Many marketers consider launching their own marketing firms once they gain a certain among of experience in the marketing field. Considering that there is such remarkably high demand for digital marketing services, many marketers find success — but only if they understand the landscape of marketing businesses before they strike out on their own. To help entrepreneurs survive and thrive as they build their marketing firm, here is a guide to the four most common pricing models of marketing agency in operation today.
By far, this model is the most popular amongst digital marketing firms. The retainer model involves pricing services based on an ongoing relationship between the agency and clients. Because clients are retained over a certain period of time, the firm gains some upfront predictability in regard to payments. In turn, firms can worry less about income and focus more on delivering high-quality results. It is not uncommon for clients to commit to a single agency long-term after they experience the retainer model simply because they have grown accustomed to a certain style or service.
One of the simplest pricing models — which is what makes it so popular amongst marketers — is this model. As the name suggests, the hourly model involves charging clients based on the amount of time spent on a particular project. In many ways, charging hourly makes the costs of a project more straightforward. However, many firms make the mistake of setting their hourly rates too low, which means employees essentially don’t get paid for non-billable hours. It is critical that marketers research rates responsibly to avoid undercutting themselves with this model.
Agencies that can directly connect their work to measurable outcomes often utilize this model. The performance-based model, which is also called the commission model, involves receiving payments based on a certain amount of income generated for the client. This model can be remarkably lucrative for marketers, but it only works if marketers can definitely prove that their efforts resulted in higher income for their clients. However, the performance-based model is also slightly risky, as clients might disappear or refuse to pay, leaving an agency fully unpaid.
Fixed rates make calculating costs incredibly easy, which is why some marketing firms opt for this model. Generally, the flat fee model is only appropriate for agencies that offer simple and one-off services; firms can competently calculate the time and resources required for such projects, which means they can set their prices appropriately to ensure profits. Sometimes, new marketing firms will begin with a flat fee model until they have the experience and reputation to secure a retainer-based clientele.
Other Considerations for New Digital Marketing Firms
The pricing model is not the only decision that marketing entrepreneurs need to make for their new business. The world of digital marketing is vast, with dozens of different types of services that can help businesses and brands grow. New marketing firms need to determine which services they will offer to clients, and which they will outsource or else ignore entirely. In addition to the models listed above, most marketing agencies fall into one of the following three categories:
Full service, in which agencies service all of a client’s digital marketing needs. The agency typically has teams of designers, analysts, developers and more on staff to meet every marketing-related demand from clients.
Single channel, in which agencies provide services in only one area of digital marketing. Specializing so intensely allows agencies to develop incredible expertise and deliver outstanding results to clients.
Multi-channel, in which agencies offer services in a few complementary fields. Multi-channel firms might also utilize marketing partners, like SEO resellers, to enhance their offerings and attract more clients.
Knowledgeable and skilled marketers can benefit from launching their own firms — if they perform due diligence to cultivate a business model that makes sense. Fortunately, it isn’t difficult to find effective strategies for establishing and growing a marketing agency, especially when digital marketing is such an essential component of business success in the 21st century. By thinking critically about payment models and service channels, marketers can begin the process of developing a strong foundation in the marketing space.
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