deliverables per month.
Pros:
- Rolls in a steady income every month
- Money is paid upfront
- facilitates scaling the business
- Makes budgeting and accounting easier for clients because they know exactly what the monthly expense is
- With monthly deliverables, it doesn’t matter how long it takes to get the tasks done. You simply need to deliver them according to the agreed terms.
Cons:
- The model is a bit on the pricey side, making it harder to pitch to new clients
4. Recurring model
Certain digital marketing services, such as SEO, are long-term projects. By offering flexible or discounted annual digital marketing agency pricing plans, you are in a position to claim a lasting relationship.
Pros:
- Attract clients who are interested in extended services
- Long-term contracts bring a steady income
Cons:
- Discounted annual rates can bring down the profit margin
5. Performance-based
When you’ve worked hard to build a reputation for your agency, and you know that you can drive positive results, consider moving on to a performance-based pricing model for your digital marketing agency. Of course, you’ll need the backing of the right metrics to prove your efforts.
For example, you could agree upon a percentage of all sales the company closes.
Pros:
- Easy to scale
- Metrics can prove your positive influence on the client’s business
Cons:
- If you aren’t able to produce the right results, you don’t get paid
6. Value-based
Value-based pricing is based on the value you bring to your client’s business and the solutions you provide to their current problems.
Pros:
- Easy to scale
- Clients know precisely the value they will get
Cons:
- It can be challenging to provide consistent value all the time
- Even after the best efforts, specific goals may not be met
- Can be a hard sell
7. Customized pricing
Digital marketing is an evolving profession. You may be able to devise a pricing structure that provides services that cater to your clients’ specific needs.
Pros:
- Allows you to analyze individual clients and tailor your services for them
- Clients can pay only for services they need
- Provide clients with more options, adding value to your agency
- Your services are very cost-efficient
- Accommodate everyone by implementing hourly rates and recurring revenue models.
Cons:
- Clients may negotiate multiple services and bring down the profit margin
3. The services you intend to provide
Digital marketers who are establishing their agencies should also look into avenues that can help to grow the business. This includes considering to offer a variety of marketing services. By devising a customer-oriented digital agency business plan, you can align your services with high demand.
Moreover, you will be able to accurately price them so that you remain profitable at all times. The formula is simple: cost + markup = price. Most agencies charge a 20% to 50% markup. But how do you price specific services, such as social media management, SEO, PPC, etc.? You’ll need to understand the costs and roles associated with each service. And since each one is different, let’s dive a bit deeper.
1. Social Media Management
SMM helps businesses to connect with customers, build a community around the brand, leverage brand awareness, improve brand loyalty, boost customer satisfaction, and increase sales.
So you have a comprehensive job that includes analyzing the audience, then developing and executing a strategy that aligns with them. It also involves ads management, one of the most important SMM services.
Social media management includes a variety of tasks. You need to be on top of additional tools and staff you may need to complete them. For instance, a creative director, strategist, or video editor can up the level of services you provide.
So when quoting a price, keep in mind the cost, time, and value of your services that should encompass the following:
- Community management
- Determining the ideal audience
- Devising a campaign strategy that targets the customer persona
- Understand the business goals
- Connect with customers
- Reply to comments quickly and appropriately
- Content creation
- Create content that aligns with customer preferences
- Organize a content calendar
- Audit competitors
- Monitor conversations
- Watch relevant hashtags and influencers
- Increase reach by joining relevant conversations
- Be aware of target keywords that are trending on various social media channels
- Working with influencers
- Track companies, followers, products, and topics that align with the brand image
- Filter out clickbait
- Analytics
- Monitor, analyze, optimize, and report the metrics that matter the most in the SMM campaigns.
2. SEO Management
There’s a lot that goes into SEO management, from the content to keywords to image metadata. But SEO can be broken down into three main types:
- Local SEO- how local businesses can appear in ‘near me’ searches.
- On-Page SEO- ensures all aspects of a website are optimized for search engines, such as images, keywords, URLs, page speed, mobile-friendliness, linking strategy, UX, etc.
- Off-Page SEO- activities are done off your website to raise the ranking with search engines, for example, links to your site from external sources, forums, influencer outreach, etc.
SEO is a long process that requires constant auditing and maintenance. Besides content and keywords, SEO also focuses on ranking and traffic. As an ongoing service, so how do you price SEO services? For many, project-based pricing or a recurring model are preferred options.
3. PPC
Much like advertising, PPC is a great way of getting your website in front of people. That’s why many consider Pay-Per-Click marketing as paid SEO. These days, most of it is done through AdWords. Your job is to strategize, set up, manage, and report on marketing campaigns on this platform. Progress is monitored, either weekly, monthly, or quarterly, and campaigns are tweaked accordingly.
There are multiple pricing models when it comes to PPC services, ranging from hourly rates to flat rate to a monthly retainer model. Others charge a percentage of the ad spend while some client’s package PPC services with other digital marketing needs. At the end of the day, you need to choose a pricing structure that suits both you and your client.
So exactly how much should I charge for your services?
Now, if you were expecting a particular number, I’m sorry to disappoint you. This blog acts as a mere guideline on what to consider when deciding a price and ways that you can charge your clients.
Every city and country has a different demand for digital marketing services. And only you can determine what the acceptable profit margin for running your digital marketing agency is.
After all, you are investing a considerable amount of your time, energy, and resources into providing valuable services to your customers. Keeping your work profitable will serve to make your efforts worthwhile.
So let’s take a closer look at a few reasons why digital agency fees vary:
1. Firm/consultant experience
This factor has the most influence on the digital marketing agency pricing structure. The more experienced an agency is, the more it will charge.
Consider the following. When you hire an entry-level employee, you naturally pay them less than a more experienced one. Similarly, a digital agency that is new in the market has less experience in the trade and probably takes longer to get tasks accomplished.
On the other hand, an established, experienced firm has employees that have the necessary expertise to get more work done better and quicker. So the more specialized and experienced you are in the industry, the more you can be expected to get paid.
2. Internal costs
As mentioned earlier, a digital agency’s individual operating costs define the bare minimum required to keep the business afloat. Larger agencies tend to be a little less expensive than smaller ones because they can tap into economies of scale.
Having said that, you should also keep in mind that an individual consultant may charge higher prices than an agency because their time is finite. They focus on a few clients instead of taking on a bigger caseload.
3. Scope of work
Digital marketing campaigns can be billed at an hourly rate or services rendered. The more services a client needs, the greater the amount of time and resources you invest in completing the work, the higher the fee.
4. Industry-specific factors
Some industries are naturally more competitive than others. The more competitors in the industry, the greater the effort needed to stand out. So the budget required to dominate that industry will be much more. For example, a high-end fashion brand will need more aggressive marketing than a niche-specific brand related to organic gardening.
Final thoughts
Choosing the right digital marketing agency pricing model can be overwhelming. So if you’re not sure of which one to implement or already have a model in place that’s not profitable for the agency, there’s no rule that says you can’t change it.
Taking the time to understand the pros and cons of different pricing models can help you achieve your goals quicker and guide your agency to the next level.
