In doubt about how much to charge for your Digital Marketing services? We will help you calculate costs and set the right amount. Check out!
Do you have questions about how much to charge for your Digital Marketing services? Read this article to the end. In it, we show you how to make a proper pricing strategy, with a step-by-step guide to all the variables you must consider to make fair pricing, both for your agency and for your clients.
According to the Panorama of Digital Agencies 2020, one of the biggest challenges in this market is knowing how to price Digital Marketing services. This shows that, although it is a decisive process within the construction of a successful commercial proposal, the definition of value is still a matter that generates many doubts in the agencies.
We know it’s important to get the price and service packages right on offer. If your price is too low, you will certainly jeopardize the growth of your business and find it difficult to close the accounts at the end of the month. If your price is too high, you will suffer a lot to close a new account, or will be easily defeated by the competition. The calculation is not so simple. So, what is the ideal price for your services?
We always see agency professionals looking for market averages, approximate values being charged by their competitors, numbers, and standards. Although benchmarking is a highly recommended practice in the industry, it is important to keep in mind that there are many factors that affect the pricing of your services.
Each agency and each client are in a specific context that needs to be well analyzed before making a decision. Therefore, it is important that you are aware of the variables that led you in shaping the sales process.
Furthermore, it is important to understand how much your service is worth: how much do you add to the customer’s business? How relevant is your delivery to him? How much will it grow when having your agency as a partner supplier in Digital Marketing strategies? This all comes into play, especially at a delicate time for the economy like the one we are living through.
In this post, Blue world City will help you to calculate in detail your operating costs and define the most appropriate amount to close your next deal. Follow up!
But first, check out 3 strategic pricing tips for your agency
The pricing of services offered by agencies goes beyond the cost + profit margin formula. It also takes into account a strategic component of the business regarding the marketing mix to reach your potential customers. For this reason, we have separated some tips that can help you formulate a pricing strategy for your Digital Marketing services. Do not proceed to step by step before checking them out!
1. Price is one of the business strategies
The price setting process involves a series of steps and, in addition to establishing the budget, references the economic and financial viability of the business. In the marketing mix strategies (also known as the 4 Ps), the price is strongly linked to the list price policy, discounts, concessions, terms and conditions of payment, and to correlate with the other strategies that: p romoções, p race and even p roduct.
2. Price is different from value
In the pricing formulation, it must be ensured that the price is set above its cost (budget). It is also important that there is a perception of customer value above the price of the service. When identifying the most appropriate pricing strategy, it is important to understand how your target customer sees your services, as the price has the mission of segmenting, positioning and defining target markets to be reached.
3. Price creates demand
It is important to identify the company’s strategic marketing objective. The author Marcos Cobra in his book Marketing Basic: A Brazilian Approach (1997) suggests the following pricing tactics:
a) Premium Strategy: high quality services, high prices, aiming to reach the high end of the market.
b) Penetration Strategy: high quality services, fast market penetration, with an average price, slightly below the market.
c) Super Bargain Strategy: high quality services at low prices, quick market introduction, at the expense of the competition and above all offering advantageous conditions to distributors.
d) High Price Strategy: for an average quality, a high price can mean an attempt to increase the value of the service and quick profitability.
e) Medium or common Quality Strategy: the practice of a price consistent with the objective quality of a fair share of the market, no more, no less.
f) Bargaining Strategy: offering a medium quality service at a low price can only mean a bargain with distributors and consumers.
g) “Hit and Run” strategy is to take an initial advantage and quickly exit the market, as a high price with low quality is a predatory action.
h) Strategy for Low Quality Articles: an average price for a low quality service can only be associated with a policy of taking advantage of the brand image.
i) Low Price Strategy: low quality services correspond to a low price strategy, to sell quantity.
By identifying the pricing strategies developed in the previous paragraphs, it is possible to validate if your agency is conducting this process assertively, or if it is leaving “money on the table”. It is known that there are several ways for an agency to direct its prices with its clients, such as in the form of a monthly fee, per job or success fee. Remembering that in any of the strategies presented, you should consider your agency’s marketing mix strategy, the 4 Ps.
The step-by-step way to calculate project costs
The cost of the service is one of the bases for calculating your sales price. Follows step by step so that you can establish with basis the prices of your services and have security when presenting the values to the potential customer.
Step 1: Divide the project into two steps
Onboarding : all processes that need to be carried out in the kick-off phase and that are necessary to make the machine run (new website, blog building, set up of the Digital Marketing tool).
Ongoing: all processes from the other phases that need to be carried out continuously and on time.
Step 2: List all activities, costs, professionals and average time
A necessary precaution is always to take the time to review and align with your agency’s team to avoid possible errors or inconsistencies in this list.
Step 3: Do the calculations!
This step is divided into:
3.1. Labor cost:
Here you should calculate the average hourly cost of the professionals involved in the project — you can probably count on your accountant’s support for this task. Remember not only to consider the monthly fixed salary, but also to calculate all employee benefits, including transportation vouchers, meal vouchers, thirteenth, and vacations.
Next, you must map how much time each professional will use to carry out the activities listed in the previous topic. Get to work!
3.2. Percentage of fixed costs
In this step, you must calculate the monthly fixed cost of your agency in recent months (rent, condominium, internet, telephone). Then you calculate the average gross revenue within that same period.
To find out what percentage of fixed costs are within your proposal, you should divide the average fixed cost by the average gross revenue and multiply it by 100.
Example: CF% = (BRL 2,000/BRL 16,000) x 100
CF% = 12.50%
This means that each service sold must support 12.50% of the fixed costs through its sales.
3.3. Third-party investment
We know that the offer of Inbound Marketing services can involve an investment in a Digital Marketing automation and integration tool, a budget for paid media or the hiring of outsourced professionals to produce content. Therefore, it is important that you add these values to your final table.
At this stage, it is worth checking with your accountant what taxes are involved in providing services.
3.5. Profit margin
Agencies generally do not have a fixed profit margin to place on all bids. For this calculation, you should consider some points:
a) Customer moment
As you can have access to a lot of strategic information at the time of the briefing, you can certainly assess the possibility that the potential client will invest in hiring your service and how much he is willing to pay for it.
b) Moment of your relationship with the customer
If by contract renewal you manage to deliver all the results promised to the client so far, you will certainly gain an infallible argument to value your service more. Otherwise, the moment may lead you to adapt your service package and re-evaluate suggested prices.
c) Moment of your business
The more consolidated your business is in the operating market and the more successful cases you have, the more you gain credibility and security to have a greater profit margin for your services.
d) Trading margin
Many customers tend to have a price objection when submitting the proposal, so you can think of some margin for negotiation already within the pricing stage.
Once all the calculations have been made, we will arrive at the final price for the provision of services.
Final tip: add value to your services!
Remember that in order for the deal to really go well, it’s critical that your agency be able to position your service on the client’s priority list. You must show that the service offered by the agency is an investment for the client, not an expense. Otherwise, the customer will feel like they’re throwing money out the window – and being seen as a driver for this is a huge risk for you.
If your agency manages to escape the cost center view and become a strategic partner of the client, there is a good prospect of establishing a faithful relationship between the parties. Services that deliver results are valued – and this value enters into the business proposition with the customer.
In an argument about price, your speech can always be focused on the return you will bring to it. This breaks any kind of comparison and takes you out of the “lowest price war”.
And, after hiring, always do your part of the agreement with excellence. Gain trust through a service that is well-executed, transparent, and, above all, generates results for your client.
Once your client sees that the services you provide really make a difference, he will certainly not mind investing more and more in your agency.