The Guide to Agency Pricing: 5 Models to Consider  (+ Sales Agent Commission Structure)

The Guide to Agency Pricing: 5 Models to Consider (+ Sales Agent Commission Structure)

Choosing the right pricing model is one of the most important decisions any agency owner will make. Your pricing structure directly impacts your profit margins, cash flow, and even the types of clients you attract.

With the right model, you can maximize your earnings while providing excellent value to clients. On the other hand, choose poorly and you could leave money on the table or take on too much risk. 

In this comprehensive guide, we’ll explore the most popular pricing models for agencies and examine their pros and cons. We’ll also look at some of the different sales agent commission structures to incentivize and reward your team.

Why choosing the right pricing model is so important

The digital age has brought about significant changes to the way agencies price their services. Today’s clients are better informed and expect clear, upfront pricing that reflects the value received.

As a result, many agencies are moving away from one-size-fits-all pricing structures in favor of tailored solutions, personalized to the unique needs and goals of each client. This approach allows for greater flexibility and adaptability, fostering stronger client relationships.

The right pricing model can enhance profitability, foster client satisfaction, and support sustainable growth. It reflects the agency’s value proposition, positioning in the market, and approach to client relationships.

Conversely, a poorly chosen pricing model can lead to financial instability and strained client relationships, significantly damaging the agency’s reputation. Underpricing will erode your profit margins while overpricing will alienate potential clients.

It’s not just about your clients though — pricing also affects the internal dynamics of your agency. Your pricing will influence how you allocate resources, manage workloads, and motivate employees. For example, a fair and transparent commission structure can improve sales performance and foster a positive working environment.

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5 common pricing models to consider for your agency

Now, let’s talk about some of the available options. As we look through the most popular agency pricing models, think carefully about how they would work within your agency and the impact they would have on your business, your staff, and your clients.

1. Hourly pricing

The hourly rate model is one of the most straightforward pricing strategies, where agencies charge clients based on the actual time spent on a project. The rate is predetermined and the total cost is calculated by multiplying the rate by the hours worked.

Hourly pricing tends to be popular with newer agencies due to its simplicity. 

An hourly rate also works well when you regularly deal with fluctuating project scopes. If the client suddenly needs an extra day’s work for the latest project, all you need to do is add the required number of hours and you’re good to go. 

Agencies offering specialized services where the worked time might vary between clients, like consulting and coaching, may also benefit from an hourly rate.

In some cases, hourly pricing may work well as part of a hybrid model. For example, if your agency has a retainer client that needs supplementary services as a one-off, rewriting the entire retainer agreement doesn’t make much sense. Instead, you can charge an hourly rate for those extras and return to the normal retainer agreement next month. 

Of course, it’s not all positive. Hourly rates can easily lead to disagreements, where both your clients and staff have very different ideas about how long a task should take. Hourly pricing makes it harder to predict future income, especially where the hours worked vary from month to month.

Clients may also end up comparing your hourly rate with their salary and resent what they see as unreasonably high agency costs (usually failing to take into account the value you’re delivering and the overheads that come with running an agency). 

If you end up choosing to go the hourly route, make sure your clients know what that rate is and tell them immediately if it looks like you’ll need extra hours. You should also diligently track all billable hours with time-tracking software, so you know exactly how many hours to bill each month.

Pros: Simple, easy to calculate and adaptable to changes in project scope.

???? Cons: Lack of predictability or incentive for efficiency. Doesn’t account for value.

➡️ Top tip: Establish minimums for projects (e.g. no less than 4 hours billed) to cover consultation time and ensure there’s money coming in.

2. Fixed project fee

In the fixed fee model, agencies and clients agree on a set price for a defined scope of work. No matter how many hours the project takes, the client pays the same amount. This model offers predictability for both parties but requires a clear understanding of project requirements.

Fixed fees work well for highly specialized services like web design and SEO, where project scopes are easier to define and accurately estimate. 

