We all know the drill. You land on a marketing or advertising agency’s website looking for ques for pricing tables but fall short on your quest. Companies in these industries are notorious for non-disclosing prices. Reasons might vary from not wanting to scare off potential customers, not giving out competitive information to competitors, or their cost structures are not easily defined. Whatever the case may be, you don’t generally find prices from agency websites.
So, we thought we’d disclose this notorious industry secret. How much does it cost, on average, to work with agencies, and how the cost models are produced?
For starters, we must point out that it is situation-dependent. Because it really is. The main reason here is the variety of services agencies generally provide. Let’s say we had a design agency that offered three super clear packages:
Now it would be super easy to price these packages with a few variables in mind. However, this dramatically decreases the number of capabilities agencies normally have. For instance, a website design is not just that – a visual design. It’s also extremely strategic. The main function of a website is to convert visitors into customers or other action takers.
Now we can have two types of customers who could choose the Superb package
Now, can we agree that these two situations aren’t worth the same? Yes. We definitely can. Customer B requires a lot more work in a form of research and strategic thinking.
This is one of the main reasons only a small number of agencies use fixed price systems and packaging in their services. Because there are many variables. We’ll talk about variables later on in our journey.
There’s a funny thing regarding Marketing agencies' marketing strategies. Most of them don’t practice what they preach. You might find yourself clicking an email call-to-action that promises you the moon from the sky for 69€, only to realize that this starting price doesn’t include any of those things promised in your email. You scroll down the landing page a bit further and finally find an option talking about all those glorious things in the prospect email, and now you are looking at something that’s starting at 2.000€. And yet this is exactly something especially marketing agencies advise you not to do; market with false promises or mislead the prospect.
When hiring an agency, you can bet there are going to be fees. Here are some of the most common agency fees and cost structures.
A Discovery session (also called an onboarding session) is time for the agency to get to understand your business. These sessions generally cost between 5K€ for a local small business and +25K€ for a national or international company.
Now, what about the 0€ stated in the title? Well, you see, some agencies don’t flat-out charge you for an onboarding session. For example, some agencies might charge the time consumed for onboarding at their hourly rate or any other miscellaneous fee. Production agencies on the other hand might not need to understand a lot about your business to be able to design a simple business card or a flyer. But if the work needs any kind of strategy, onboarding and understanding your business is definitely a necessity and a big part of making sure the partnership gets started right.
Now, this doesn’t apply to every single media and advertising agency, but most of these agencies will take a cut of your media spend. This is especially true if they’re playing the bank and their card is on file with the media platform. Putting this into perspective, if you’re spending a 1M€ on media, the agency’s cut is somewhere between 30K – 150K€.
In addition, you might get charged for platform fees.
Technology-related fees are usually charged in one of two ways; as an additional fee or included in the hourly rate. Cost of technology fees can range anywhere from 50€ all the way to 30K€ yearly depending on the technologies used. The breakdown of technology fees is the following:
In this case, the agency will ask you to pay the fee for the technology they use to get the job done. For example, paying for Adobe Creative Cloud subscription for a designer to create digital assets.
In this case, if the agency you’re working with licenses the software on your behalf, they might take a cut because they are handling the service. An example could be your CRM or marketing automation system.
Whenever there’s travel involved, that cost will be budgeted as a separate travel cost or within their hourly rate.
The easiest example would be printing. It’s probably easier to count agencies who don’t have their own printing capabilities rather than those who do. That is why most agencies outsource their, or actually your, printing needs. The agency outsources the work to a printing partner and in turn markup that service between 10-20% to cover for their time consumed in organizing and managing the vendor.
So, let’s say an agency has a 10% markup fee, and something that you require to be printed costs 200€, which means you’re paying 220€ in total for the agency. The agency makes 20€ from the deal and the rest (200€) goes straight to the vendor.
Now we get to talk about the actual cost and pricing of the project. There are a few different types of billing systems for agencies to bill for their services:
A scoped cost for a project.
For example, “This brand project costs 60K€."
When a client pays an agency based on a completed project or achieved goal.
For example, “We’ll charge you 50% upfront and the remaining 50% on a completion or reaching a set goal.”
A tailored pricing model to fit each client.
For example, “For client A a Fixed Fee works better and for client B a Value-Based Pricing makes the most sense.”
When an agency is working against the time and there are materials included to complete the project.
For example, “We’ll create a campaign for you that will cost up to 50K€ and will bill you as we make progress against the project.”
A pricing model based on time consumed.
For example, “This project takes us 25 hours at an hourly rate of 125€.”
A fixed amount of time you get from an agency each month.
For example, “You have 30 hours’ worth of agency time to use for your project(s) each month.”
Pricing a project based on the value being provided for the customer.
For example, “From our observations and experience, we believe this new website is worth 75K€ to your company.”
We all understand that cash flow is essential for any business to survive and grow. But when do agencies usually bill their clients?
Some agencies might charge the whole project upfront. This is usually done with a long-lasting partnership where there is an enormous mutual trust between the agency and the client. Charging upfront only really works for Fee-based- and Project-based pricing strategies.
Charging on completion is a great way to demonstrate trust for the client but is also the most riskiest pricing model for the agency. We all have heard stories about clients trying to re-negotiate, or outright disappear after the project is completed. This billing strategy might leave the agency with a lot of trouble.
Agencies following the performance-based pricing structure tend to charge on completion.
This is usually the best option for both parties. By charging upfront, you both have a mutual interest to complete the project on time; the client has already invested half the project price and the agency is keen to collect the remaining half. This also ensures that the agency is able to cover all upfront costs that the project might have.
This charging strategy works with the remaining pricing models.
We have now covered how agencies price themselves and what kind of different pricing structures agencies tend to use. In the next post, we’ll go through the process and example prices.