A comprehensive breakdown of pricing models, rate calculations, and strategies to maximize profitability while staying competitive.
The Pricing Dilemma
Pricing is one of the hardest decisions agency owners face. Price too low and you burn out your team while struggling to stay profitable. Price too high and you lose deals to competitors. The key is understanding your true costs and the value you deliver.
Understanding Your Costs
Before setting prices, calculate your fully-loaded costs. This includes salaries, benefits, software subscriptions, overhead, and a profit margin. Most agencies aim for a 50-60% gross margin on services. If your blended team cost is $75/hour, you should be billing at least $150/hour to maintain healthy margins.
Retainer vs Project-Based Pricing
Retainers provide predictable revenue and allow for deeper client relationships. Project-based pricing works better for one-time deliverables or clients testing the waters. Many agencies use a hybrid model: project-based for new clients, transitioning to retainers after proving value.
Value-Based Pricing
The most profitable agencies price based on value, not hours. If your campaign generates $100,000 in revenue for a client, charging $5,000 per month is a bargain regardless of hours worked. Position your pricing around ROI and outcomes, not inputs.
When to Raise Your Rates
Raise rates when you're at capacity, when you've added new capabilities, or at annual renewals. Give clients 30-60 days notice and frame increases around the additional value you're providing. Most clients expect modest annual increases and won't push back on 5-10% adjustments.
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