There is no perfect model when it comes to agency pricing.
Your agency will be unique because no two agencies are the same.
The following factors will help you determine the best pricing model for your agency:
- Your expenses, including overhead
- What are your aspirations?
- How to balance the workload of your team in the short term
- You’ll want to know what your client wants and ensure they are happy.
- Best Practices in Industry
- Global economic conditions
Your pricing model will be based on the profit you need to make.
This article will show you the most popular and profitable agency pricing models.
What are the top agency pricing models used in 2022?
Most agencies charge for their services in the following ways:
- Pricing based on project or fixed fees
- Pricing for retainer fees
- Pricing time and materials or “day rates.”
- Fixed or incremental pricing
- Value-based Pricing
- Performance-based pricing or incentives
- Sales of products or licensing
A global survey of the agency landscape was conducted in November and December 2021. Of 169 participating agencies, 72% stated that their primary fee structure is project-based. Eighty-two percent of the sampled agency leaders are confident they will achieve even more significant growth in 2022 than the previous year.
The agency leaders know the scope creep, resource management challenges, recruitment, and retainment challenges in 2022 and global inflation.
How can agencies invest in growth if they charge fixed, predefined fees for many clients? This pricing model is a sure way to reduce profit margins.
Why Would Agencies Select a Less Profitable Pricing Model for an Agency?
This study shows that value-based pricing, though a term often heard in agencies, could be more prevalent in reality.
Here are a few reasons agencies may choose the project-based pricing model over other models.
Some agencies are still determining how much to charge for their services.
It’s normal for an agency to start small and need to know what price to charge. It takes work to charge more over time.
How much should we charge our clients? Another issue agencies face is the creation of rate cards. Testing different pricing models may seem difficult or unfeasible if agency rate cards don’t meet industry standards. The rate cards are a great way for agencies to communicate expectations with clients, both new and old.
Some agency leaders think “profitability isn’t what we focus on.”
Only 14% of the agencies surveyed said they had an integrated platform that gave them real-time insights into their key metrics.
The agencies of 2022 will still need to look at their profit margins more.
We’ll sometimes hear contradictory claims from creative agencies, such as: “Profitability doesn’t matter to us” or “Profitability’s not our thing.” Indeed, it should be something other than the main focus of an agency that aims to shape brand communications and deliver state-of-the-art digital products to clients.
Cash flow is essential for creative work. With it, the result will continue or expand. While many agencies are integrated today and offer top-notch digital marketing services and technology, they still need an agency platform to guide their profitability and operations.
Maybe Agencies Fear Losing Clients.
The fear of losing clients is one possible reason agencies have decided to charge pre-determined project fees.
This a big problem for an agency that cannot change its pricing model or pricing in general because it believes this will result in losing clients and income. The same survey revealed that while agencies were in chaos during the second quarter of 2020, they are performing better in 2022 than ever before.
The data shows that despite a brief dip into chaos at the beginning of 2020, the agency industry recovered more vital than ever by 2021. Data and potential growth scenarios can be used to determine which client agreements should be modified rather than letting fear dictate agency pricing models.
How Agencies Can Shape a Better Future
Even though agencies face many challenges, including talent recruitment, retention, and employee well-being, maintaining high efficiency through hybrid working models, and maintaining innovation, there is a high confidence level for agencies in 2020.
The agencies can achieve this by monitoring their clients’ financial performance, analyzing project insights, and cultivating honest relationships with them. They are then in a position to negotiate more realistic pricing models.