Charging Your Clients: 4 Marketing Agency Fee Structures
The fee structure you choose for your agency is one of the biggest factors in whether or not your agency will be profitable or not.
After all, the main point of trying to systemize your agency’s operations is to achieve profitability.
Because if your business isn’t profitable, then why try to systemize any other area of it?
That’s why it’s so important for your agency’s pricing to make sense to you first.
But with so many pricing and fee structures out there, how do you decide on the best one for your agency?
This is a question I struggled with myself when I revamped Growbo.
“How much should I charge for each package so that they’re affordable but at the same time profitable?”
This is exactly why I wanted to send you this article. So that you can learn:
- The 4 basic categories agency fee structures can fall under.
- The 4 most popular marketing agency fee structures, when they are (and aren’t) appropriate to use, and their pros and cons.
- And 3 tips for how to decide on the best fee structure for your agency.
Let’s get started with...
In a rush? Want to download this article as a PDF so you can easily take action on it later? Click here to download this article as a PDF guide.
The 4 Basic Fee Structure Categories
Before I get into the actual fee structures, I want to discuss the different categories these fee structures fall under based on where the value of your price is coming from.
These categories are important because they can give you a more solid starting point to identify the best way to price your services. When you get to the source of the price, you can determine whether it matches up with how you value your services.
Think of it like “all squares are rectangles, but not all rectangles are squares” — all pricing structures fall under one of these four categories, but these categories are not necessarily pricing structures in themselves.
In general, marketing agency fee structures can be whittled down into 4 basic categories. These are as follow:
Input-Based
This category consists of pricing structures that are mainly dependent on the input or effort put into a project on your end as an agency. These types of pricing structures count projects, hours, or resources that were put into completing a campaign or project.
For example, an input-based pricing model may charge clients based on the total cost of hours, people, and software tools it took to complete a project. The actual outcome of the project may be totally disregarded with input-based pricing — it’s all about the work it took to get that outcome.
Output-Based
Conversely, output-based fees are charged according to the number of deliverables an agency produces for their client. Fees based on the number of website pages you create, the number of words you write, or the number of funnel elements your funnel involves are all covered under output-based pricing. The agency will charge the client for each deliverable produced, regardless of the amount of resources used to produce it.
Outcome-Based
Similar to output-based, outcome-based pricing is focused on what your agency creates for the client. However, unlike output-based, which is focused more on quantity, outcome-based pricing focuses more on quality.
The agency will work with the client to establish measurable goals, such as increase in sales or leads, and will charge a fee based on the outcome of the campaign or project. Items like number of clicks, conversions, or likes are typically measured to determine outcome-based pricing, as well as the total revenue or sales you generate for a client.
Value-Based
Value-based fees are charged by a marketing agency based on the value they deliver to the client. This is the most nebulous type of pricing model, and it only works if your agency has the reputation to back up your value or if you’re working with project types that have a universally understood value.
Value-based pricing isn’t tied to exact numbers regarding output or input and is, rather, tied to a general estimate of how much value a particular service will deliver. For example, if you historically have secured $1,000-$5,000 in sales for clients by running PPC ads, you may charge a flat rate of $300 per campaign because you know the client will most likely get proportionate returns.
The Pros and Cons of the 4 Most Popular Marketing Agency Fee Structures
So now that we’ve covered the categories, what are the fee structures you can choose from?
Here are the 4 most popular marketing agency fee structures with the pros and cons of each.
1. Hourly
An hourly fee structure is exactly what it sounds like — your agency charges the client for the number of hours worked on a campaign or project.
This type of fee structure is often used when the scope of the project is not well-defined or when the client wants to work with the agency on an ongoing basis. The agency will track the number of hours worked and bill the client at the end of each billing period.
Advantages
One advantage of using an hourly fee structure is that it allows the client to have more control over their budget. The client can decide how many hours they want the agency to work on their campaign and can adjust the number of hours as needed. This allows the client to stay within their budget and avoid unexpected costs.
It can also benefit your agency in cases where a project turns out to be a lot more elaborate and time-intensive than it initially sounded. An hourly rate can ensure you’re truly getting paid for the time you’re putting into the project and aren’t a victim of scope creep.
