Do you know how to price your agency services and projects, or are you still invoicing on billable hours?
If you're still doing hours for pay, you’re limiting profitability by tying agency performance to how much work you can collectively crank out per hour as opposed to billing on completed projects.
How to Price Your Agency Services and Projects
There seems to be a thin line between charging too much and scaring off clients and cutting into your profits to beat out the competition. Your pricing also needs to be attractive to and make sense for the type of client you want to work with.
When you know the different agencies methods – with the pros and cons of each – you can set agency rates that increase conversions with prospects and make you a leader in competitive pricing for your market.
Agency Pricing Methods
Let’s look at how to price your agency services and packages, so the focus is on client needs, agency growth, and productivity rather than how long it takes to complete each activity.
Fixed Fee (aka Project) Agency Pricing
Using the fixed fee or project-based pricing method is the most popular. Simple and straightforward, fixed-fee pricing works best for both your agency and your clients.
Agencies working on contract with few variables or unexpected changes benefit most from fixed-fee pricing. Having a pricing list of fixed fees and project/service prices immediately shaves hours off your workweek by removing all the tracking and calculations that go into correctly pricing and invoicing projects.
When you have established project fees in place, it is easy to prepare quotes and proposals with cost estimates that make sense and create a smoother path to the sale.
Fixed fee pricing also helps prospects and clients easily understand project parts and their cost so they can make informed decisions when working within a budget.
PROS OF FIXED FEE PRICING:
- Less pushback and micro-managing from clients watching your billable hours
- Specialize with how you compete with other agencies with project-based pricing
- Protect against SCOPE CREEP and additional request with pre-negotiated deliverables established
- It’s easier to ask for a down payment with fixed-fee pricing than hourly
CONS OF FIXED FEE PRICING:
- The profitability of fixed-fee pricing is based on your ability to gauge a fair price for your work
- Additional work not defined in your fixed fees will need to be negotiated and added to your quotes
- A large project that spans a long period of time will need to break down a project into stages billed at established intervals for a steady flow of incoming funds
- Changes in scope or issues with the work in progress will need to be assessed for impact on workload and the price quote renegotiated
The Hourly Agency Pricing Method
Hourly pricing for agency services take a simple pricing method (time X hourly rate = fee) and makes it stupidly complicated. Your agency will have different rates for the individual people who work on a project simultaneously, especially if you’ve outsourced any part of your services.
Adding several lines to your pricing calculations for each project makes hourly pricing a less popular option when choosing a pricing method for your agency.
PROS OF HOURLY PRICING:
- Charging overtime is simple
- Discourages sudden changes and scope creep when clients face extra hours billed
- Easier to add additional team members at the price YOU set without over or underpaying
CONS OF HOURLY PRICING:
- REQUIRES close monitoring and tracking of billable hours
- Explaining billable hours and work completed to clients
- Incentivizes more time spent working for your team members
- Workable hours are finite which can limit your agencies profitability
Retainer Agency Pricing Method
Retainer agreements are a simple pricing method where your agency commits to being available for a certain amount of work or hours for the client each month (or each year if you can sell them). With a retainer, your agency gets paid a designated amount each month whether the client uses your services or not.
When work performed by your agency goes over the retainer, your fixed fee pricing or hourly pricing goes into effect to charge the client accordingly.
Retainers a great pricing method when you know your client well and can come to a fair agreement that benefits both parties.
PRO OF RETAINER PRICING METHOD:
- Guaranteed income every billing cycle even if there is no work to do
- Predictable scope of work detailed in the retainer
- Less time prospecting new clients
- Predictability and reliability provided to clients when they have a retainer
CONS OF RETAINER PRICING METHOD:
- Agency work schedules must be set to accommodate client work on retainer
- Clients with retainer expect priority assignment of their work sometimes with little or no advanced notice
- Profitability is dependent on setting strong terms on how much work the client can expect and what the cost is for work that exceeds what is covered by the retainer
- Retainers are generally offered at lower rates for services, which can mean less profit
Other Agency Pricing Methods
The mixed pricing method is a hybrid of fixed fees and hourly pricing for agencies. For example, a social media service can have a fixed fee for weekly posting, and an hourly fee for additional work on ads or post boosts as requested by the client. This pricing method penalizes out-of-scope work that the client may demand.
Value pricing is a method where clients are billed based on the value they get from the work your agency performed instead of hours worked or fixed fees. This is the most complicated agency pricing method because value might mean dollars saved, dollars earned, hours shaved, or other more subjective metrics that are even harder to track. While this performance-based pricing is very attractive and highly beneficial to clients, your agency is taking on a lot of risks when some circumstances are beyond your influence.
How to Price Your Agency Services and Packages
The type of work your agency does, the type of clients you work with, and the industries you specialize in all have an impact on finding the best pricing method for your agency. Experiment with different agency pricing methods and mix it up. With some data in your hand, you’ll be able to focus on structuring your pricing to benefit both you and your client, and you’ll find the fastest path to profit.
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