Digital agencies are creative marketing agencies with teams that are skilled in using a variety of different online marketing strategies. These teams use their knowledge to help brands achieve their sales and advertising goals. If that sounds a little broad, it’s because digital marketing agencies usually are. There is typically a broad scope of advertising, analysis, and content creation services at play—and many of them are constantly evolving, making the service offerings of agencies in this field somewhat hard to standardize. However, the main services provided by contemporary digital marketing agencies include strategy development, design, integration of technological solutions, and the implementation of marketing tactics. So, with such a wide variety of services in question, how do digital marketing agencies make money and set rates? Well, there are a few different methods to choose from – and today, we’ll look through all of them.
How Do Digital Agencies Make Money?
Plainly put, digital agencies make money the same way most creative agencies make money. They provide clients with a range of high-quality marketing strategy and development services in exchange for a fee.
But of course, it’s never as simple as that in reality.
In order for digital agencies to generate enough income to uphold business, pay their employees, and afford the best technological equipment, a detailed pricing model must be used.
Pricing Models for Digital Agencies
Pricing models provide structure to the process of charging clients and ensure that a fair exchange of money and services are allowed to thrive within client-to-agency relationships. Without a standardised pricing model, business payment processes can become inconsistent and difficult to track.
By choosing a pricing model that meets the needs of your particular digital marketing agency, your team can reap a number of benefits. These benefits include streamlining your billing system, establishing stronger relationships with clients, and even generating higher profits.
These seven pricing models each focus on different aspects of agency structure, thus allowing every type of marketing team to get paid in a way that suits them best.
Hourly Rate
An hourly rate system is perhaps one of the most familiar payment models in the business world. Simple and straightforward, it’s exactly what it sounds like: charging clients based on how many hours your agency has worked on their respective projects.
This model works well for agencies with multiple specialisations and a strong grasp on the timing of its services. However, some clients may find the open-ended nature of the payment system frustrating.
Project-Based
In this pricing model, agencies will charge a flat fee for the handover of the project. Regardless of how many hours it takes to complete, the client is given a set bill from the start. This can create a more predictable situation for the client. However, for agencies, it presents both pros and cons.
The pro is that you know exactly what you will get paid by the end of the project. The con is that if the project ends up taking a lot longer to finish, you could lose both time and money.
Retainer or Subscription-Based
A retainer pricing model works in subscription-based payment instalments. If your agency is hired to provide ongoing services for a client, this pricing model is highly beneficial.
In exchange for the multiple payment instalments over a set amount of time, the client retains full access to those ongoing services. This works well for smaller digital agencies who need consistent cash flow to survive over long time periods, or teams that focus on long-term projects like web development.
Output-Based
In simple terms, an output-based pricing model involves setting flexible rates based on the manifestation of certain project deliverables or units of consumption.
This pricing model focuses more on the perceived value of a project rather than on tangible costs. Clients will pay the agency based on the outcome of the services rather than the services themselves. This works well for agencies that are extremely output-driven and have access to powerful analysis tools.
Value-Based
Value-based pricing models are very similar to output-based models, with one minor difference: the amounts charged vary depending on the perceived value of the client proposal, not the deliverables in question. In this strategy, agencies charge what they believe clients would be willing to pay.
Value-based pricing models are much more popular with industries like amusement parks or car sales, where the consumer archetype changes drastically from person to person. Most digital marketing agencies prefer to stick to payment models that are more consistent and predictable to measure.
Resource-Based
Resource-based pricing models focus on the handover of tangible resources between an agency and a client. For instance, a digital marketing agency might set an inclusive fixed price for each offered service, and then charge the client based on which services (or “resources”) they incur.
This type of pricing model isn’t often used in digital marketing because the resources in question are not as consistently measurable as physical products such as medication or food items. This makes the process of setting fixed rates for each product/service somewhat complicated.
Partnerships and Affiliates
Almost every type of agency can benefit from partnering up with other brands or businesses to generate extra income, and digital marketing agencies are no exception.
Becoming officially affiliated with other brands in marketing (or even prominent social media influencers) helps boost brand image, establishes more industry connections, attracts a wider audience of potential clients, and strengthens your agency’s capacity for profit generation.
Putting The Right Price On Marketing
Digital marketing agencies play a crucial role in the current and projected future of successful businesses around the world. By designing brand-specific different marketing strategies and helping businesses create more audience-inspired content, brands are given the structure they need to thrive.
There are several different pricing models used within the digital marketing industry. Agencies will tend to choose the one that best suits their size, level of experience, current partnership deals, and what kind of resources they have access to. But with the right strategy, any pricing model can be successful.