During sales discussions, costs and ROI are crucial subjects. When hiring a digital marketing agency, potential clients are often interested in how much agencies charge. The most frequently asked questions are:
Decision-making in businesses can be challenging due to uncertainty. However, understanding these perspectives can help us approach the situation constructively.
I checked Fiverr, and you can get Google Ads set up for $5. In comparison, our campaign setup costs $1600, and other companies charge more. How would you contrast our services with theirs?
Marketing services are complex and not tangible and thus hard to compare. Many digital agencies and freelancers use gimmicky metrics to let customers compare the packages. For example, a Fiverr freelancer will charge you 5$ for ten link suggestions. If you aim to get a significant quantity of links, you can purchase 200 for $450, which means only $2.25 per link. On the other hand, our agency usually creates 5-6 links in a good month, costing you thousands of dollars.
Digital Marketing is not new. Chances are that the business already worked with an agency, and something went wrong. Perhaps the client never provided the agency with the required information. The other option is that the business owner believed in purchasing links at $2.25. Now, when business is more innovative, clients are looking for guarantees.
The need for a guarantee leads me to 3rd party problem. At the same time, certain services are under our control (web development, tracking, etc.). We lack control over Google, Meta, TikTok, etc. We can make sound predictions using our knowledge, but we can’t guarantee what will happen to someone else.
There is no risk-free marketing. Yes, we have machine learning, predictive analytics, and best practices. However, things change, and no predictive analytics model can forecast marketing with 100% certainty. That’s why some say we have a “best hypothesis” instead of “best practices.”
Like with other investments, the more risk you are willing to incur – the more the potential reward is. Consider it when evaluating agencies’ cost and pricing structure.
Any successful business should benefit both parties. However, this doesn’t imply that the two parties don’t have conflicting interests.
Business owners want to reduce risk and increase their return on investment. They achieve this by paying less to the agency and earning significant revenues.
The agency aims to minimize risk and maximize payment by performing small tasks, receiving financial compensation based on their worth, or both.
Since clients and agencies can’t have it all, pricing models balance this risk and reward. Consider where you want to be on that axis when selecting a model.
The Hourly Rate Pricing Model charges clients based on the agency’s hours on a project. This approach is transparent, as clients pay only for the time spent. It also ensures that agencies receive compensation for every work hour, protecting them from scope creep or unforeseen complications. Additionally, clients can adjust project demands without revising the contract, providing flexibility.
However, drawbacks include potential unpredictability in client costs and an administrative burden for agencies tracking hours. Additionally, there might be a perception that agencies could inflate hours, causing trust issues.
This model is useful when project scopes are not explicit. However, it can lead to disagreements if either side feels that the billed hours must align with the value provided.
The Retainer Pricing Model involves a consistent monthly fee paid by clients, irrespective of the volume of work in that month. This approach often places more risk on the client side. It offers agencies financial stability and an opportunity for a deeper, long-term relationship with the client. Clients benefit from predictable budgets, accessible communication with a familiar team, and the ability to switch projects without constant financial negotiations.
Challenges may arise when an agency’s performance fails to meet expectations, leading to doubts about its value. Additionally, agencies face limitations as exceptional performance doesn’t necessarily translate to increased earnings.
This model is suitable for long-term projects. However, it can strain relationships if one side believes the value should equal the fee.
The Performance-Based Pricing Model aims at rewarding agencies based on results achieved, placing more risk on the agency. Clients like this model because they pay for actual results, which builds trust and aligns the interests of both parties. For agencies, it can offer higher earnings and an opportunity to stand out in a competitive market.
Agencies have difficulties with money and pressure, so they need the client’s help to get the desired results. Conversely, while clients might save during slower periods, they could face higher costs if the agency’s performance exceeds expectations. Additionally, issues can arise if there needs to be clarity in metrics or more transparency.
This model works best in sectors with tangible, measurable outcomes and a strong trust bond between the agency and client. It may work better when it’s hard to measure success or needs to be clarified if an agency’s work caused the results.
The Value-Based Pricing Model charges clients based on the value or impact the agency brings for specialized services. This approach rewards agency expertise, allowing them to price based on perceived value rather than just time or resources. For clients, this ensures ROI-centric investments and promotes aligned goals.
However, agencies must consistently prove their value, and any discrepancy in perceived worth can fluctuate revenues. Clients, while benefiting from more straightforward budgeting, may grapple with higher initial costs and potential transparency issues regarding price determination.
This model is most effective when agencies offer specialized expertise, make high-impact decisions, or generate tangible, long-term ROI.
However, it is unsuitable for situations with unclear value measures. It is also problematic for cases with different stakeholders with diverse value views. Additionally, it is not ideal for risky projects with uncertain results. Both parties must navigate the delicate balance of perceived value and delivered results.
Choosing the most suitable pricing package, which can vary from an hourly to a value-based model, requires a profound comprehension of the business and its relationship with the agency. Usually, the most favorable results are achieved by adopting a flexible and hybrid strategy.
At Roman Agency, we focus on discerning your aspirations and molding bespoke strategies that align. Are you curious about a personalized pricing strategy for your brand? Connect with Roman Agency now to find the best solution for your business.