Jake is a freelance digital marketer who’s been in the game for three years. He just landed a big client, but there’s a catch—the client wants a unique set of services that Jake doesn’t know how to bill. Jake realizes their one-size-fits-all approach to pricing isn’t cutting it anymore.
If you’re in the marketing world, Jake’s dilemma probably sounds familiar. Whether you’re a solo freelancer, part of an agency team, or running your own shop, figuring out how to price your marketing services can be a real head-scratcher.
But don’t worry about that! In this post, we’ll unpack the mystery of popular agency pricing models and answer the big question—how to bill a client? We’ll explore different options and help you find the perfect fit for your business and clients.
How to Choose the Right Agency Pricing Model
Summarize this article for me pleaseWhat Is an Agency Pricing Model?
The term agency pricing models refers to how an agency structures the way it invoices customers for the services it provides.
Different pricing models are available depending on the project scope, level of trust between the parties, type of work, industry, etc.
Choosing a suitable agency pricing model is important because:
- You don’t want to undercharge or overcharge your clients
- Being transparent about costs tells your clients they can trust you
- You don’t want to follow up with every client for money after project completion
You must manage your project price and set a payment plan before you start working on the project. This way, everyone involved knows what they should expect in the end.
Summarize this article for me pleaseUnderstanding Different Agency Pricing Models
There are typically four different models of payment that agencies go for.
1. Value-based pricing model
In a value-based pricing model, an agency bills the client based on the perceived value it brings—through traffic, leads (organic or otherwise), and social media engagement.
For example, suppose an agency has experienced UX designers who have successfully worked with SaaS customers before. In that case, the agency can confidently offer value-based pricing models for newer SaaS customers.
In the value pricing model, billing isn’t done per hour of work performed. Instead, it is based on results. This is probably the biggest benefit of using a value-based model.
The result is tied to the ROI, so the client knows what they’re paying for when they engage with the agency.
However, this is not to say that the agency will not benefit. With value-based pricing, you get long-term clients and predictable income, provided you deliver results. You can also make higher amounts if you provide more value and pick up more projects.
Who’s it for
Larger, experienced agencies use the value-based payment model because they have a portfolio or proof of the perceived value they can provide to their potential customers.
2. Project-based pricing model
In a project-based pricing model, an agency charges a flat fee for a specific project. The scope of the project is discussed, and the client is given a set rate for a given deliverable.
The payment terms are generally defined before the agency works on any deliverable. Because of this, both parties (the agency and the brand) have complete clarity regarding the project and its costs.
Who’s it for
This approach is effective for projects with well-defined goals and deliverables. This might look like this: A marketing agency has to increase organic traffic to the client’s website by 40% within six months.
The project-based pricing model also works when the client has a fixed budget for the entire project.
Bonus content: Here are 10 free online templates to manage your project budgets.
3. Hourly rate pricing model
This is the simplest model. You work an hour, you bill an hour. The agency can charge an hourly rate depending on the project, services, or the talent required.
For instance, if the client requires a content writer for an indefinite time, the agency may charge them $20 per hour of work the writer does.
The big plus is that an hourly pricing model is easy to explain to the client—you get paid for every hour you work. It’s quite straightforward, so the client knows what they’re paying for.
Who’s it for
The hourly rate model works well for ongoing work, reworks, or projects with possible scope creep.
4. Retainer pricing model
In the retainer model, both the client and the agency decide on a recurring fee that will be paid to the agency monthly for a certain level of service. This fixed fee may be paid at the start or the end of every month.
For instance, if a prospective client asks you to deliver a set number of blog posts, newsletters, and social posts every month, you can switch to a retainer-based pricing model with them.
Monthly retainers create predictable income and ensure that an agency regularly gets paid for their work and always has a runway.
With such subscription-type models, your digital agency has an opportunity to build long-term relationships with existing clients. As the scope of work is well-defined, the client can assess your contribution fairly; this builds trust and allows for client retention.
Who’s it for
This pricing model is perfect for services that require consistent work over time, like social media management, content marketing, or PR.
Summarize this article for me pleaseMarketing Agency Pricing Models
There are some other common agency pricing models that are particularly popular among marketing agencies. They are:
1. Performance-based pricing model
With a performance-based pricing model, you are paid based on your results. The better your results, the more you get paid. The payment could be a percentage of sales or a fixed price for each lead generated.
The big advantage here is that it aligns your interests with your client’s. If they win, you win. In this model, it’s easier for clients to see the ROI.
It can bring in more money if you’re good at what you do. So, if you’re good at a particular service, you can generate a lot of revenue through performance pricing.
Who’s it for
This model works well for results that can be defined or quantified, such as pay-per-click advertising, lead generation, or affiliate marketing.
2. Cost-plus pricing model
Also known as gross margin pricing, cost-plus pricing is a more traditional model in which you calculate the actual cost of the work and add a predetermined markup for the agency’s profitability. You can calculate this cost by taking the total number of hours you worked on it or the total number of tasks and then adding a markup percentage. That is the total cost of your service.
