How Much Should You Be Paying Your Marketing Agency?
If you’ve decided to hire a marketing agency, that’s great news on making a decision and getting ready to move forward.
The next step though, in our experience, is perhaps the most potentially disruptive part in the process because this is the point you’ve gotta make final decisions about what you really need, and how much to pay. And then, of course, you have to be sure that the price quote fits the bill.
Figuring out what is reasonable is the name of the game here.
Whether you’re outsourcing all your marketing needs or just a few specific campaigns, you’ll want to make sure that the price is right – or even fairly close to right.
Agency Pricing Models
According to WebStrategies Inc “Marketing spending as a percentage of revenue tends to fluctuate, but generally hovers between 6.5% to 8.5%, with the highest percentage again coming from B2C service companies followed by B2C products.” When it comes to marketing agencies, we’ve found that while there is no one-size-fits-all pricing structure. There are roughly six pricing models that are most commonly used.
- Hourly Rate – Agencies offer a set rate per hour of work which allows you to stick to your budget by capping your hours. The other option is to give the agency latitude to work as long as it needs to get the job done. The downside with an hourly rate is that it’s usually not as attractive price-wise as other pricing models.
- Commission-Based Compensation – In this model, agencies work with a fixed percentage of the client’s media spend, which usually comes out to around 15 percent of the total spend. This compensation model is growing in popularity and may soon become the most popular payment structure.
- Retainer-Based Model – Here agencies charges a flat rate for work done either monthly, quarterly or annually, and is based on the work expected to be done during the payment period.
- Project-Based Pricing – This is another word for fixed pricing, where agencies charge a set amount for a specific campaign or project. This model works best for projects with a limited scope or set completion time.
- Performance Model – Price is set based on the potential value the campaign can bring to the client. For example, the agency may be paid a percentage of each sale generated from the campaign or may receive bonuses for hitting certain milestones.
- Hybrid – Hybrid models combine two or more payment structures agreed upon by the agency and the client. In this model, there is more flexibility all around, and you can mix and match. For example, you may decide to pay a monthly retainer for inbound work but apply a performance model for your PPC campaigns. Pay for extra marketing operations work on a per hour basis.
As you think through the different models, you’ll also need to consider which billing option is going to best work for you…..which brings us to the question of the hour.
What is an Appropriate Price to Pay?
If you were in search of a magic answer for this question, don’t wait for it – at least from us. The price depends on several factors/variables that is always related to (1) your industry (2) services required (3) level of competition (4) KPI goals (5) budget and (6) the actual product.
A marketing agency should be able to advise you regarding campaign result expectations and success metrics. But since it is not an exact science, many factors contribute to the success of any campaign. And we do encourage you to be weary of a cheap price quote.
In our experience, paying less than $5,000/month for a full inbound marketing campaign isn’t reasonable, and is likely to return disappointing results. Likewise, if you’re operating in a highly-competitive B2B market, a PPC budget of less than $5000 per month will not bring much return. Agency fees on PPC would depend on the number of channels (Google, LinkedIn, Facebook, Twitter, etc.) and range from $2500 - $5000 monthly retainer.
We won’t sugarcoat anything at this point: you get what you pay for with marketing agencies. The more you’re willing to invest – if you’re going with the right team, the more results you should expect to see.
Bottom Line Questions
How much you should spend on a marketing agency depends on several factors, and each of these you’ll need to digest on their own.
Here we go:
1 – The products you are marketing and markets you want to enter: Consider that some products have tougher competition than others, and that the expense and complexity of the product will often determine the length of the decision-making process.
2 – Your company lifecycle stage (startup, more established, enterprise, etc.)? Depending on the stage of your company, your overall marketing strategy is going to be vastly different in many different instances. Startups, for example, may need help defining their messaging whereas companies who have made it past the first two years and are funded will be likely working on growth and penetrating new markets. There are no rules about any of this, unfortunately.
3 – Your overall budget. You’ve got the difficult decision about dividing up the pot of money and how much of the available budget can and should be invested into marketing. Not an easy decision, but definitely one of the most important ones strategically for your overall business plan.
4 – Which marketing services you need, and where you put your overall focus: Inbound? PPC? Content only? And which markets? Or all of the above? There needs to be a marketing strategy in place that considers the prioritizations and order of events.
5 – How much the generated marketing KPIs are worth to your business. Here we’re talking about expected ROI and how effective your company is in achieving its key business objectives. Knowing the required ROI to become sustainable – let alone profitable, is the big question where everyone wishes that they had a crystal ball.
So Where Does This Leave Us?
The question of how much to pay for your marketing agency is actually not a hard one to answer once you’ve muddled through these questions and come up with answers. And focusing on the right dollar amount is way clearer once you quantify your goals and their valued ROI.
For a free and seasoned consultation with our team here at Marketing Envy, drop us a line; we’d love to be in touch.