This is especially great for smaller agencies who are just starting out and don’t yet know how much labor and time is involved in a specific type of project. It’s also great for smaller companies who are looking for occasional sporadic support rather than a long-term partnership.
Disadvantages
On the other hand, one disadvantage of an hourly fee structure is that it can create an incentive for the agency to work more hours than are necessary to complete the project, which can increase the cost for the client. This can contribute to an overall work culture within your agency where your staff is milking hours and creating expensive, un-competitive rates for your clients.
Additionally, it can be difficult for the client to predict how much a project will cost because the final cost will depend on how many hours the agency works on the project. They may end up billed an amount that’s drastically more than they expected, which, of course, causes friction.
Another disadvantage is that an hourly fee structure may not be the best option for larger projects that require a big commitment from the agency and long-term partnership.
Bottom Line
In general, an hourly fee structure is most appropriate to use when a client needs the agency to work on a project on an ongoing basis or when the scope of the project is not well-defined and the client wants to be able to adjust the number of hours the agency works as needed.
2. Project-Based/Fixed-Fee
An outcome-based type of fee structure, a project-based or fixed-fee structure is when an agency charges the client a fixed amount for a specific project, regardless of the number of hours worked on the project. This type of fee structure is often used when the scope of the project is well-defined and the agency can estimate the amount of work required to complete the project.
Advantages
One advantage of using a project-based or fixed-fee structure is that it allows the client to have a clear understanding of the cost of the project, which can help them plan their budget and avoid unexpected costs.
Because the cost of the project is laid out and agreed upon from the beginning, there are no surprises or sneaky extra fees, which ensures your client stays within budget. And that helps you avoid any awkward confrontations or disagreements about your pricing.
Another advantage is that it can create an incentive for your agency to complete the project as efficiently as possible and manage your resources efficiently in order to meet the fixed cost. This mentality toward running your business can help you create exceptional workers and hit performance metrics in the long run, as it helps you stay focused on what you deliver.
Disadvantages
One disadvantage of a project-based or fixed-fee structure is that it can be challenging for the agency to accurately estimate the amount of work required to complete the project. if you underestimate the amount of work, it can lead to a loss of revenue for the agency.
And if the scope of the project changes or additional work is required, you’ll either have to swallow the costs and get less profit from the transaction or improvise a way for the client to pay extra for additional work. This, of course, can drive dissatisfaction since it may appear to be a breach of your initial agreement.
Bottom Line
Overall, a project-based or fixed-fee structure is most appropriate to use when the scope of the project is well-defined and the agency can accurately estimate the amount of work required to complete the project.
This fee structure is also good when the client is looking for a specific outcome rather than ongoing support or has a fixed budget and is not looking for flexibility to adjust the scope.
3. Commission or Performance-Based
Commission or performance-based pricing is a fee structure in which a marketing agency is paid based on the results your deliverables generate for your client. This could take the form of a percentage of revenue generated, a fee per click or conversion, or some other method of attaching a price to a performance metric.
This type of fee structure is often used when the client wants to pay for results rather than for hours worked or deliverables produced. The agency will typically work with the client to establish measurable goals, such as an increase in sales or leads, and will only be paid if those goals are met.
Advantages
One of the biggest advantages of using a commission or performance-based pricing structure is that it aligns the interests of the agency with those of the client in a way no other pricing structure quite does.
The agency has a strong incentive to work hard to achieve the desired results because they will only be paid if they succeed. Additionally, this type of pricing structure can be a way for clients to manage the risk associated with the marketing efforts, as they only pay if the campaign yields results.
This pricing structure is particularly beneficial for clients from smaller companies or startups, who may not have the budget to pay a large upfront fee but still need to achieve growth. If they’re willing to pay a percentage of the revenue generated as a result of the agency’s work, they can reap the same benefits with lower risks.
Disadvantages
One disadvantage of commission or performance-based pricing is that it can be difficult for the agency to estimate the amount of work required to achieve the desired results, which can make it difficult to plan and budget for the campaign.