That markup percentage is also called the gross margin. If you accurately calculate the gross margin, you can earn a profit. You can choose to set different gross margins for different clients.
The benefit of the cost-plus model is that it is simple to track and predictable. This payment model ensures you’re always covering your costs. But depending on what you choose as your margins, it is possible that you’re not getting adequately compensated for the value you bring to the table.
Who’s it for
This model can work well for marketers or agencies just starting out or for services where the costs are predictable.
Summarize this article for me pleaseNiche Pricing Models
Apart from the marketing agency pricing models discussed above, some marketers and agencies have developed niche pricing models. These may not work for everyone, but they are good to know about.
1. Flat rate
A flat rate or fixed fee pricing is similar to project-based pricing, where a marketer or agency charges a predetermined flat fee for the services they provide a customer. Before starting the project, they discuss the project’s scope and decide on a quote. The final quote will not change if the work is more or less than anticipated later.
It’s up to the agency or the freelancer to analyze the correct flat fee. Otherwise, they may end up doing extra work without being paid for it.
A flat rate fee is usually applicable for standardized services. Think something like ‘Logo design for $500’ or ‘Ad campaign for $2000’.
Who’s it for
The fixed price model can work well for you if you’ve got your processes down pat, such as:
- the number of work hours
- the number of employees who would work on it
- the effort and resources the project would use
💡Pro Tip: Clients almost always ask for 2–3 rounds of iterations or rework. Ensure your flat rate clearly defines how many revisions are included and what would incur additional charges.
2. Incentive
This model is often used in mergers and acquisitions. You get a base fee for your services plus a bonus if certain goals are met.
For instance, an SEO agency might charge a standard monthly retainer with bonuses for achieving specific ranking improvements.
The incentive-based pricing model aligns your interests with your clients. It shows them that you have confidence in your abilities and that they should, too. It can be a win-win pricing model, motivating you to go above and beyond while giving your client security.
Who’s it for
This model can be used when:
- You can clearly define your success metrics
- Your clients can define their requirements
- You’re confident in the value and ROI you can bring to the client
3. Freemium
This one’s popular in the SaaS world but can also be used by marketing agencies. In the freemium model, you offer a free basic version of your service and then charge the client for premium features.
For instance, a social media consultant might offer a free basic audit with paid options for more in-depth analysis and improvement strategies.
This can be a great way for consultants and agencies to attract clients, but you must ensure your paid offering is compelling enough to convert free users.
Freemium helps you showcase your expertise and build trust with potential clients. It allows them to experience the value you provide before committing to a paid service.
Who’s it for
This model can work well when:
- You have a service or tool that scales easily
- You’re looking to build a large user base or email list
- Your free offering provides clear value but also leaves users wanting more
Summarize this article for me pleaseChoosing the Right Agency Pricing Model
We’ve exhaustively listed the various types of standard agency pricing models you can choose from. But how do you pick the right one for you? Here are some key factors to consider:
- Your services: What kind of work are you doing? Complex strategy work might benefit from value-based pricing, while ongoing services could work well with a retainer
- Your clients: What do they prefer? Some clients love the predictability of flat rates, while others prefer the flexibility of hourly billing
- Your business development goals: Are you looking to maximize profit? Build long-term relationships? Your pricing should align with your goals
- Your competition: What are other agencies in your space doing? You don’t have to copy them, but it’s good to know the standard industry practice
Let’s take an example of online advertising and pay-per-click (PPC) services.
PPC and online advertising lend themselves well to performance-based pricing models. Since these channels provide clear, measurable results, unlike other aspects of marketing, you can tie your fees directly to outcomes like:
- Cost per click
- Cost per acquisition
- Return on ad spend (ROAS)
So you might charge a base management fee plus a percentage of ad spend or a bonus for exceeding ROAS targets. You could also choose a hybrid option—offering a lower retainer fee combined with performance bonuses based on PPC campaign results.
Also, remember that with online advertising campaigns, it’s crucial to educate clients on the difference between ad spend (which goes to the ad platforms) and your management fees. Your pricing model and your contract should make this distinction clear from the beginning.
Mistakes to avoid when choosing a pricing model
Watch out for these common mistakes while deciding on a pricing model:
- Undervaluing your work: Don’t fall into the trap of charging too little to win clients. If you know you’re charging the right amount, be firm about it and give reasons
- Overcomplicating things: Your pricing should be easy for clients to understand. If you need a spreadsheet to explain it, it’s probably too complex
- Not considering all your costs: Make sure your pricing covers not just your time but also tools, subscriptions, overhead, and a healthy profit margin
- Being inflexible: While consistency is important, be willing to adjust your pricing if it’s not working for you or your clients
- Not accounting for scale: Your pricing model needs to account for how your services or campaigns change with scale. For instance, a flat fee might work well for small or one-time digital marketing campaigns but could be a lost financial opportunity for larger ones
- Ignoring testing and optimization time: Online advertising campaigns like search ads require ongoing testing and optimization. Your pricing model should account for the time and expertise this requires, especially in the early stages of a campaign
Remember, your agency’s pricing strategy is crucial to your overall business strategy. It should reflect your brand, value proposition, and target market.