For agencies, a project rate gives you a more predictable and consistent income while also incentivizing efficiency. The faster you finish the project, the greater the profit. 

This predictability works both ways, enabling clients to know in advance how much a project will cost and budget accordingly. 

However, there are some important caveats. If you’ve ever found yourself still working on a project hours (or even days) after you expected to finish it, you’ve experienced the planning fallacy — the tendency to underestimate how long a task will take. Agency owners need to overcome this bias and accurately estimate project timelines in order to price projects correctly. 

You also need to be crystal clear on the project scope, otherwise, scope creep can quickly eat into profits. 

To price fixed fee projects profitably, conduct a thorough assessment of project requirements before quoting. Break down the project into specific milestones with due dates to clarify deliverables. 

Ensure you have clear change order policies in place. If the scope changes, your cost changes. Maintain open communication with clients to manage expectations and address issues promptly, before they become serious problems.

✅ Pros: Cost predictability, incentive for agency efficiency, and simplicity.

???? Cons: Potential to underestimate time/work needed, leading to possible compromises on quality. Potential for disputes over scope changes.

➡️ Top tip: Projects always take longer than expected. Add padding to allow for any unexpected delays or other unknowns that will inevitably pop up.

3. Value-based agency pricing

Value-based pricing involves setting prices/charging based on the perceived value of the services to the client, rather than the cost of production or time spent on the project. This allows for premium pricing, making it the gold standard for many agencies. 

Value-based pricing works well for agencies that provide measurable ROI, like leads generated, revenue created, costs reduced, etc. It’s popular with high-end strategic services, like corporate consulting and executive coaching.

Despite the higher prices, this can be popular with clients who prioritize performance over costs. Value-based pricing fosters a results-driven approach and encourages agencies to prioritize client success, leading to potentially better outcomes. 

Done correctly, value-based pricing can strengthen client relationships and retention — especially if results consistently exceed expectations.

Not every agency can use value-based pricing though. If a client is going to pay premium rates, they need to clearly understand the value proposition, but quantifying value can be tricky for some services. 

For example, what’s the monetary value of brand awareness, or public relations? Services like these are undoubtedly valuable, but they don’t typically have a direct, easily measurable financial impact.

If you’re going to adopt value-based pricing in your agency, you’ll need a deep understanding of your client’s business and be able to quantify the results of working with your agency. What metrics and KPIs can you impact? 

When talking with the client, clearly communicate that value proposition and justify the pricing with tangible benefits. It also helps to point out the value you’ve delivered (either for them or similar clients) in the past. Prove you can deliver results and clients will be knocking down the door to pay your agency fees. 

✅ Pros: Alignment with client value, potential for higher profits, and differentiation in the market.

???? Cons: Difficulty in quantifying value, risk of client disagreement on value, and potential for pricing disparities.

➡️ Top tip: Conduct thorough research to understand the client’s business and the value of the services provided.

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4. Commission/percentage of spend

The commission/percentage of spend pricing model involves agencies charging a fee based on a percentage of the client’s expenditure on a particular campaign or project. 

This model is commonly used in advertising and media buying, where the agency’s fee is a percentage of the client’s media spend. Similarly, brokerage services may take a percentage of all deals closed. 10-20% commission rates are typical, though some services go up to 30%.

A percentage-based approach scales with your client, which makes it simple to implement for clients of all sizes. However, scope creep can still be an issue, with clients demanding more for the same percentage.

For profitable commission-based pricing, clearly define what types of spend will entitle you to payouts. 

It’s also important to protect yourself. For example, you might make it clear you’ll still require payment even if the client cancels their spend as protection against bad faith budget cuts. Regularly review and adjust the commission rate based on market conditions, client relationships, and value provided by the agency.

This pricing model can be advantageous for both agencies and clients when there is a mutual understanding of goals and a focus on achieving the best outcomes, rather than merely increasing spend. 

