The digital marketing industry is exceedingly active and fast-paced. Businesses working within this hot sphere are sprinting to keep up with the constantly fluctuating and evolving behaviours of the almighty consumer, which can make the process of management and organic expansion rather challenging. Another aspect of digital marketing that can be difficult to sustain is the constant rotary of clients it involves working with. Overall, agencies in this industry have their hands full. Having a marketing agency business model can change that.
Business models are structural approaches used in the professional management of operations, typically used for the purpose of streamlining productivity or sustaining a financial revenue strategy.
The right business model will equip your business to create a more personalised approach to dealing with clients, facilitating better cash flow, and more.
Need a little help? Take a look at the most popular business models used in the digital marketing sector and our top tips for choosing the one that suits you.
Types of Digital Marketing Agency Business Models
The various types of business models that suit digital marketing agencies all focus on different aspects of client communications and strategy. But, like everything in business, they have pros and cons that you need to be aware of.
#1. Retainer Model
When it comes to business models in the digital marketing industry, most agencies prefer the retainer model. This involves charging clients a set monthly retainer fee over the course of a project.
The set retainer fee can be adjusted depending on the project scope or client in question. This makes it flexible and attractive to highly collaborative agencies who tend to work on long-term projects.
However, this model can also present challenges for smaller agencies or those dealing with clients who constantly try to add or change the parameters of the project.
#2. Project-Based Model
A project-based model is exactly what it sounds like – charging clients based on the project at hand. It is a popular model used by many agencies, but most agencies that use it only use it selectively for certain projects. This is due to its volatile and hard-to-scale nature.
It’s difficult to say exactly how long or how intensive the execution of a single project will be. Therefore, setting up a business model based exclusively on the project can be awkward.
That being said, when the project-based model works, it does work very well. Agencies that work extremely fast can benefit from this model because there is a steep, predictable revenue up for grabs.
#3. Performance-Based Model
A performance-based model directly relates project performance and deliverables to payment. It’s an effective strategy for digital marketing agencies with access to high-functioning KPI tracking systems and experienced teams who can rely on their performance projections for sufficient payment.
Some of the metrics an agency might use to determine fees include the total cost of ownership, availability, maintainability, and reliability. These metrics are used to determine what the client owes. This model does not work for smaller agencies that are still discovering their workflow and performance trends.
#4. Hybrid Model
Why not have the best of both worlds?
The hybrid model takes all the best bits of a retainer model and a project-based model to create something that many digital marketing agencies prefer.
In this model, agencies will ask for an up-front retainer, and then continue to charge for the project based on clearly communicated deliverables. In order for this business model to work, agencies need to have a great contract in place and very open communication lines with clients.
With the hybrid model, digital marketing agencies can still regulate cash flow while upping their revenue at the end of each project.
Choosing the Right Digital Marketing Agency Business Model
It can be hard to determine which business model is best for your digital marketing agency. There are lots of different factors to consider, and all of them are important for their own reasons. Use these pointers to make an informed decision:
- Evaluate your clients’ needs – What do your clients want and need from an agency? How can you structure your business in a way that appeals to those needs? Evaluating what your ideal clients are looking for should always be a priority and selecting a business model is no exception.
- Evaluate your internal resources – Not all the business models listed above will necessarily be viable options for your agency. Consider what internal resources you have access to and choose a business model that aligns well with your real capabilities.
- Evaluate your digital marketing skills – How can you market your agency (and its subsequent business model) in a way that is attractive to clients? Your agency structure should synchronise with your marketing skills so as not to disrupt your brand ethos or identity.
- Understand the different models – Before you decide which business model to choose for your agency, make sure you have a clear understanding of what each of them are. That way, you can make the most informed and advantageous decision possible.
When it comes down to it, you should pick a business model that works most to your advantage as an individual agency. But remember to keep in mind that it should also appeal to your target market, thus ensuring a consistent flow of business all year round.
Build an Agency Modelled on Success
There are many benefits to finding and using a digital marketing agency business model. The right one will help your agency identify the best marketing angles, business-to-client pathways, and managing anticipated expenses for later down the road.
It can also help both new and developed companies attract better investments, recruit top-performing talent, and motivate employees to meet their goals.
All in all, a business model provides quintessential support for digital marketing agencies. The right model helps to sustain consistent cash flow, hit revenue KPIs, and keep up with the flurry of consumer trends and demands that tend to propagate within this capricious industry.