If you charge right, you can better serve your clients because you won’t constantly worry about running out of budget. Aim to build your pricing model in a way that works for both you and your client.
💡Pro Tip: Combine one or more of these models to create a new pricing model. It’s fine as long as it works for you.
If you’re unsure about your cost estimates, you can use estimate templates to inform your clients about the average costs of your services.
Summarize this article for me pleaseHow to Manage Different Agency Pricing Models
Once you’ve got your clients and pricing models, the next step is keeping track!
This is especially true if you have one client at an hourly rate, another on a retainer, and a third on a complicated performance-based model! This won’t be easy to keep track of, along with all the work that needs to be done.
Enter ClickUp—your super-organized assistant who never sleeps.
ClickUp is project management and marketing agency software that helps you keep track of all your projects, no matter what pricing model you’re using. It’s a productivity app that can replace all other apps you may use to manage your marketing and agency work.
ClickUp for Creative Agencies provides you with the tools you need to amp up your productivity. Here are some of the main features:
- Customizable Dashboards: You can set up unique dashboards for each pricing model or client to get a bird’s-eye view of all your work. Want to know how profitable your retainer clients are at a glance? Or the progress of a critical project? Access all that on your ClickUp Dashboard
ClickUp Dashboards allow you to track:
- Your team’s progress on each task
- Your progress on a specific client project
- The status of a task
- Your budget and deadline
- Bottlenecks and assign resources accordingly
- Time tracking: For those projects on hourly rates, ClickUp has a built-in time tracker so that you can track your hours against each task or project. No more juggling apps, forgetting to log your hours, or trying to remember what you did last Tuesday
- Custom Fields: Create ClickUp custom fields for anything—project value, estimated hours, actual hours, ROI, version, status—you name it. It makes it super easy to keep track of all the different elements that go into your various pricing models
- Reporting: When it’s time to review your team’s performance for the clients, ClickUp can generate reports that break it down. For value-based models or performance-based models, these reports help show the client how your work resulted in the ROI they wanted. It’s also great for spotting trends or figuring out the best pricing model
- Automations: With ClickUp Automations, you can automate repetitive tasks like trigger actions, reminders, welcome emails, and more. If a project hits a certain number of hours, it can automatically notify you that you’re approaching the budget limit. This will help you plan better and have conversations with the client if necessary
- Easy-to-use templates: ClickUp has multiple templates for agency management and product pricing. You can use them as a cheat sheet to set up your workspace, easily tweaking them to fit your needs and saving hours of setup time.
For instance, the ClickUp Agency Management Template is a free all-in-one template for managing projects, client relations, SOPs and contracts, and more.
In the template, you get dashboards for everything from post-sale engagement with clients, scope of work, client feedback, rework requests, billing, and invoicing. This agency project management template organizes your processes at every step.
Say goodbye to creating multiple sheets for every process. The ClickUp Agency Management Template lets you easily build a dashboard for every new client.
With its 15+ views, the template works for you. You can view your progress in Kanban, Table, List, Calendar, or any other type of view that works for you.
Bonus content: Before buying management software for your agency, refer to our exhaustive list of the best agency management software in 2024.
Now, let’s say you offer a range of services and a mix of different pricing models to accommodate different clients and industries. It may be easy to do that if you’re a small agency or offer limited services. But if you’re a relatively large and older agency that provides an extensive range of services, you may need to have a handy record of them.
ClickUp has a template for that as well!
ClickUp’s Product Pricing Template is a beginner-friendly, highly customizable template to help you record and track the pricing of all your services.
With a price list template like this, you can:
- Provide an accurate, consistent, and standardized pricing structure to every client
- Predict and plan for future market conditions
- Get access to the cost of goods sold, enabling you to make informed decisions about pricing
- Test and adjust prices quickly and easily
This template lets you control your pricing strategy, whether you’re launching a new service or expanding an existing one.
So, if you’re trying to manage different pricing models for different clients, use this template.
Summarize this article for me pleaseManage Your Agency Pricing With ClickUp
We hope this guide to agency pricing models, each with its own pros and cons, has helped you think about how you’d price your agency services.
Choosing the right pricing model isn’t just about making money (although that’s pretty important too). It’s about creating a win-win situation where your clients get awesome value, and you’re being fairly compensated for your blood, sweat, and brilliant ideas.
The right model for you depends on your services, clients, and business goals. Don’t be afraid to use different models for different services and clients or mix and match models to meet your goals. You have tools like ClickUp that help you manage and optimize your agency pricing strategy.
As your business grows and your pricing models evolve, ClickUp adapts. You’re not locked into any one way of doing things. ClickUp can help you set up and manage your agency operations and scale with you as your agency grows!
Everything you need to stay organized and get work done.