Commission or performance-based pricing also creates extra risk for the agency, as you may not be paid if the campaign is not successful. This can be particularly important if you’re just starting out and you don’t quite have tried-and-tested methods for ensuring your processes get reliable, consistent results.
Similarly, you may struggle to accurately assess how much you should be paid through this pricing model if you don’t have an accurate idea of how much work is involved with generating a certain result.
Bottom Line
Commission or performance-based pricing definitely favors the client over the agency, which makes it very easy to sell. It’s particularly well suited for clients who have a specific goal or outcome they want to achieve, such as increasing sales or leads, and are willing to pay for results but are apprehensive of paying a flat fee without a guarantee of results.
This fee structure can work if your agency is ambitious and has a reliable, duplicable method for delivering results every time. However, if your results are hit or miss, or you’re not sure if they’d work for every client you sign on, it may be a bit risky.
4. Subscription-Based
A subscription-based pricing structure is when the client pays the agency a recurring fee (usually monthly or annually) for a set of services or access to a product over a certain period of time. This type of fee structure is often used when the client wants to have ongoing access to a specific set of services, such as marketing support, social media management, or analytics.
As one of the most popular forms of value-based pricing, subscription-based pricing can be used for various types of services offered by agencies and can include things like access to digital tools, consulting services, or analytics platforms.
For example, this is the fee structure we use at Growbo to deliver our all-in-one services — everything from content writing to strategy and app development is included in a flat monthly fee.
Want to learn more about how Growbo can take marketing tasks off your plate so you can scale your agency? Watch a demo or see our pricing packages to get started with us today.
Advantages
A subscription-based pricing structure allows the client to have a predictable budget for their marketing services and gives them access to a wider range of services or tools than they would have access to if they were paying for each service separately. This makes it easier for the client to budget their marketing expenses, as they know how much they will be spending each month or year.
Another advantage is that subscription-based fees create a sense of commitment from both the agency and the client, as the agency will have to continuously provide the services and support, and, in return, the client will be paying for the services over time. This makes it so that both parties have consistent expectations, and it also offers the opportunity to foster meaningful long-term relationships.
Finally, one of the biggest advantages of subscription-based pricing is that agencies can get regular, recurring revenue, which can help support stable, long-term growth. This is a far cry for the feast and famine cycles project or hourly fee structures provided.
Disadvantages
One disadvantage of a subscription-based pricing structure is that it can be difficult for the client to understand the value of each service or tool provided. They may be worried that they’re paying for services they don’t need or that they’re being tricked into spending more money than they should.
Additionally, if the client’s needs change over time, the subscription fee may not be the best option for them. They may need more or less services, which your subscription may not accommodate for. We’ve personally solved this by offering tiered packages that offer different levels of services and support, but it can still be an issue.
We offer different pricing packages to suit different needs — check them out in full here.
Bottom Line
Subscription-based pricing is most useful when the client wants to have ongoing access to a specific set of services or tools and when they want a predictable budget for their marketing services.
It’s also great for clients who need access to a wide range of services, such as marketing support, social media management, or analytics, and want to bundle them together rather than purchasing each service separately.
Conclusion
Download the "4 Popular Marketing Agency Fee Structures Explained" so you won’t forget to take action on it later. Click here to download it now.
There are endless pricing structures out there for your agency to choose from, and these four popular ones are merely scratching the service.
Ultimately, what marketing agency fee structure works best for you is dependent on many unique factors, including the services you offer, the audience you serve, and your client’s expectations.
When you’re trying to choose your pricing structure, just remember these 3 tips:
- Don’t try to do everything at once. You’ll just end up scattered and half-committed to it all. Instead, try to go all in on a few key things you do really well.
- Don’t undersell your value. Never offer your services for free or at discounted prices. Always price your services appropriate to the true value you offer.
- Make it scalable. If your pricing isn’t scalable, it isn’t sustainable. Figure out how to create a system that works whether you have 10 or 10,000 clients.
What kind of pricing structure does your agency use, and what would you like to do to improve it in the future?
Let me know in the comments below.
Keep Growin’, stay focused.
