All businesses need to make money to survive. That’s kind of the point of being in business! But earning a sustainable revenue for your digital marketing agency isn’t as simple as setting a rate and watching the money pour in – there needs to be a fee structure to help determine how much to charge each client, and on what terms.
Fee structures become especially important in creative agency settings because the kind of services on offer often vary depending on the client – in other words, there are lots of variables at stake.
Choosing the right fee structure is essential for meeting your client’s needs and ensuring that your agency is equipped with all the resources and time it needs to execute its vision.
Types of Digital Agency Fee Structures
Setting up a fee structure is one of the first things you should do as a young digital agency. But there are so many to choose from, and all of them focus on different aspects of business.
These three fee structures are the most commonly found in the digital marketing industry:
1. Fixed Fee Structure
Also known as a project-based fee, fixed fee structures entail charging clients a set amount of money for a project, regardless of how long it takes or how much work is required.
This kind of fee structure is popular amongst creative agencies and consultants, where there is no transaction of physical materials. It is also popular due to the certainty it provides both the agency and its client. However, if the agency miscalculates the true cost of a project, it could run a loss.
Hourly Fee Structure
In an hourly fee structure, the agency sets an hourly rate, and at the end, the client pays them for however many hours it takes to complete the project. For instance, if your agency charged $150 per hour and a project took 20 hours to complete, the client would owe you $3,000.
The pros to an hourly fee structure are that it’s easy for clients to understand, and the outcome is predictable for both parties. The con is that you as the agency have minimal incentive to complete the task (the faster you work, the less money you earn) – which can be frustrating.
Performance-Based Fee Structure
In a performance-based fee structure, the amount owed is dependent on how close to performance benchmarks the project meets. So, if a project meets or exceeds performance expectations (based on pre-set KPIs), they get paid more, and if the project underperforms, they get paid less.
This is by far the riskiest digital agency fee structure on the list.
You need to have exceptional, measurable faith in your team to be able to pull off this fee structure without a loss. However, with access to the right tools and resources, it can be very lucrative.
Factors that Affect Digital Agency Fees
Picking the right fee structure for your digital agency isn’t as simple as choosing the one that sounds the best. There are many factors to consider.
The best way to approach choosing a fee structure is to look at how your agency operates internally and what kind of resources you have access to on a daily basis. Together, the following factors will help you develop a clearer picture of the fee structure most advantageous for you and your clients.
2. Level of experience
The amount of professional experience your digital agency has accumulated over time plays a big part in navigating an appropriate fee structure. For instance, an agency that has only been operating for a year will typically set a lower rate than one that has over a decade of experience in its field.
The more experience your digital agency has, the more likely it will be able to manage a fee structure as risky as a project-based one. Less experienced agencies should start off with an hourly or fixed system.
Scope of work
It’s always important to look at the scope and intensity of work that each project poses. If your agency more frequently handles large-scale, complex projects, a predictable fixed rate is your best bet, because it gives you as much time as you need to perform well without losing money.
Agencies that tackle shorter, more manageable projects can benefit most from an hourly fee structure where they aren’t losing ROI on tedious, exhausting tasks.
If you’re feeling lost about choosing the right digital agency fee structure, look to your peers for guidance. What are other agencies in your industry charging, and what systems are they using?
You can use other digital agencies on par with your level of experience and access to resources as a benchmark for selecting a fee structure that suits your needs best.
The length of time you expect a project to take should play a dominant role in how you structure your fee system. The hourly fee structure, for instance, relies entirely on this factor. Short-term projects are easier to track by the hour, making an hourly rate system easier to manage.
Long-term projects, though, can make employees weary unless the incentive to earn more is high. Agencies in this position would do well to pick a fixed rate or performance-based fee structure.
Number of employees
The more employees your agency has, the faster and more efficiently it can execute projects. Bigger teams with access to data tracking systems and plenty of high-end tech can get away with performance-based fee structures, while fixed and hourly fee structures are best left to smaller teams.
Find Your Perfect-Fit Fee Structure
A solid fee structure is integral to a thriving digital marketing agency. With a constantly rotating supply of clients, and a wide variety of different services on offer, picking a fee digital agency fee structure that meets both your own and your client’s needs is the key to seamless productivity and client satisfaction.
Because there are so many different types of fee structures, it is imperative that your digital agency explores all its options before choosing the right one. With these insights, we hope you find yours.