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).”