4 Marketing Agency Pricing Models and Which You Should Choose

Hourly Pricing Model for Marketing Agencies 

When marketing professionals quit the traditional 9-to-5 and launch their own solo consulting business, they often start out trading their time for cash. The most enduring—and often agonizing—question is, “How much should I charge?”

Wise leaders know that the answer to this question is crucial to the business. Price your services too high, and you’ll scare off good clients. But charge too little, and you won’t make enough to cover your expenses, attract quality talent, or pay yourself a healthy salary.

The perfect medium entices well-paying clients that value your service. And when that happens, your well-funded operations hum like an engine. You can afford to deliver quality work (that performs) and generate new business based on referrals from happy customers.

Credo’s 2019 digital marketing industry pricing survey revealed that, on average, U.S.-based digital marketing firms charge $167.28/hr.

That said, every marketing agency is different.

To calculate an appropriate hourly rate for your agency, simply add up all your monthly operating expenses (minus payroll) and divide that total by the number of hours your firm works each month. This, plus the hourly rate of everyone working on the project, is your hourly cost. The final step is to decide how much profit you’d like to earn on each hour of work performed for customers and tag it on.

Hourly Rate = {[(Operating Expenses – Payroll)/Working Hours] + Employee Compensation} + Profit

Experts at Promethean Research found that, on average, marketing agencies make 10–25% net profit.

CSI Market data shows even higher margins, specifically for advertising agencies. Depending on your profit goals, add your percentage to the total for an hourly agency rate.

Pros and Cons of Hourly Pricing

Charging by the hour has some benefits.

PROS

First, it’s easy to calculate. The formula above is as complicated as it gets. It’s simple for you, the agency, to explain. There’s no nuance involved. The clock needs no explanation.

This makes it easy for clients to compare agencies and choose one based on what they receive in exchange for the hourly rate.

It’s also flexible. When hiccups arise, you can handle them, knowing you’ll be paid for the extra work by billing hourly.

CONS

This model isn’t perfect, however.

“I discovered early on that the billable-hour model was a flawed, archaic, agency-centric system that wrongly tied agency performance to outputs, not outcomes,” writes PR 20|20 agency owner Paul Roetzer. And that makes sense. This marketing agency pricing structure doesn’t compensate you for value added or reward you for your product’s performance. You spend time and energy on calculating hours instead of creating value. And, like it or not, the structure demotivates creatives to work quickly.

“In the traditional agency pricing model, you have to navigate the frequent disconnect between the work delivered and the number of hours billed for with the customer,” says Haley Bryant, COO of content marketing agency Animalz.

“Time tracking also creates avoidable overhead for the team. Any available work time should be devoted to helping the customer achieve their goals, not figuring out how much to charge the customer or stressing about either not hitting or exceeding the designated hours per month.”

Finally, if you’re not careful, this model lends itself to after-the-fact sticker shock. Let’s say a client calls you to add a service to an existing scope of work. Under the hourly billing model, you execute, assuming they’ll be fine with a higher end-of-month bill. That assumption may sour the relationship, or worse, your client could even refuse to pay.