According to a recent AdAge article, 75% of multinational brands will seek pricing changes with their agencies in the next three years. Of course, agencies are no strangers to change.
The great resignation, the growing omnipresence of AI, and other challenging economic factors are a given in this line of work. But, the challenge of a client asking for different pricing—if you’re not prepared—can really send shockwaves through your business.
The AdAge report makes it clear that agency clients will inevitably come asking for shake ups in pricing. It seems the real question isn’t why you should re-evaluate your agency pricing.
It’s how.
So, in preparation for potential pricing pivots, we’ve outlined nine options to consider when pricing up your future agency services.
In this article 📖
Our pricing expert line-up
To get the inside scoop on the topic, we consulted Founder of Lane Media—a growth-focused creative and media agency—Barry Fearne.
We also spoke with Sinead Goggin, Senior Partner Development Manager at HubSpot. She’s spent the best part of the last decade working with agencies to grow their revenue and help them thrive in an uncertain ecosystem.
You’ll find details about the agency pricing models they recommend, and their expert analysis.
Agency pricing terminology
Before we dive into the agency models, we want to touch on some terminology.
You may have come across different terms when reading about agency pricing. Although the language and meanings are similar, there are nuances.
So, we’ve defined them below, and provided agency pricing examples for each.
Definition | Example | |
Agency pricing strategy | A wider view and approach that focuses on how pricing decisions should be made, aligned with business goals | “Our business needs a steady stream of income to hit our annual growth targets, and we want to get paid to gain ongoing experience in the restaurant sector” |
Agency pricing model | A specific pricing framework or structure an agency selects to influence how they charge clients | "Our agency will use an ongoing retainer-based pricing model for technical SEO services for our restaurant client” |
Agency pricing | The actual rates or fees an agency charges for its services (a monetary amount) | "Our SEO agency charges our restaurant client $4,500/month for technical SEO” |
Agency compensation | What the agency actually earns. This is only monetary | “Our SEO agency worked 12 months on a retainer basis, which totalled $54,000 annual compensation” |
Agency remuneration | What the agency actually earns. This can be monetary and non-monetary | “Our SEO agency worked 12 months on a retainer basis, which totalled $54,000 annual compensation. We also received free meals and a restaurant sector case study” |
How to select your agency pricing model
Just as there’s no one right way to run an agency, there’s no one-size-fits-all agency pricing model.
Here are some factors to weigh up when deciding which model best suits your business:
- The types of services you offer
- The types of clients and sectors you work with
- The capacity you have to deliver services
- Your areas of expertise
- Your agency’s growth strategy and goals
- Your agency’s general KPIs and goals
- Your agency team size and structure
- Your sales approach
Now, for the main event: an exploration of nine well-established pricing models, their practical applications, and their pros and cons.
9 of the best agency pricing models
The following agency pricing models provide a structured way for you to determine how much to charge each client, and how to justify that expenditure.
As we’ve said, it’s important to consider which is best for your business specifically, so remember to keep your service specialties and niche in mind as you explore the models. We’ll start with one you’re probably already familiar with:
1. The project-based agency pricing model
Description: Agencies are hired for specific projects with clear start and end dates. This could include a brand overhaul, website development, or a campaign launch.
Advantages: It allows flexibility for both the agency and the client and can be ideal for one-off needs.
Challenges: Revenue is less predictable, and agencies must continually seek out new projects to sustain income to boost agency growth. This type of pricing model requires top notch agency project management and resource management.
2. The retainer-based agency pricing model
Description: Clients pay the agency a fixed monthly fee for an ongoing relationship. The retainer typically covers a set number of hours or services per month.
Advantages: Provides predictable revenue and helps maintain long-term client relationships.
Challenges: Agencies must ensure they consistently deliver value and prevent scope creep and gold plating, where clients demand more than what’s covered by the retainer.
Sinead explains the difference between selling projects and retainers.
“Projects have fewer decision makers. Processes and outcomes tend to be more tangible, leading to an easier, shorter sales cycle.
On the flip side, service retainers can typically be anywhere from 12- to 36-month contract agreements where the agency becomes an integrated strategy and service delivery partner. The sales process takes longer here.
