Blog

Pricing is one of the most difficult questions when it comes to building an agency or company.

Setting (or changing) prices for your business can be daunting. After all, there is a lot at stake …

What happens if you lose customers who don't want to pay the new prices?

What if you chose a type of pricing structure but ultimately find that it doesn't work?

And what happens if you screw up the calculations and the sub-price?

These and other questions keep new and scaling agency owners up to date at night.

To help you, we've gathered some basic level information to help you figure out which pricing structure might be right for you.

Let's start with one of the prevailing price structures …

Hourly pricing

Probably the most intuitive model, hourly pricing, works much like any freelance or professional position. Each agency employee has an hourly rate, and the customer pays the hourly rate for everyone they work with.

Note that the hourly rate must take into account that employee's overhead.

Breakdown of the calculation

It's pretty easy …

Hourly rate x number of hours = price

Here's why it's great

In the agency world, time is money. If you charge every hour, you get exactly what you put into your work. That said, even if a customer has a million questions and emails you seven times a day, at least you'll get paid for it, right?

This pricing method works great for just about every agency because it is flexible. When you're ready to scale, just raise prices or hire more people.

What's the catch?

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

Flat rate or project-based pricing

As one of the most common pricing systems for newer agencies, project-based pricing typically involves charging a flat rate for every short-term project you're working on with a client (e.g. setting up a website or creating some design results for a campaign).

Flat rate prices are similar, but usually apply to long-term business relationships. Typically, this structure calculates a flat rate for long-term project management (e.g. SEO management, weekly blog posts, or managing paid ads).

Breakdown of the calculation

Typically, the price is determined based on the average number of hours it takes to complete the project.

Hourly rate x Estimated number of hours + margin = price

Here's why it's great

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

Not to mention that a simple fee is much easier to persuade a customer to pay. So if you want to get your foot in the door, this pricing model might work for you.

What's the catch?

Scope creep (also known as when a project gets much bigger than expected) can make it difficult to predict how long a project will take. And if your time estimate isn't right, you may lose money that you would have earned if you had charged up every hour.

The lack of flexibility can also be a problem. When a project has to be shot or killed, it can be difficult to figure out how much to calculate.

Retainer pricing

Another frequently used option, retainer pricing, calculates a fixed monthly price for a fixed amount of work. For example, an agency can charge 10,000 per month for a certain number of blog and social media posts.

Breakdown of the calculation

This pricing structure can become something complicated. You need to meet up with your customer Plan the results, Plan it over an agreed period and then Set the storage price based on either the hourly estimate or the flat rate for each project.

Here's why it's great

Similar to the flat rate pricing, you get one with the retainer pricing steady stream of Income, that's always a plus!

Also go through the process of pricing helps you and your customer to become specific about what to do and by when – it forces them to think long term.

What's the catch?

Similar to flat rate prices, retainer prices is not super flexible. For this reason, this method is usually best suited for more predictable, stable projects such as content marketing or social media.

Performance based pricing

One of the more result-oriented pricing modes is performance-based pricing. Typically used by agencies for paid traffic or lead gene specialties, this model calculates either a flat rate per result or a percentage of a campaign's revenue.

Breakdown of the calculation

The key to calculating the right rate is to make sure you're tracking the right metric for your customers' intended outcome. If you want to go this way, you want to make it clear how success is measured.

Here's why it's great

Customers want results, so paying based on the results can feel like a very fair and easy to justify option for a customer.

What's the catch?

There are many different ways to get results, some of which are more intense than others. That means using links when a campaign isn't going well can be more tempting.

Suffice it to say that the stake is high if you get paid based on the results.

Point-based pricing

A newer pricing structure that has emerged is point-based pricing. This price structure essentially corresponds to the agency's use of tokens for a Chuck-E-Cheese. Your agency has a “menu” of services that you offer, each with a fixed point value. Then you put together some packages that consist of a set number of points that can be used each month.

If you have a customer on board, they pay the monthly subscription price and determine how they want to spend their points.

Breakdown of the calculation

This pricing structure can also be quite complicated. This article from the original creators of point-based pricing provides a brief breakdown of the calculations.

Here's why it's great

This method is great because it allows you to manage the capacity of your agencies. By limiting the number of tokens each customer receives, you can ensure that you don't neglect customers on a budget.

This method is also great because it forces your customers to check in on a monthly basis and think very carefully about which projects they want to focus on. This means that you don't waste time on projects that may be half scrapped.

It's also great because it gives you the benefit of recurring, predictable earnings, but with the added flexibility of monthly check-ins and reallocation of points.

What's the catch?

Calculating this pricing model can be quite complicated. And if you don't know exactly how you assigned the point values ​​to the individual services, this can lead to your customer scratching his head and wondering whether it's all worth it.

Another possible disadvantage of point-based marketing is that smaller customers may not be able to register if they only have 1 or 2 short-term projects.

Decide which model works for you

Now you have a better idea of ​​the different types of pricing structures.

But which one works best for you?

Well, here are a few things to keep in mind when setting your pricing structure:

# 1 Your agency will evolve, as will your pricing structure

As you have seen, some pricing models work very well for small agencies that are just starting out, but not every model is scalable. 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 customers, services, and capacity.

# 2 What is right for an agency may not be right for you

Agencies are like fingerprints. Whether it is a wide range of services or a highly specific non-market, each agency has its own DNA that makes it unique. That means the pricing model that works for an agency may not work for your agency, and that's fine!

Part of what makes running an agency so exciting is that you can decide what works for your company! So make sure you choose the price that works best for you!