Is your agency’s pricing model fit for purpose?

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For a long time, agencies have worked on a fixed price or have been engaged on an ad-hoc project-by-project basis. Brands are however changing the way they like to work with agencies, so agencies need to respond to that. We're increasingly seeing brands wanting to work in a more collaborative way, where the agency is supplementing and upskilling in-house talent to create the best team possible in a cost-efficient way.

We’ve also had to look at how we can combine UK-based services with off-shore services to create a more competitive edge. Especially in many of the RFPs that we receive and now often find ourselves ‘pitching’ our services and pricing model in a variety of different formats.

Matching the right model to the right client can be a crucial factor in the development of ongoing relations between the agency and client, so it’s best for both parties to put some serious thought into the pricing model to be used. Here are three formats to consider:

Time & Materials pricing model

If you opt for a T&M based project you naturally have full transparency on how your budget is being spent. There is no guessing as to how many hours a task cost: it’s all right there in the invoice!

A major misconception, however, is that a time and materials based project is like having a blank cheque for the agency. At Sagittarius, for example, our initial estimate is our project budget. We develop in one-or two-week iterations, and at the end of each iteration, the project is in a working, testable state. We repeat this process until the project is ready for final testing and release.

This allows us to have meaningful conversations with our clients around features, budget and time. We have the flexibility to adjust features as priorities shift or as allowed by the budget.

Firm fixed price projects work best when the deliverables are well-known and understood up front, when there is little need for flexibility and changes to the deliverable. Invariably when building complex websites there's often a perception this is the case by the prospective customer but the reverse is often true. We believe in a flexible process, which allows for change. We believe in a fully transparent process. We believe that with the rights checks and balances, a time and materials based pricing model allows for this.

Target Price model

The target-price model can be used to assist clients when the available budget is the main constraint or when it is genuinely difficult to define the scope of the work in the specification of requirements.

Some avoid T&M based costings as they are worried the project will continue on without any real pressure to bring the project to a closure all the while funds are available. In order to avoid exceeding the available budget, one simple solution is to make the agency aware of the available budget (the ‘target price’) and then let the agency use this as the guide for defining the scope of the services, spelling out exactly what can or cannot be delivered for that price. The focus then is usually on the quality, quantity and outcomes of the services to be provided rather than price.

Managed Resource Team Retainer model

A managed resource team retainer model enables the client to buy into a a team of people or as we call it, a ‘Pod’ whose starting structure typically includes a minimum of four key roles: e.g. account manager; project manager; client-side developer; and server-side developer. This team can then be adjusted or augmented by additional members if the client size warrants it or there is a need for additional capacity at certain times.

This pricing model is typically suited to clients with a minimum six month programme of work or ongoing BAU/Sitecore development whereby a dedicated team would be invaluable to achieving their digital aspirations and transformational goals. As this is great for longer term engagements and provides a mutually beneficial guarantee of a 'programme of work' for both the agency and also for the customer, it allows the agency to be competitive in it’s costings. For example, in the case of Sagittarius, foreknowledge of an ongoing programme of work allows us to offer a blended rate between our UK, Ukranian and Sri Lankan Sitecore certified staff.

With agency relationships increasingly in the spotlight, and in many cases, under review, finding the right pricing model (balancing the client’s needs and expectations alongside the agency’s resources and specialisms) has never been more important.

If you would like to take a fresh approach to working with an agency we would love to hear from you!

Paul Stephen is chief executive officer of digital marketing agency Sagittarius

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