Pricing creative work is challenging. Selling time is abstract by its very nature. And it has led many agency owners to explore value-based pricing (which honestly is no less challenging). I’ve often found that most agencies consider both time and value in their pricing. Personally, I’ve been pricing creative work for more than a decade and no matter how many formulas and systems for tracking projects I devise, it still feels more like an art than a science. Because of this, I’m always interested in how other agencies approach pricing.
The following contains excerpts from conversations about agency pricing in the Grow Your Agency Slack group. The group is free to join! Sign up here!
All quotes are used by permission and only edited for clarity.
Strategy Director & Principal
“We use a combination of value-based and agency hourly rate pricing. We start by calculating our input costs + 40% gross margin. Then, we evaluate the specific goals of the client and use that as a check to adjust the final pricing that we offer. If we have really aggressive goals and our work is going to generate a lot of value for the client, then we try to take that into account beyond just quantifying the cost to deliver the work.”
Chris Bolton (Me)
Exec Strategy Director
For a long time, we’ve calculated an average “cost-of-doing business” hour as a basis for all project pricing and then we add 20%. The issue with using a fuzzy number like this is it fluctuates constantly due to overhead, number of employees, utilization, etc. And we don’t update it nearly as often as we should. Currently, we are working with a CFO firm to establish pricing that is based on employee cost which should be more accurate, but it adds complexity because we must use unique rates for each employee.
We use our calculations as a guide, but value-based pricing is also always on our minds. We believe that our work is often exponentially beneficial for companies and we shouldn’t give away this value because it doesn’t fit in the formula. There is also always hidden scope creep in projects and we add padding to account for this. There are so many incalculable things in our work. And a good deal of our projects do go over budget. The trick is making sure they all don’t go over budget.
In the end, a good price is a price that both parties are happy with.
Pain-Free Dental Marketing
“We have what I think is a unique model. We get our clients to commit a % of their revenue towards marketing. We then manage the marketing budget in whatever way we see fit (buy PPC ads, do photoshoots, creative, SEO, etc. ), with the goal of helping them grow. We aim to keep 15% of their budget as our profit. It requires a lot of trust from our clients, but it gives us skin in the game (as their revenue grows, the budget grows, and our cut grows), and when they have slow months, they spend less on marketing.”
CEO @ Academy
- Product Design Studio – We base our services off of a SOW and determine length of project and required team size. We then bill on a sprint model (each sprint is a weeks work of work with a fixed quantity of resources) typical sprints include 1 UX Researcher, 1 PM, 1 Product Designer, 1 Design Lead, 1 Copywriter. $26,000-$30,000 per sprint. Avg project size ($360,000)
- Staffing – We create a retainer based on a fixed period of time and which is based on an hourly rate and seniority, Mid $150, Senior $185, Leadership $225. For example, a client will sign on a Sr. Product Designer for $185/hr for 3 mo = $88,800 would be the retainer.
- Recruiting – We bill based on a container model. Academy charges an Engagement Fee upfront and a Success Fee upon placement of a candidate.For Mid-Level and Senior individual contributor roles, the Placement Fee is 20% of compensation guaranteed in the first year of employment.For Leadership roles (Manager to Director), the Placement Fee is 30% of compensation guaranteed in the first year of employment.This Placement Fee is broken into two installments:
- Engagement Fee: The initial non-refundable fee is due at the start of the project in order to initiate the search. The Engagement Fee represents 30% of the Placement Fee.
- Success Fee: The second fee is due once we have successfully placed a candidate. The Success Fee represents 70% of the Placement Fee and is due upon placement of a candidate.”
Director of Strategy and Partner
- Waterfall projects – Fixed fees based on estimated number of hours * hourly rate
- Retainer projects – Set number of retained hours per month, no rolling over.
- Paid media management – % of ad spend with a minimum fee for lower budgets
- Packaged Projects – A set fee for a smaller, one-time service. E.g. Migration from UA to GA4. This is a fixed fee where we looked at the average time to complete, value to the customer and came up with a price.”
“We offer fixed-priced software development and we establish our price via a homegrown pricing calculator in google sheets that is on v3 at the moment. We use a cost-plus model that bakes in our estimated development time, delivery/payroll and overhead costs, project management time, meetings, padding for risk, commissions if applicable, and profitability benchmarks. It spits out our “recommended proposal pricing” and we go from there!”