One of the best ways for an agency to make more money is through increasing billable rates.
But there are a lot of different pricing models. It's important to understand how different agencies bill, so you can experiment with new structures and approaches to billing clients.
The four most common ways agencies bill their clients are:
Hourly: This one is self-explanatory. You tell your clients they will be charged $X per hour for every hour spent on the project. This might make them nervous because the total could end up being a lot more than they wanted to spend.
Value Pricing: In industries like insurance, clients are willing to pay a premium for a qualified lead. If you have a proven method that works in your niche, you can and should charge based on the client's perceived value.
Project Based: This is very similar to value-based pricing, with one important difference -- the total cost for the project will be a flat rate, but there will be some "pass through" costs added on top of the agreed-upon project price.
Retainer Based: Agencies that work on retainer receive a set amount from a client. That "retains" the agencies services for a certain amount of time or scope of work, and the client must pay for anything outside of pre-defined packages. Clients typically sign a contract for a set number of months.
So, how do you decide on a model of doing business and increase billable rates? Here are seven creative ways to increase your billable rates:
You want to make more money, but you aren't going to do it by hourly billing, except for one-off or really small projects. This type of billing only cheats your agency: If your agency is efficient, you won't bill as many hours as one with slower processes, but you'll still end up providing work that produces the same or similar results. Either you lose for being efficient or clients end up paying for your agency's inefficient processes.
There are other ways to bill that will ensure a fairer rate of pay.
2) Productize Your Service Offering
You don't sell goods by the hour, so why sell services that way?
The first step is to figure out what productized service you sell. For example: A content marketing agency might build an entire business around productized content SEO audit. Because the process and end deliverable is clear, you can productize it.
The second step is to figure out how many hours it takes to deliver the service. A top tier content audit might require five hours from a SEO manager and five hours from a seasoned copywriter.
The third step is to figure out how much to bill per hour for the productized service for your agency make a profit. You'll need to determine -- if you haven't already -- the hourly rate for the staff involved. (Try the rate calculatorfrom BeeWits.) Calculate any extra costs -- such as software, account management, or design time -- and then mark it up with a reasonable margin.
Most clients prefer a flat rate because it is easier to understand. This way, they don't have to worry about how many hours they are "spending" every time they contact your agency.
Productized servicesare more often done by freelancers, but that doesn’t mean you couldn’t make it work for your agency. Adding a productized service is an easy way to add additional revenue streams to your more consultative services.
3) Turn Scope Into Value
How big is the project you're undertaking?
The more you know about the total scope of your client's product, the better off you'll be when it comes to ensuring you deliver value. Don't just start billing by the hour, without any idea of how long the project will take. That doesn't work out well for you, or for your clients.
Instead, find how what they are trying to accomplish with a marketing project. For example, a client might say “I want more shares and social traffic.”
Sure you can deliver that, but maybe the client is after a bigger brand presence. That could allow you to focus on higher value services, such as brand monitoring, engagement, and reporting. If you can deliver a bigger brand presence in a way that is measurable beyond traffic and shares, your client won’t need to hire a PR firm, too.
4) Track Non-Billable Hours
How much of your work is being done for free?
For example: How much time researching a client are you spending when developing the proposal?
If you’re serious about your agency’s time management, you need to bill for research -- especially if you win the proposal. You don’t want to give clients an itemized list of every tiny thing you’ve done. They'll think you are being trivial, and that’s never good. Rather than take the risk of over-itemization, just track all of your time very carefully and include this in the final contract or in an upfront discovery phase.
When you track all your hours, you can better budget for your total billable hours and gain a more accurate understanding of your utilization rate. This will help you to adjust your billable rate to cover your total costs.
5) Upsell and Outsource
Regardless of your service offering, I am willing to bet that there is one service your agency hangs its hat on. It's what attracts clients to your firm.
For your core offering, you should build out related service offerings that increase the value of your core service and allow you to continue to expand the relationship. If you are just starting out, consider outsourcing to an expert whose rate is low enough that you can add a margin to it for your firm's time to manage the account.
6) Implement Performance-Based Incentives
At the end of the day, your clients don’t care about how much time you spend on their projects. They’re motivated by paying customers. So why not charge them a slice of the pie?
Marketing agencies like Wickfire and Skyworks fully embrace the pay-for-performance billing strategy. Both agencies, and others like them, take a cut of the added revenue they create for their clients. The more money their clients make, the more they make.
Clients like this model because the agency has some “skin in the game.” A downside is this typically involves a long negotiation process. Another drawback to this is once you boost their bottom line, your clients can say "bye bye."
7) Give Clients Access to a Premium Service
Some clients are simply needier than others. You want to help them, but they can really take up your time. Fortunately, you can also charge them for that time.
If you offer a type of "white glove" service to clients who need a little extra hand-holding, you can get paid for the extra attention you know they will require. It’s a winning situation for everyone involved. Another good reason to use it is that it offers clients something they can’t get just anywhere. That can make it more likely that those clients will stay with you for the long term.
Get Client Buy-In
By looking carefully at how to increase your billable rates and by studying how other companies bill their clients (and there are plenty of different ways), you can make changes that will improve your bottom line without alienating your clients.
Figuring out how you need to change may take some time, but it’s well worth working toward a better model that reflects your skills, expertise, and goals. Once you decide on a path to change pricing, you’ll need to change expectations and ease clients into the new model. Remember: Change is never easy, but it is necessary.
Originally published Jul 15, 2015 7:00:00 AM, updated February 01 2017