Updated: November 7, 2022
Do you ever wonder how full-service marketing and advertising agencies set their prices for the services they offer? Why does a web site or landing page cost 30 percent more on one creative agency rate card than on another? How much does the agency rate card, or price list, vary between two firms that are directly across the street from each other? How much it costs to hire a marketing agency per month? Are marketing agency rates negotiable?
Let’s unpack the mysteries of marketing agency pricing…
BUYING MARKETING SERVICES IS LIKE BUYING A CAR
So, you want to hire an agency to build a website? Picking one to build your site can be like shopping for a car without the high-pressure salesman. You can buy a new car for $20,000 or $100,000. Both will have tires, brakes, a steering wheel and a variety of other similar offerings. But the differences are huge, in terms of the materials and technology used, as a result, the performance of each vehicle will differ greatly.
The same is true when comparing fees for B2B marketing and advertising solutions. Take a simple B2B product brochure… You must ask yourself: “How many images need to be used? Can you use library images, or do you need custom photography? How much text needs to be written, and how technical is the text? How many charts, graphic images, and special creative design elements and content are needed?” Things like image quality, paper size, decorative print, finishes, and other considerations go into the final marketing agency prices you receive as a quotation or statement of work (SOW).
This is why almost all B2B marketing and advertising agency projects are custom or semi-custom. One agency’s, or client’s definition of quality can be very different than another, subsequently, the resulting price will vary and often people are duped into paying fees for a lemon.
THE ADVERTISING AGENCY PRICING MODEL REVEALED
Ninety-nine percent of all full-service B2B agencies are all structured in a similar way. In fact, most general service companies, such as a consulting firm, local plumbing company, legal firm or any other service organizations with more than 10 people, run their business in the same way. They calculate the number of hours it takes to complete a project or task and multiply it times an hourly rate. They then add in any outside goods and service costs (i.e. printing) and multiply those costs by a small markup to determine how much the total project cost would be.
THE HOURLY RATE
Marketing agency hourly rates are established by multiplying the agency’s hourly rate for an employee multiplied by needed income by agency (X – usually between 2-4, with 3 being the typical industry average).
Hourly Rate = Employee Cost(X)
The formula looks at input such as workable hours in a year, percentage of workable hours an employee has available to work on client projects (75 – 80 percent is typical) and what percentage is allocated to other functions at the marketing company.
The multiplier provides the needed income to cover the cost of a fully burdened employee, including rent, utilities, benefits, training fees, accounting, per administrative support staff, business insurance, computers and equipment, plus a little profit. It’s no different than a technology company marking up its software to cover its overhead costs. In full-service B2B and B2C marketing agencies, the software is the people.
All service companies, from lawyers to consultants, use the same basic formula with a bit of variation depending on the industry. Smaller B2B and B2C firms where the people are working remotely will mark up the hourly rate between 2 and 2.5x to be positioned as a low-cost provider, while mid-size agencies of ten or more will be in the 3x range, and larger, global agencies will use 4x or even 5x.
The other major factors are the price and experience of the talent used to develop plans, create, and execute projects and campaigns. If you have a creative director at one advertising agency who you are paying $100,000 per year and another is paying $50,000 for the same position, the hourly rate would be less for the same position that is working on the project, strategy, content or campaign.
However, you should expect a better product when you are hiring an agency that pays higher salaries for better-seasoned creative staff. More experienced staffers typically take less time to complete their tasks/projects and can offer exceptional insight as well as forward thinking. Like everything else in life, you get what you pay for.
BLENDED RATE VS RATE CARDS
Sixty-eight percent of full-service agencies in the United States use a blended rate in terms of calculating an hourly rate for an employee. They take their entire staff and figure out a rate that blends all salaries. The average blended rate for a full-service marketing agency in today’s market is $150 an hour to $200 an hour in most markets. In the bigger markets, it runs closer to $250 an hour.
The other approach is to use average ad agency rate cards that create a specific hourly rate to hire each employee or position in the firm. Non-blended rates can run anywhere from $100 an hour for a lower-level employee to $750+ an hour for a top-level digital strategist or creative out of New York. The rate for a digital marketing agency can vary quite a bit depending on an employee’s experience.
OUTSIDE GOODS AND SERVICES
Most firms will buy certain outside goods and hire services and mark them up anywhere from 5 to 30 percent depending on the service or good purchased. This is to cover the cost to source, hire and carry the paper (usually vendors of the agency are paid before the agency receives their client’s money and they take a risk that client will not pay their bill.) The markup helps offset the marketing agency costs and risks associated with the firm floating this debt.
VALUE PRICING AND FIXED PRICING
The big buzzword among digital firms a few years back was something called value pricing. In other words, digital marketing agency pricing is structured to charge what the client thinks the value of a certain effort is worth. If your time and materials costs equal $5,000 for a project, but the client values it at $3,000 then you charge the $3,000. The idea here is that clients can get basic services (say an email blast) at a certain price from lower-cost vendors, so they don’t value it as much as maybe custom branding work, which could be priced above what standard hourly rate may indicate.
Fixed package pricing is another model used where a marketing agency prices certain tasks and deliverables at a specific price and has the client pick a package that most closely fits their needs. It assumes that the services can be put into similar boxes and sold as a commodity.
Both pricing list models had some initial success, but the agencies that employed these models have not had the kind of growth in terms of developing relationships with bigger brands that one would expect. Time will tell if these price list models work long term with bigger clients.
HOW ELEVATION PRICES – THE BENCHMARK RATE
The model I feel is best, and the one we use is a benchmark rate model. We have two firms that annually survey more than 200 agencies across the United States, providing us data on what the top 100-120 typical marketing campaigns, and branding and strategy projects cost based on region, size of the company and a few other data points.
Our process involves budgeting a project based on the client’s requests or needs, then checking the benchmark fee to see if our estimate falls inside the range of average ad agency rates. We do this to make sure we are being fair to us and our client. We will rarely be the cheapest (there are always agencies out there that compete on price even if they say otherwise), likewise, we are rarely the most expensive. It all becomes a customized value proposition for our clients. How much does our fee deliver ROI and their best desired outcome?
YOU GET WHAT YOU PAY FOR
Agencies are living, breathing value propositions. If they price too high for the value they bring, then over time clients will find other solutions. Normally, agencies that have been around for 10 plus years have figured out their value proposition, and it has been validated by the marketplace over the long run. For example, many of our low-cost competitors who got some of the business that we think we should have retained are long gone. They excelled at low pricing but failed to deliver either on time, on budget and/or with the highest quality. We are constantly fixing work that cheaper agencies did for our clients.
In the advertising industry, quality remains long after charming low agency fees. Our investment in delivering quality solutions and remarkable client experiences is a testament to why we’ve been in business for the past 20 years and why our company continues to prosper.
I recently wrote a follow-up article to this one which goes in further depth on digital marketing agency pricing, and how much agencies specifically price digital paid media lead generation services.
There are a few basic ingredients that B2B digital marketers can use to drive inbound leads. They are organic search and paid media. Organic search results can be influenced by a variety of search engine optimization (SEO) techniques that include creating valuable content that resonates with your audiences, link building, and much more. Paid media is sometimes referred to as pay per click, paid advertising, or paid search. It includes text ads that show up on Google search, banner ads, paid social ads on social media and much more.
Paid media purchases are typically tied together by agency services broken down in three phases to build out and manage B2B lead generation programs. The first phase usually includes strategy, research and planning. Phase two includes creative and content services. Phase three runs on a month-to-month basis and consists of buying paid media (pay per click) or paid social ads, along with program management fees.
Learn more about pricing for the above-mentioned digital marketing services here.