There is no one model that works for all agency pricing models.
There are no two agencies with the exact same clients, talent, budgets or ambitions. Your agency’s pricing will be unique.
The following factors will help you choose the best pricing model for your agency:
- Your expenses, including overhead
- Your goals, including what you plan on investing in.
- How to balance the workload of your team and what you can do in the short- and long-term
- You can help your client achieve their goals and make sure they are happy
- Industry best practices
- Global economic conditions
This list could go on and on. However, at the end, pricing models should be based on the amount of profit they generate.
This article will show you the best profitable agency pricing model.
What are the top pricing models for agencies in 2022?
These are the most common ways agencies charge for their services:
- Fixed fee or project pricing
- Pricing for retainer fees
- Pricing time and materials or “day rates”
- Fixed or incremental pricing
- Pricing based on value
- Performance-based or incentive pricing
- Commission
- Licensing and product sales
A global agency landscape survey was conducted in November and December 2021. 72% reported that they primarily work on project-based fees or fixed fees. 82% stated that they are more confident than ever that they will achieve profitable growth in 2022.
The agency leaders are well aware of the risks associated with scope creep, resource planning difficulties, recruitment and retention challenges for 2022 and global inflation.
How can agencies expect to invest in growth if they continue to pay fixed, predetermined fees? This pricing model will ultimately lead to shrinking profit margins.
Why would Agencies choose a less profitable pricing model for their agency pricing?
Although value-based pricing is a term that’s often used in the agency industry, this study shows that it’s not very popular in practice.
We provide some possible answers to the question of why agencies prefer project-based pricing over other models.
Perhaps Agencies are unsure how much to charge for their services
It’s normal for an agency to start small and not know how much it should charge. It’s not easy to charge more for services over time.
Many agencies ask the question what price we should charge for our services. Another issue agencies have to deal with is how to set up rate cards. Testing different pricing models for agencies can be difficult if they aren’t aligned with industry standards. Agents can use rate cards to communicate clearly their expectations with new leads and old clients.
Ilija Brajkovic is the CEO of Kontra, which is a digital marketing agency in Miami. “To make a company profitable, a worker must pay three times his annual salary. This is commonly known as one salary (for you), one salary (overhead) and one salary (for the boss) “
Sometimes, Agency Leaders think “Profitability isn’t what we focus on.”
The same study found that only 14% reported that their agencies have an integrated platform that provides real-time insights into key metrics.
This means that agencies in 2022 aren’t really looking at their profitability as often.
Zoja Ivanisevic is Head of Development at Brigada. A spatial Miami website design agency. “At each end of every project, we’d perform an Excel evaluation to determine our profitability. We could not achieve the accuracy that we do today. We didn’t know how profitable a project would be until it was actually completed. We would only be able to evaluate profitability after the project was completed. This meant that we couldn’t determine mid-project if we’d make more profit or lose money.
Sometimes creative agencies will make paradoxical statements like “Profitability doesn’t matter what we focus on” and “Profitability not our thing”. It shouldn’t be the main driving force of an agency that aims to create brand communications and deliver state-of-the art digital products for clients.
Creative work can’t continue and expand without cash flow. Although agencies are increasingly integrated and offer top-notch Phoenix digital marketing services and technology, many lack an agency management platform that can help them manage their profitability.
Maybe Agencies Simply Fear Losing Clients?
Agencies may be reluctant to accept work that is not within their budgets.
An agency that believes changing its pricing model or pricing in general will result in losing clients and income has a serious problem. This same survey shows that, despite experiencing chaos in the second quarter 2020, agencies are performing better in 2022.
Martijn Pilich is the Managing Director of digital product design agency Hike One. “We noticed that our seniors were overpriced so we changed pricing models thanks to Productive data. We quickly discovered that some clients will pay more for more experience. “
Data shows that even though the agency business experienced a brief dip in 2020, it rebounded stronger than ever in 2021. Instead of letting fear dictate agency pricing models, look at data and create potential growth scenarios to determine which agreements clients should modify.
How Agencies Can Help Shape a Brighter Tomorrow
Agencies face many challenges in 2022, including talent recruitment and retention, employee well being, and maintaining high efficiency through hybrid work models. However, agencies have high levels of confidence.
This can be done by agencies monitoring financial performance and analyzing project insights. Agencies can also foster honest relationships with clients while being in a position to negotiate better pricing models.
Agents have the opportunity to create a brighter future.
