One glaring question that every agency founder struggles with at one point or another is – am I pricing right? And honestly, there’s not a single great answer to it. But we’ve interviewed many agency founders, some in the business for over 20 years on what works for them in terms of pricing.
Whether you're just starting or have a decade under your belt, finding the right pricing strategy isn’t just about crunching numbers; it’s about understanding your clients, the value you provide, and the industry trends that impact your decisions.
Those conversations have culminated in this guide on general pricing practices followed by founders in the industry. It will walk you through various pricing models used by agencies like yours, insights from interviews with successful agency founders, and expert advice on how to navigate the challenges that come with setting and adjusting prices. We'll cover everything from choosing the right pricing model to negotiating effectively, and even productizing services to bring predictability to cash flow.
Pricing Models
Hourly Rate
This traditional method works best for agencies offering consulting or one-off project services. Many agencies we interviewed use it for strategy projects. However, it can become tricky when clients start to nitpick hourly breakdowns.
Fixed Project Fee
For predictable deliverables like custom websites, founders tend to stick to a fixed project fee to offer clients some peace of mind. This model eliminates surprises for clients but requires a thorough initial scoping process.
Retainer Model
Over 75% of agency founders we spoke to prefer retainers for most ongoing services. This model is fantastic for building long-term relationships and makes sure you have consistent cash flow for the agency.
“We're not giving them an invoice full of hourly rates and different people and activities and stuff. We figure all that out and we give them kind of a fixed price package. A predictable monthly retainer. Within that, we also like to give them transparency, though. Since we are offering a lot of different marketing services, we tend to break those marketing services down into chunks, so they know – oh, this much of your retainer is going towards content marketing. This much is going towards SEO…”
explains Bill Rice, Founder of Kaleidico, a full-service lead generation and marketing agency.
Performance-Based Pricing
Though performance-based models can be lucrative, they require careful tracking of results. Kaleidico, for example, offers packages where clients can expect a set number of leads based on their budget. But in the case of general marketing services, most founders agreed performance-based pricing works best when the ROI is easily measurable, such as in lead generation.
Value-Based Pricing
This pricing model is all about aligning price with the value delivered to the client. Agencies that can confidently show the business outcomes they produce, like increased sales or leads, have more flexibility in commanding higher rates. It’s not a typical model in itself, because hypothetically this is something every agency should be doing from the get-go.
Service-Specific Pricing: Tailoring Your Offerings
Should you bundle services?
Bundling services is a strategic move many agencies employ to offer clients more value while securing longer-term engagements. But the question arises—should you bundle services? The answer depends on your business goals and the nature of your client relationships.
By offering a package of services, clients feel they’re getting more bang for their buck. For instance, instead of selling SEO, content marketing, and social media management separately, bundling them together shows the client how these services can work in harmony to drive better results. It increases the perceived value of your services.
“When clients sign up for a bundle, they also often agree to bet on services they wouldn’t have considered separately.”, Founder of an SEO agency based in Texas.
However, a major challenge many founders seem to be wary of when it comes to bundling is scope creep. With bundled services, clients may expect more than what was originally agreed upon. Without clear boundaries and deliverables, you might find yourself providing additional work that wasn’t factored into the price.
Does Price Sensitivity Change with Services?
Another interesting question we asked was about price sensitivity. How sensitive are clients with respect to different types of services provided by a marketing agency? Since most agencies offer a bouquet, it becomes important to understand which services are most price sensitive vs least price sensitive.
Based on the answers we got from the agency founders we interviewed, this is how we broadly categorized services.
Most Price Sensitive Services
- Content Marketing
- Social Media
Clients may often question the long-term value of content creation efforts, particularly when it comes to high-volume deliverables like blog posts or whitepapers. Agencies need to emphasize the long-term ROI of these efforts—building trust, brand authority, and organic traffic—to overcome this price sensitivity.
With social, the problem is clients often perceive it as a simpler task because social media platforms are user-friendly, and they may believe that managing accounts doesn’t require as much expertise as it actually does. So, agencies need to frame social media management as a strategic activity that involves more than just posting—it includes community engagement, analytics, and brand positioning.
Least Price Sensitive Services
- Lead Generation
- Ads Management
- Web development
Typically clients are less price-sensitive with services like PPC and lead generation because the ROI is immediate and tangible. If clients can see a direct link between the service and the results—like an uptick in leads or conversions—they are more likely to justify the cost. These services often provide quick wins, which makes them less scrutinized compared to services with longer-term outcomes.
