Every business owner wants to ensure that their company makes money. Digital marketing is competitive, just like any other industry.
This means that you will need to offer competitive pricing to ensure your agency attracts customers. You still have to make a profit to keep your digital marketing agency afloat.
What criteria should you consider when determining the fee structure for digital agencies?
This is one of the most difficult questions for starting a digital agency. The product’s cost must cover both the service rendered and overhead expenses. This is a business rule. Digital marketing allows you to base your pricing model around the specific services that you offer.
Remember that your pricing model for digital marketing agencies can make or break your business. Your agency’s pricing model can have a significant impact on everything, from the people you hire to how they pitch. It is important to choose a pricing structure that matches your long-term goals.
Choose a reasonable price
Rates for digital agencies can be variable, especially for those who outsource. They are able to reduce prices without having to sacrifice their profit margins. How do you price your agency at a cost that meets customer expectations?
These are some factors that can help you decide how much to charge.
What is the cost of running an agency?This figure is affected by several expenses, including:
- Office expenses – No matter if you work remotely or in a dedicated office space, your operational costs include rent and utilities as well as equipment maintenance and supplies.
- Production costs- Digital agencies need to invest in multiple tools and programs in order to run effective campaigns. There are many software options, but the most common include task management software, office productivity software and CRM. Other tools include email marketing software, social media automation software, and SEO tools.
- Employment costs – In addition to salaries, digital agencies must also consider benefits, insurance, bonuses, and other expenses.
- Professional fees – Owning a business involves a lot of costs, including government licensing fees and corporate taxes. These expenses should not be ignored.
- Additional expenses Every company needs additional capital to grow. Digital marketers must allocate a budget that covers variable marketing costs such as advertising, conference fees, and directory listing fees. It may also include expenses for travel and accommodation. It could also include loan repayments for others.
The pricing model for digital marketing agencies you want to use
There are many pricing models that you can use to bill your clients as a digital marketer. It is up to you to decide whether to charge clients upfront, 50 before 50, afterward, or upon completion.
Hourly-based
This is the best approach for agencies who are just starting out or aren’t sure how long a project will take. It’s also the easiest way to bill clients, especially if they need many edits or revisions.
Pros:
- It’s simple and straight-forward
- Clients will find it easy to stick to their budget
- Long-term projects are a great way of making cash.
Cons:
- To prove your worth, you must keep track of how many hours you work.
- There is no incentive to work harder
Project-based
A flat fee is an easy way to manage a digital marketing agency. This is especially true if you have the resources and skills for that particular service.
Instead of billing for the time spent, you can base it on your knowledge. You can estimate the time it will take to price your projects, regardless of whether you are developing a social media campaign or an identity package that enhances brand recognition.
Pros:
- Pricing model that is simple and understandable
- Clients can test the results of small tasks before making long-term commitments
- Scalability is easier than hourly pricing models
Cons:
- It can be hard to predict the time it will take for a project to complete, which could impact your profit at the end.
Model for a retainer
Once you have established a good relationship with your clients, and you are able produce large volumes of work each month you can transition to a retainer pricing structure.
Here, your customers agree to pay a pre-paid sum. It could be either a fixed time retainer (hours per month) or a set number deliverables per calendar month, depending on your job.
Pros:
- Every month, you will earn a steady income
- The money is paid upfront
- Facilitates scaling of the business
- Clients can make budgeting and accounting much easier by knowing exactly how much each month costs.
- It doesn’t matter how much time it takes to complete the task. Monthly deliverables make it easy. It is enough to make sure they are delivered according to the terms.
Cons:
- This model is quite expensive, so it can be difficult to pitch new clients.
Recurring model
Some digital marketing services such as SEO are long-term. You can build a long-lasting relationship with your digital marketing agency by offering discounted or flexible pricing plans.
Pros:
- Attract clients interested in extended services
- A steady income is possible with long-term contracts
Cons:
- Profit margins can be reduced by lowering annual rates