Choosing Pricing Models for Your Marketing Agency

Are you charging by the hour for your services? Looking for inspiration to move to a retainer or project fee model?

In this article, you’ll discover how an agency evolved its pricing structure.

From Hourly-Rate Scramble to Premium Positioning: An Agency Owner's Pricing Evolution 

Running a profitable marketing agency requires mastering two fundamental abilities: pricing services strategically and managing client relationships effectively.

Donna Mostrom, founder and CEO of Damn Smart Marketing, a copywriting and content creation firm, has over 15 years of experience on both the client and agency side. She shares her insights for agency owners looking to optimize pricing, improve client retention, and grow their agencies.

When Donna started freelancing in digital marketing, she admits she was in survival mode. Without full-time employment, Donna needed to secure work and clients as her family moved for her husband's job. This desperation led her to severely underprice her services to gain business.

Additionally, Donna made the common agency mistake of pricing hourly without accurately tracking her time or calculating costs. As she broadened her service offerings further to appeal to more clients, Donna stretched herself thin both time and profit-wise. She was exhausted and frustrated with her hourly rate model's poor return on effort and unsuitable clients.

Donna needed to determine her target audience and ideal customer. Her pricing model only began to shift after she invested in a business coach to mentor her. On her coach's advice, Donna identified medium- to large-sized business-to-business companies as her ideal customer profile. These well-resourced clients stood ready to pay premium rates for specialized, high-touch marketing services. 

Premium rates also deterred smaller businesses from hiring her since she wanted to limit her workload.

With ideal clients now squarely in focus, Donna felt empowered to position her agency at a higher level. She and her husband extensively rebranded the business and refined services to become industry experts in content creation and copywriting. 

Additionally, Donna devised tiered pricing packages that reflected the premium value her agency could deliver, her target number of hours worked, projected revenue, and work-life balance preferences:

• Base “floor” package
• Mid-level “ideal client” package (what you want most clients to purchase)
• Top-shelf “halo” pricing package (while this is the highest, full-service package, it still must be deliverable)

To her surprise, Donna sold several high-priced halo contracts immediately, further validating that her services commanded substantial value in her market. Seeing such high numbers also anchored future clients' perceptions of her premium worth. 

To understand anchor pricing, consider luxury brands like Tiffany's and Rolex, which are associated with high value. When people first see the price tag on an item from these brands, that number anchors their perception. Even if the price is later adjusted lower, people still associate the brand with the original expensive price they saw. 

It's similar to how first impressions of people can anchor our view of them. A wrong first impression is hard to overcome, just like an initially high price is hard to move away from when perceiving a luxury brand.

Donna transformed her revenue potential by aligning her pricing to her ideal clients' budgets, abilities, and needs. No longer was she trapped trading hours for dollars and chasing unsuitable small business clients. Her shift to strategic niche positioning and value-based pricing proved instrumental in her agency's growth and success.

#1: Common Mistakes and Advice for Agency Owners Struggling With Pricing Structure  

Donna recommends knowing the value you're delivering and targeting clients that can support your rates. 

She suggests three key factors to consider when determining your pricing structure:

1. Are you targeting the right clients for your business?
2. What is your financial goal in terms of revenue or profit margin?
3. Does that financial goal align with the lifestyle and number of hours you want to work? For example, if you're going to work fewer hours but maintain the same number of clients, you need to increase your rates. 

 Donna sets quarterly and yearly financial goals for revenue. Then, she works backward to calculate how to hit those goals. 

For example, using tiered pricing with different service levels, you can determine the right mix of clients at each tier to achieve your target revenue. If you need to earn $X per quarter and have tier 1, 2, and 3 packages, you can aim to sign 2 tier 1 clients, plus 1 tier 2 client and 1 tier 3 client each month. This mix can get you to your quarterly revenue goal based on what each tier pays.

Also, Donna suggests using a set monthly or quarterly fee. For her, this fee is for monthly dedicated writing services, not just payment, regardless of work quality. She offers options for different service levels, like 40 hours per week. The fee covers writing time, research, revisions, and getting to know her client's business.

Unlike copywriters who churn and burn, Donna aims to build relationships by taking the time upfront to understand her clients' needs and factor that discovery process into the pricing. This approach shows clients Donna's value and why the monthly set fee is worthwhile. A fixed fee is beneficial if you're starting out and working with small businesses or solopreneurs—clients that might need you to wear many hats.

