A Marketing Agency's Guide to Pricing

How to price your services if you’re a marketing agency can be rather complicated, given the different types of options available. Usually, it seems like many agencies go with some variation of a flat fee and a percentage of the spend. At a glance, this doesn’t sound too bad of an option, but there are some options available that are worth considering before going down that route.

With that in mind, let's touch on the options available. Lets then create a structure to help in choosing which pricing for each type of client.

I’ll finish up this preface by saying that there’s a simple opinion underlying this test: The best pricing aligns your payment to your value. Its a fairly simple idea, but one that often isn’t seen through as it should.

Pricing Structure Options

Flat Fee

Naturally, the most basic and easiest option for pricing is to simply charge a flat fee. This is unsurprisingly, very appealing to clients as its easy to understand. Frankly speaking thought, a flat fee alone (unless its super high) is a good pricing structure for an agency. Its great as a starting point for the pricing, but it needs some support to make the pricing work.

The exception to this rule is if you’re just starting out. A newish agency should be willing to accept a flat fee only structure at first just to land those first few hard to get clients. Once things have stabilized, its best to move away.

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Per Hour

Per hour is another standard pricing model in some agencies. The basic idea being that the client pays for a certain number of hours a week/month and in exchange can ask for whatever work they’re after at that specific moment.

This isn’t that bad… in theory. But it is, frankly speaking, best avoided. The reason is quite simple: If they’re paying you by the hour, they see you as manpower, not strategy. You’re more of a freelance than an important strategic advisor. In your clients mind, they can see themselves replace you with someone from Upwork.

So this is frankly best avoided, unless necessary.

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Per Task

Per task is quite frankly, the exact same as Per Hour, just written slightly different. At the end of the day, the client wants X, and you will get it done for Y in a specific amount of time. This pricing structure, much like the one above, is best avoided for the same reasons. You don’t want your clients to think of you as a freelance/manpower but as a strategist. So its best to avoid it if you can.

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Per Spend

Per Spend pricing is, in my opinion, potentially the worst option around. The reason is actually pretty simple: This creates a bad incentive structure. In this scenario, the agency is incentivized to increase spend as quickly as possible, even if its best to do scale up bit by bit. 

That said, its often the only structure that clients and agencies can be happy with. The perception seems to be that if there is more ad spend, then the agency is working more and delivering more value. This isn't completely wrong, even if not always right.

In a nutshell, its better than Per Hour or Per Task, but its still not ideal.

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Per Metric

This is likely the second best option, up to a point. The idea of Per Metric pricing is that the agency charges a a certain amount based on hitting specific thresholds for a specific metric. For example, an SEO agency gets a flat fee amount plus an extra amount if they achieve 20k organic traffic on articles.

This is considerably better than previous options. Its also generally quite flexible as well. For example, an email agency can charge on per traffic or per click. This way, the agency is incentivized to send good emails that are read and clicked through (much like SEO).

The key thing with this is essentially, as mentioned above: The best pricing aligns your payment to your value

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Per Revenue

Per revenue is in truth just a variation of Per Metric, but it's worth splitting apart onto its own just because of how important it is. At the end of the day, the role of an agency is to drive revenue through client acquisition. If its possible for an agency to nail down the attribution of a revenue generating activity (subscription, purchase, etc.) then its best to get paid accordingly. So if the marketing efforts deliver $1m in revenue, the agency can get 10% of that.

Some folks who read this might think that there’s not that much difference between this and Per Spend in many ways. After all, enough spend always produces certain results. But there is a difference between these 2. The difference is, at minimum, in your clients perception. The clients view that your interest and theirs are aligned is invaluable. Transparency is key for retaining clients, and Per Revenue pricing is the most transparent of them all. 

Of course, this does create an issue of attribution. How does a client know that its because of your SEO work, someone else’s digital marketing work or something else that drove the revenue? Generally, this requires pretty robust attribution. But if its executed, its pretty fantastic all around.

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Choose a Pricing

With all of this said, the ideal pricing is actually quite simple once the options are layed out. First, always charge an initial monthly flat fee. This is meant to cover the basics and the agency’s downside when putting in time for a client. Secondly, choose the best pricing option based on what's possible:

1. Per Revenue
2. Per Metric
3. Per Spend

Sadly, 1) isn’t always available. If the client is an ecommerce company or a B2C SaaS, then its quite easy to get revenue. Otherwise thought, it might require some data integration and enablement. If thats not possible, its best to move onto 2) . Lastly, if a client is unwilling to agree to a metric of success, then per spend is likely the last option at hand. 

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What's next?

If you’ve made it all the way here, thanks for reading! Mind you, the basis of this entire article is pretty much: Transparency & alignment is what keeps agency clients. If you’re interested in reading a bit more on keeping clients, check this out 😀

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