Although running your own agency and helping it succeed can be challenging in many different ways, figuring out what to charge for your services is something every agency owner struggles with at some point.
You naturally want to scale your agency for steady growth, but you want to keep your clients happy, too.
That said, developing a working understanding of agency fees and related pricing structures isn’t just important.
It can mean the difference between having a profitable, thriving agency on your hands and barely breaking even from one month to another.
Here we’ll go over what you need to know about setting fees that will help your agency succeed as well as keep it profitable over the long haul.
What is an Agency Fee Structure?
An agency’s fee structure is the system that determines what a particular client will be charged for services rendered. It is also the primary means by which an agency turns a profit.
Individual agency fees can vary significantly from one client to another and depend on many factors, including niche, service type, and the size of the client’s company.
There are also many different fee structures a particular agency may adopt.
An agency’s chosen fee structure can (and should) also evolve as the company grows and expands its client base or service catalog.
It’s not uncommon for a small startup agency to do things one way in the beginning but to need to upgrade to a fee structure that’s more complex later on.
How to Set Your Agency Fees? 6 Pricing Models to Know
Each pricing model you might consider when setting your agency fees has its unique pros and cons.
Some agencies may even employ more than one if it offers a wide range of services or serves many different types of clients. Here are a few to know.
1. Project-Based Fees
A project-based fee structure is one option to consider if your agency’s service offerings come attached to very clear deliverables — as with web page development or content writing.
To set agency fees on a per-project basis, consider the number of working hours the project will likely take and then add in any additional costs you’ll need to cover to complete it.
Then round up again to ensure anything unforeseen is also covered.
One massive benefit to this structure is it’s very easy to scale. However, you need to have a crystal clear idea of how long various types of projects will take beforehand.
2. Hourly Fees
Hourly agency fees are popular options for new service providers, as they feel familiar to clients and are easy to understand.
They also take the guesswork out of charging for projects that are more complex or that continue over longer periods.
Agencies that charge by the hour typically do so in one of the following ways.
Charging a Blended Fee
Blended fees take into account the time and labor of an agency’s entire team. To determine a fair blended rate for a project, consider both the median hourly rate for your team members plus the estimated hours the project will take.
Charging a Specialist Fee
Specialist rates work best for agencies that generally assign individual projects to one or two specific employees, as with content writing or graphic design.
Determine specialist rates by considering both the skill set of each employee and the likely number of hours they’ll spend working on the project.
3. Performance-Based Fees
Agencies offering services in niches like lead generation, brand building, or public relations may want to implement a performance-based fee structure.
Performance-based agency fees can be determined in various ways, and which is best depends on your company, clients, and service catalog.
For instance, marketing agencies may charge per lead generated or according to the number of views, clicks, or impressions generated by a piece of marketing content.
To determine performance-based fees that make sense, it’s crucial to decide which performance metrics will be involved (e.g., views or acquisitions).
Then consider the value of each conversion and the payout timeline for each project.
4. Value-Based Fees
When it comes to types of agency fees that are highly scalable, it doesn’t get much better than a value-based structure.
Agencies that charge according to value need to be able to determine what it will take to bring a client from where they are to where they’d ultimately like to be.
They also need to be able to estimate the associated changes to the client’s profit margins with a fair amount of accuracy.
Whether or not a value-based model is suitable for your agency depends largely on the type of services you offer.
For instance, it’s a natural fit for companies offering SEO or general advertising services, but not so much for creative agencies that specialize in graphic design or content writing.
5. Retainer-Based Fees
This is another terrific way to set agency fees that are highly flexible and easy to scale over time.
When a client pays based on a retainer, they’re basically purchasing a pre-packaged number of work hours or deliverables for a predetermined period of time (e.g., per week, per month, or per quarter).
Retainer agreements are good fits for agencies that provide an entire range of services to help clients work toward one cohesive goal.
For example, an SEO company may well charge a monthly retainer for a combination of services that include content production, social media management, website optimization, and more.
One of the most significant benefits of choosing this fee structure is it makes your agency’s monthly income much easier to predict.
Just be sure to decide upfront whether any unused asset credits will expire at the end of each pay period or roll over to the next.
6. Mixed Agency Fees
Of course, you only need to set your agency fees according to one established structure if you want to.
Many agency owners ultimately decide a mixed system is the best fit for their service catalog, their clients, or both.
For example, let’s say you run an agency that offers a variety of different digital marketing services. You might decide it makes the most sense to bill for web or graphic design by the hour but charge a per-project fee for content production.
Mixed structures allow agencies that serve many different types of clients or offer a wide variety of services to easily customize their fees on a case-by-case basis.
Remember, you’re not locked into a particular system for your agency fees for the lifetime of your business. It’s not uncommon for a specific agency to start out charging one type of fee only to evolve naturally into another over time.
Be sure to reassess the needs of your company and clients periodically. What worked like a charm for a startup might not be a good fit for an emerging agency with many projects under its belt and a growing client roster.
Cash Flow: When Should You Charge Your Clients?
Naturally, your agency fees need to support the ongoing profitability of your business, and settling on the right fee structure is only part of the equation.
The rest is about deciding when to charge your clients. Common options include:
Full Fee Upfront
Charging all fees upfront before work even begins is probably the best option for remaining consistently profitable, but it may not be a logical fit for every fee structure.
For example, charging upfront for hourly work really only makes sense if you’re using a retainer structure.
In the event upfront payment doesn’t make sense for your services or clients, settle on a set payment frequency that’s a good fit for all involved.
Full Fee on Completion
Charging this way is a lot riskier than charging upfront, but it does come attached to some benefits.
To begin with, it communicates to a client that you’re 100 percent confident in your team’s ability to deliver as promised.
It can also be a useful way to attract clients when an agency is very new. However, using this model will always carry the risk of a client disappearing upon receipt of services rendered or otherwise trying to backpedal on the original agreement.
Some service providers may prefer to switch to this model once an ongoing relationship has already been established with a client for this reason.
Partial Fee Upfront and the Rest on Completion
This option represents a terrific compromise that often suits both the client and the agency.
It demonstrates good faith on both sides, as well as makes it easy for you to cover ongoing expenses and keep your team members paid.
However, again, it may not be a great fit for every potential structuring option for your agency fees. It’s most ideal for value-based, retainer-based, or per-project payment structures.
Wrap Up
Once you’ve successfully determined what your agency will charge and when, you’re already well on your way to running an easily scalable and highly profitable business.
But you also need a reliable way to determine whether you’re getting the results you should be out of the resources you invest in your business.
This is especially the case for marketing efforts that can be hard to assess, like SEO.
You can answer that question by learning about SEO ROI and determining how to apply what you learn for the betterment of your agency.
Start by taking a peek at our comprehensive SEO ROI starter guide!
You’ll learn how to accurately measure and calculate SEO ROI, as well as discover what a solid ROI would look like for your agency.