We also noted services that require a high level of expertise, such as web development, technical SEO audits, or in-depth analytics, tend to be less price-sensitive. Clients recognize the complexity and technical knowledge required, making them more willing to pay a premium.
Client-specific Considerations
Every client has different needs, budgets, and expectations, which means applying a one-size-fits-all pricing model often falls short. Tailoring your pricing to fit specific client requirements can help you meet their expectations while safeguarding your margins.
When to Use Tiered Pricing
Tiered pricing allows agencies to offer different packages based on the client’s size, budget, or industry. For example, an early-stage startup may have limited funds but require multiple services, while a large enterprise may be willing to invest more for high-touch, premium services.
- Benefits for Small Clients: Tiered pricing makes your services accessible to smaller clients without stretching their budgets. This way, they can start with a more basic package and scale up as their needs and budget grow.
- Benefits for Larger Clients: For enterprise clients, a higher-tier package could include dedicated account management, personalized reporting, or a broader range of services. Larger clients often expect more comprehensive support and are willing to pay a premium for it.
Custom Quotes vs. Standard Pricing
Agencies often face a decision: should they create custom quotes for every client or stick to a standardized pricing sheet? While custom quotes allow flexibility, they can be time-consuming. On the other hand, standardized pricing simplifies the sales process but may not suit all client needs.
- Custom Quotes: For complex projects or large-scale clients, custom quotes offer the flexibility to price based on the scope of work. This is especially useful for projects involving a mix of services or a high level of customization.
- Standard Pricing: Standardized pricing sheets are best suited for common services like social media management, content creation, or ad management, where the deliverables are clear and predictable. This method is ideal for onboarding clients quickly and providing transparent pricing upfront.
“75% of the time, we have a standard rate, but it is customized as per the requirements, because each client also has a very different requirement.”, adds Divyank Jain, Founder of The Wise Idiot, a content marketing agency.
Discounts and Negotiations: Striking the Right Balance
Negotiating pricing is an inevitable part of agency life, but offering discounts too freely can lead to undervaluing your services. Striking the right balance between standing firm and offering concessions is key to protecting your margins while keeping clients happy.
When to Offer Discounts
Not all discounts are created equal, and offering them strategically can benefit both the agency and the client. The key is to ensure that the discount aligns with your overall pricing strategy and doesn’t devalue your services.
- Volume Discounts: For clients requiring a high volume of deliverables—like blog posts, social media posts, or ad management—offering a slight discount can encourage them to commit to a larger package. This helps secure long-term work and predictability in cash flow.
- Referral Discounts: Encouraging referrals through discounts can be a win-win for agencies. Existing clients receive a reward for bringing in new business, while you gain a new client without additional marketing costs.
- Loyalty Discounts: Rewarding long-term clients with discounts as they renew contracts shows appreciation and strengthens the relationship. It also gives them an incentive to stick with your agency over competitors.
Note: Interestingly, some agency founders we interviewed also seemed averse to offering any kind of discount for the fear of diminished “perceived value”. Something unique we noted about their agency settings is that they have either niched down into a certain industry or offer highly technical services like web design/development.
Performance-based Pricing
Performance-based pricing ties your revenue directly to the results you achieve for your clients, making it a high-risk, high-reward model. It works best for services where results can be easily measured—like PPC, lead generation, or conversion optimization.
How to Implement Performance-Based Pricing
Performance-based pricing requires clear metrics for success. Agencies need to agree on what constitutes a successful outcome and how it will be tracked. This model is ideal for clients looking for a results-driven approach, but it can be challenging to implement effectively.
Set Clear KPIs: For performance-based pricing to work, both the agency and the client need to agree on specific Key Performance Indicators (KPIs). These could include the number of leads generated, sales conversions, or website traffic.
Track Results Consistently: Regular tracking is essential to ensure that you’re hitting the agreed-upon metrics. Tools like Google Analytics or social media dashboards can help keep both parties on the same page about progress and results.
Tiered Payments: To mitigate risk, consider structuring performance-based pricing in tiers. For example, you might receive a base fee for the service, with additional payments tied to performance milestones.
Challenges with Performance-Based Pricing
While performance-based pricing can be lucrative, it’s not without challenges. Agencies need to ensure they’re working with clients who understand the value of this model and are realistic about the timeframes involved in delivering results.
Some clients may be wary of performance-based pricing, especially if they’re used to paying a flat rate. It’s important to communicate the benefits clearly and show how this model aligns with their goals.
Because your payment is tied to results, there’s an inherent risk involved. If the campaign doesn’t perform as expected due to factors beyond your control (e.g., market conditions or client-side issues), your revenue could be impacted.
