When talking about agency pricing models, there’s no ideal model for all.
No two agencies have exactly the same talent, clients, budgets, ambition, nor expertise—and because your agency is unique, so will your pricing be.
Finding the pricing model that will work Cork Kids Bicycle Shop best for your agency will need to include:
Your expenses, including overhead
Your aspirations, such as what you plan to invest into
Your team’s workload, and how to balance it out in the short and long term
Your client’s ambitions—and making sure they’re happy
Industry best practices
Global economic conditions
The list goes on, but at the end of the day, your pricing model will revolve mainly around the profit it needs to generate.
In this article, we bring you the most popular and most profitable agency pricing models.
What Are the Top Agency Pricing Models Used in 2022?
The most popular ways agencies charge their services are:
Project or fixed fee-based pricing
Retainer fee pricing
Time and materials pricing or “day rates”
Increment or fixed fee-pricing
Incentives or performance-based pricing
Licensing or product sales
Source: The Productive Company, Inc.
According to a global agency landscape survey conducted in November and December of 2021, out of 169 agencies that participated in the study, 72% of agencies stated that they predominantly work on project-based or fixed fees. From the sample of agency leaders, 82 % are confident that in 2022, they will deliver even more profitable growth than in the previous year.
Source: The SoDA Report On…The Global Agency Landscape 2022
Agency leaders are aware of scope creep, resource planning challenges, recruitment and retention challenges in 2022, and global inflation.
So, how do agencies expect to invest in growth by continuing to work many on predefined, fixed fees? Continuing to apply this pricing model will eventually lead to eroding profit margins.
Why Would Agencies Choose a Less Profitable Agency Pricing Model?
Though value-based pricing is an often-heard term in the agency world, this study has shown that it’s not that popular in practice.
We offer a few potential answers as to why agencies choose the project-based pricing model over others.
Maybe Agencies Are Insecure About How Much to Charge for Their Services
When an agency starts small, it’s understandable that it doesn’t know how much to charge. Unfortunately, charging more for services through time never gets much easier.
Many agencies often ask themselves: how much should we charge for our services? Another connected issue that agencies face is setting up rate cards. When agency rate cards aren't set to meet industry standards, testing different pricing models can seem daunting or less financially viable. Rate cards help agencies communicate clear expectations, especially towards new leads, but also towards legacy clients.
Ilija Brajković, CEO of Kontra, a digital marketing agency: “In order for a company to be profitable, a worker must cover the cost of his annual salary, times three. This is popularly called one salary for you, one salary for the company (overhead), and one salary for the boss (profit).”