To make that as efficient as possible, agencies should expect multiple solution proposal meetings, and add the time they take to their expected close date to avoid any surprises.
By nailing down the included deliverables clearly, and communicating them in detail, they can swerve scope creep and get clients to sign on the dotted line a lot faster.”
3. The performance-based agency pricing model
Description: Agency compensation is tied to the performance and results of a campaign, such as leads generated, sales made, or ad clicks.
Advantages: Aligns the interests of both the client and agency, as both are incentivized by the same outcome.
Challenges: Agencies take on more risk because external factors (such as market conditions) can affect the campaign’s success. This can make payment, and revenue, less predictable.
4. The time-based agency pricing model
Description: Agencies charge clients based on the number of hours worked. Each team member has an hourly rate, and clients are billed for the time spent on their project.
Advantages: Transparent and easy to understand for clients, especially for work that involves many variables.
Challenges: It can disincentivize agency efficiency and innovation, as the focus shifts to time spent rather than results. It may also lead to disputes over billing and individual productivity.
Want to take time-based pricing to the next level?
5. The value-based agency pricing model
Description: In this model, the agency’s fees are determined by the value the agency delivers to the client, rather than the time spent or the specific services provided. This often means higher fees for work that significantly impacts the client’s business.
Advantages: Aligns pricing with the results and value created, which can lead to higher margins.
Challenges: It can be difficult to quantify “value,” and there may be disagreements about the tangible impact of the agency’s work.
Barry shares his thoughts on the complexities of a value-based model.
“I like the theory, and am a big fan of the principle. But, in practice, from first-hand experience, you ultimately need willing buyers.
Anecdotally, via other agency owners in the industry, the greatest success of value-based pricing is where client-side buyers have an urgent need.
From a media agency perspective, we’re very aware of our role in our media channel recommendations reaching the desired target audience cost-effectively, but ultimately we aren’t responsible for every step of a business or consumer action or transaction.
This is the biggest challenge from a paid media perspective. Meaning, even if we do ‘our job’ we’re not ultimately in control of the final conversion.”
6. The commission-based agency pricing model
Description: Agencies, especially in media buying, are paid a commission based on the media/marketing spend or sales they manage for the client. For example, an agency might receive a percentage of the total budget spent on advertising.
Advantages: Can provide a steady income stream if the client has a significant budget, resources, or results potential.
Challenges: The revenue stream for this one can be less predictable and leaves the agency less in control. There are questions about transparency, as agencies may be incentivized to spend more rather than focusing on effectiveness (if they’re paid a commission based on spend). If it’s based on sales, it could leave the agency in a disadvantaged position if sales are down due to factors out of their control.
7. The agency matrix pricing model
Description: An agency’s fees are determined based on multiple factors such as services provided, resources allocated, performance metrics, and client requirements.
Advantages: A highly transparent pricing model that’s data-backed and encourages trust from the client.
Challenges: Complex and administration heavy. There are many measurement and data analysis requirements to execute this model effectively.
8. The subscription-based agency pricing model
Description: Clients subscribe to an agency’s services in a similar way to how they would subscribe to a software product, paying a fixed fee in exchange for ongoing access to specific services or expertise (such as social media management or regular creative content).
Advantages: Predictable, recurring revenue and stronger long-term client relationships.
Challenges: Scope management is critical, as clients may expect more than what’s included in the subscription package.
9. The hybrid agency pricing model
Description: This model combines elements of multiple agency pricing models, such as a base retainer with performance incentives, or project-based work supplemented by hourly billing.
Advantages: Provides flexibility to meet different client needs and can smooth revenue streams.
Challenges: Can be complex to manage, requiring clear agreements to avoid misunderstandings around compensation.
The impact of a smart agency pricing model
Your agency pricing model is one of the most significant levers you can pull to improve your agency profit margins. A suitable model for both you and your clients should mean more agency revenue, and not at the expense of extra effort or resources.
You might not strike gold with the first model you implement on a new client contract, but exploring the different options means you’ll find the best fit for your agency.
As you develop a game plan for your pricing, you may be looking for additional ways to bolster agency revenue. For a deep dive into more tactics to explore, get your free guide on the subject here:
