If you are in the process of establishing your new agency, you are most likely encountering difficulties every step of the way. This is totally normal, and every new agency has to make big decisions on everything from branding to client outreach to core services. One of the most important choices that every agency owner has to make very early on, is what kind of pricing model their agency will implement. Pricing has a huge impact on every aspect of a business, including your customer satisfaction and your agency’s profitability. Your pricing model has to align with your agency’s capacity, long-term goals, and the ability of your team to deliver quality service at a particular price.
To help all the new agency owners take a major step forward, here are some popular pricing models you may want to consider.
Freemium Pricing
If you are just starting up, this strategy is great for attracting new clients and growing your agency. Freemium pricing means that you will offer your customers some part of your features or services for free, expecting that some of them will become return customers. For example, if you are establishing a digital marketing agency specializing in ads, you can offer some free copy and visuals, and run a trial ad to show your client how effective your marketing solutions can be for growing their business.
Value-Based Pricing
If you believe your agency’s services or products are a unique or extremely effective solution, you can apply value-based pricing. In this strategy, you will look at the actual value your service brings to the customers, and then calculate the pricing as a function of that value. This is a useful model and implementing a value based pricing strategy for digital agencies can help you to make some major profits. The normal starting point for value-based pricing is to set your price at around 10% of the value you expect to provide to the customer. For example, if you expect your SEO strategy to bring in $10,000 for your client, you can offer your service for $1,000.
SaaS Pricing
SaaS stands for “software as a service”, which is perfect if you have an online platform or a digital solution that the customer can use long-term as and when they need it. In this case, you can price periodically through a subscription or membership fee so that clients have the right to use your software. Unlike traditional software models where you charge one time for your license, this model offers you the opportunity to build your brand image and generate returning profit.
Competitive Positioning
Setting your prices based on your competitors’ is always a reasonable starting point. There are different strategies such as undercutting their price to offer a similar service or product or pitching at a higher price with the angle that your service or product is markedly superior. It is important that you do thorough competitor and customer research so that you can get this approach just right.
The Razor Blade Model
As its name suggests, this pricing model was popularised by razor blade brands. Essentially, razor blade companies sell their handles for a low price and then sell their actual razor blades at a premium price. As an agency, you can apply this method by setting low prices for your ad copy or articles and then putting a premium on your extra services without which the copy or articles will not be effective.
Tiered or Goldilocks Pricing
If you plan to target different demographics of potential customers, you may want to consider a tiered or goldilocks strategy, where you offer several pricing options, depending on the complexity of the work you are providing. This will start with a basic service package at a lower price all the way up to the most exclusive package which you charge a premium for. This is also a great model for educating your customers so that they can increase their knowledge and use of the service, and upgrade their plan over time.
A One-Time Fee
With a one-time fee, as you may have guessed, the customer pays one time for your service. This may be a lifetime contract, but more commonly, it is a yearly contract. This is a good pricing model if you are looking to increase a client’s online presence, where your team will take care of their social media and website, run their online customer service, and implement their internal communication plan.
Per Use/Seat Pricing
If you have a solution and aim to target big corporate groups, this is the option for you. Per-use pricing is similar to SaaS pricing, but instead of paying periodically for unlimited use of your platform, the client pays per seat. That means the customer has to pay for every company in their group that wants to use your service.
Enterprise Pricing
Not all of your clients will fit into your regular standard option plan, as some of them may be larger and come with a bigger budget. This is when you can apply enterprise pricing, where you calculate an ad-hoc price for that specific client for a predetermined period (usually a year). Once that year is up, both parties can then review the price based on the results.
Cost-Based Pricing
Many businesses implement a cost-based pricing strategy, where they analyze the actual internal workload, and then base the price on that work. For example, if the internal costs of a project are expected to be $1,000, you can level that up by 100% and charge your client $2,000.
There is a lot of work that goes into deciding the right pricing strategy. From analysis and customer insight research to tiered pricing levels, there is often no one size fits all approach. Even after you have chosen the pricing model for your agency, you will still need to execute it effectively. Your pricing strategy may need to change during the lifetime of your agency, so it is crucial that you are constantly reviewing it. When writing your pricing page, try to tell the story of how valuable your service is and why signing up for your agency is worth every penny.