After revamping her pricing and contracts, Donna admits she lost two clients in 24 hours due to tough economic times. Some clients significantly pulled back, leaving her with a 65–70% revenue loss.

Now, Donna requires at least 3-month contracts with clients. If something is not working, there are 90 days to adjust. She also requires corporate clients to give a 30-day notice if they don't want to renew her services.  

Donna ensures her pricing reflects both the value she provides and her operational costs. For example, when working with startups, Donna delivers value by creating briefing templates for clients with less-developed processes. She told clients they could customize and share the templates across their teams. The client loved having them as starting points, so she was happy to supply more.

Sharing something reusable like templates doesn't cost Donna anything but makes the client's life easier and streamlines the process. Asking questions to provide extra resources shows startup clients you can handle uncertainty while moving things forward faster for both sides. It displays value beyond just executing what they ask for.

#2: Course Correct Client Relationships 

While attracting ideal clients solves one major agency woe, retaining positive client relationships creates another central challenge. Even well-matched clients can sour over time without proper expectations and relationship management.

According to Donna, the first red flag indicating poor client fit surfaces from confusion around a client's target audience and messaging. Without a clear customer avatar and strategic blueprint to orient content efforts, clients leave agencies in limbo instead of providing creative direction.

While Donna once offered content strategy and messaging work, she now prefers focusing solely on creative execution. Creating a strategy from scratch requires extensive effort for potentially little reward. Now Donna refers clients who need high-level positioning assistance to other agency owners in her network.

Besides confusion around strategic direction, Donna warns that clients showing early signs of poor communication also set off relationship red flags. She advises documenting conversations rigorously right from the start to confirm shared understanding. 

For example, Donna uses Otter to transcribe recorded client meetings. Using transcriptions ensures quality assurance and allows her and her clients to reference previous agreements if questions around scope, priorities, or responsibilities emerge later.

Donna also emphasizes having candid conversations around perceived misalignment early and often. By reviewing contracts collaboratively, reestablishing mutual expectations, and resetting the relationship positively, agencies can salvage problematic fits. Allowing frustrations to fester leads only to diminished trust and value over time.

#3: Mitigate Client Risk by Diversifying Revenue

Given Donna's past experiences of losing major clients unexpectedly during recessions, she also urges agencies to diversify their revenue streams. Relying too heavily on one or two large-budget accounts for most income exposes agencies to massive risk. When those accounts suddenly drop off or renegotiate lower budgets, the financial loss can permanently shutter agencies.

Donna suggests balancing a few high-touch, high-budget enterprise clients with a broader selection of mid-market and small and midsize business accounts. While larger clients do allow for greater scalability, an agency functioning like a content factory may suffer from burnout and disillusionment.

Despite their modest budgets, smaller clients help vary days with less intense demands and greater creative freedom. Their projects function like palate cleansers for agency teams accustomed to high-pressure Fortune 500 work. Additionally, with numerous accounts spread over various industries and campaign types, no single client loss collapses the entire business.

For Donna, while tempting, focusing solely on large accounts undermines an agency's long-term viability. Revenue diversification provides stability; overreliance on high-budget clients invites disaster.

 #4: Cultivate Agency Partners Versus Competitors

Beyond diversifying clientele, Donna also urges agencies to diversify their circle of agency peers. Rather than viewing all other agencies purely as competitors, she suggests identifying potential partners working in complementary spaces. Real opportunities emerge for symbiotic scaling through embassy programs, invitations to collaborate on joint proposals, and cross-referrals.

As copywriting and content development form only one portion of Donna's services, she feels comfortable referring clients to other specialists in the industry. Even large client contracts with multiple needs get divided between trusted agency partners who then subcontract to each other. 

Then, playmakers like Donna can focus on their core strengths. In turn, Donna's connections refer inbound leads requesting copywriting directly to her. This exchange allows both agencies to gain new accounts. Donna has even used tools like MarketerHire to access new business and networking opportunities. 

For Donna, acknowledging that no agency can stand alone as a one-stop shop opened possibilities for growth impossible to gain through solo business development. Finding peers who similarly prioritize win-win relationships instead of zero-sum contests over clients remains the key. Foster an abundance mentality, Donna urges. A “we” vs “me” attitude invites reciprocity. 

By embracing a cooperative agency ecosystem, company leaders can scale their business while retaining their strategic focus. Shared networks lift all boats.

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