Common Pricing Challenges
Pricing isn’t static—agencies face various challenges as they adapt to changing client needs, market conditions, and competition. Recognizing these challenges and having strategies in place to overcome them can help maintain profitability.
Undercutting Competitors
One of the most common challenges agencies face is competing with lower-priced competitors. While price may be a deciding factor for some clients, undercutting your pricing to match competitors can lead to unsustainable profits.
Rather than competing on price, emphasize the value your agency brings to the table. This could be your expertise, experience, or a unique approach that competitors don’t offer. Clients who understand the importance of quality will prioritize value over saving a few dollars.
On speaking agency founders specializing in a niche industry or service, this type of specialization can help you command higher prices. Clients in these niches are often willing to pay more for an agency that understands their specific challenges and can deliver targeted solutions.
“…And agencies are, especially young agencies and even not intentionally, guilty of offering something they don't have competency in doing. And so once somebody's been burned once, or they've expended a significant amount of marketing dollars. They kind of come to you with a need for a discount. Right? But it's not your your own sins. It's the sins of a previous provider. So we try to do a lot of education. But that's probably another pricing pressure is getting somebody in that needs our services.”, explains Bill from Kaleidico.
Client Budget Constraints
Many clients, particularly smaller businesses and startups, operate with tight budgets. Agencies need to find ways to offer flexible solutions without sacrificing profitability.
- Offer Scalable Packages: Consider offering a range of pricing tiers to accommodate clients with different budget levels. Start with a basic package and offer upsells as their business grows. This allows clients to start small and invest more as they see the value of your services.
- Educate on ROI: Clients with budget constraints often struggle to see the long-term value of services like content marketing or SEO. Use case studies, reports, and projections to show how your services will deliver a return on investment over time.
Market Fluctuations
Agencies operating in niche industries like finance, tech, or real estate often face market fluctuations that can impact client demand and pricing strategies. There’s also a seasonality factor to it.
In times of market volatility, being able to adapt your pricing strategy is crucial. This could involve offering more flexible payment terms or adjusting the scope of services to meet client needs without lowering prices.
To reduce the impact of market fluctuations, diversify the industries you serve. This helps ensure that if one sector experiences a downturn, your agency remains stable with clients in other industries.
Productizing services to bring predictability in cashflow
Productizing services is a smart strategy for agencies looking to create predictable revenue streams and reduce dependency on custom, one-off projects. By turning services into packages or even adding white-label products to their roster, agencies can streamline their operations and offer clients a more straightforward purchasing decision.
“As far as productizing we're in the process of doing so now, there are some products inside of our packages that we're now starting to spin out as separate brands and companies to unlock some value.” – Founder of a web design agency
Productized services are easier to scale because they follow a repeatable process. This allows your agency to take on more clients without increasing the complexity of deliverables. Unlike custom projects that may vary in size and frequency, productized services offer a consistent income. For example, monthly SEO packages or social media management services with set deliverables create reliable cash flow.
What Can You Take Away From This?
- Tailor Your Pricing Model: Different pricing models—hourly, project-based, retainer, performance-based—offer flexibility depending on your services and client needs. Choose the one that aligns with your business goals and client expectations.
- Bundle Services for Value: Bundling services can increase perceived value, simplify pricing, and encourage long-term client relationships, but be cautious about scope creep.
- Understand Price Sensitivity: Services with a direct, measurable ROI (e.g., PPC) are less price-sensitive, while long-term investments like content marketing and SEO may face more pushback.
- Client-Specific Considerations Matter: Use tiered pricing or custom quotes to accommodate different client sizes, industries, and budgets. Offer flexibility for long-term vs. short-term contracts.
- Discount Strategically: Use discounts sparingly and strategically—such as for volume, referrals, or loyalty—without devaluing your services.
- Negotiate with Confidence: Be prepared to stand firm in negotiations while offering added value rather than reducing prices outright.
- Leverage Performance-Based Pricing: When appropriate, tie your payment to measurable results (e.g., leads, conversions) to create mutual incentives for success.
- Overcome Pricing Challenges: Address common challenges like competing with lower-priced competitors, managing budget-conscious clients, and adapting to market fluctuations by focusing on value and offering scalable solutions.
- Productize Services for Predictability: Productizing services or white-labeling tools helps create predictable cash flow, streamline operations, and offer clients a more standardized experience.
- Regularly Review Your Pricing Strategy: Pricing should evolve with your business and market trends. Regularly review and adjust your strategy to stay competitive and profitable.
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