By applying best practices and maintaining transparency, agencies can build strong partnerships and ensure fair compensation for their services.

✅ Pros: Upside revenue potential is essentially uncapped. The more clients spend, the more you make.

???? Cons: No control over revenue or margins. Client decisions directly impact your earnings.

➡️ Top tip: Put minimum fees in place to encourage activity and protect your cash flow.

5. Retainers

The retainer model involves a client paying a recurring agency fee (usually monthly) for ongoing services or access to the agency’s expertise. This model provides agencies with a steady income and fosters long-term client relationships.

Retainers work well for agencies providing a wide range of services that can be bundled into a predictable package. 

For agencies, an ongoing retainer package adds an element of security and improves cash flow. Retainers offer stable, recurring revenue streams, while also encouraging client loyalty and retention.

Clients benefit from retainers too, getting the peace of mind that comes with having your expertise on tap, all for one set monthly price. 

Retainers also work well with tiered service packages. You can create productized versions of your most popular services at different price points to attract a wider customer base.

Retainers aren’t right for everyone though. Some months you might get paid for relatively little work, but there’ll also be months where you’re working yourself to the bone. You may feel like you’re leaving money on the table by charging too little for your high-value services.

For a profitable retainer model, audit your past projects to determine the average monthly hours required for each service. Price at a level that covers your agency costs and averages at least 2x your hourly rate equivalents.

In most cases, the difference between a successful retainer and a long-term headache all comes down to the contract. For example:

  • What services are covered by the agreement? What’s not covered? 
  • Do unused hours/services carry over to the next month? If so, are there any limits? 
  • How much notice is needed by either party to cancel the retainer?

A transparent and comprehensive retainer agreement will increase the chances of a positive outcome for both parties. That agreement shouldn’t be set in stone forever though; regularly review and adjust the agreement to reflect changes in client needs and market rates.

✅ Pros: Financial stability, long-term client relationships, and better resource management.

???? Cons: Potential for complacency, risk of client dependency, and challenges in adjusting the retainer fee.

➡️ Top tip: Clearly define the services included in the retainer and set expectations for availability and response times.

Understanding the sales agent commission structure

Along with deciding on how you’ll charge for your agency’s services, you also need to consider how you’ll compensate your sales team

A fair commission structure is the cornerstone of a motivated and high-performing team. By properly rewarding agents for their contribution, you show you appreciate their efforts and motivate them to improve further. Moreover, it helps attract and retain top talent, enhancing the agency’s overall sales performance.

Common sales agent commission models include:

  • Flat rate commission. Agents receive a fixed percentage of the sale value, regardless of the volume or value of the sale.
  • Tiered commission. The percentage rate goes up in relation to performance. 
  • Straight-line commission. Agents are paid based on how much of their quota they sell.
  • Revenue share. Agents get a percentage of the ongoing revenue generated from the clients they bring in.

Ensure that your commission structure aligns with the agency’s sales objectives and encourages behaviors that contribute to overall success. While generous commissions can motivate sales agents, that can’t be at the cost of the agency’s financial stability. 

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Check industry standards and take a peek at what your competitors are offering to get an idea of what will attract the right kind of agent. Flexibility is important; be adaptable to changing market conditions, sales agent feedback, and evolving agency goals to make necessary adjustments to the commission structure.

Once you’ve decided on your compensation plan, clearly communicate this to your team. Share exactly how you’ll calculate the commission and when people can expect to be paid to avoid misunderstandings and build trust.

By choosing the right commission model and applying best practices, agencies can cultivate a high-performing sales team and foster long-term business growth.

Final thoughts

There’s no single pricing model that’s perfect for every agency. Newer agencies might prefer to start with hourly pricing due to its simplicity, while well-established high-end agencies will likely want to go with value-based pricing. Many agencies will benefit from a hybrid approach, using a combination of pricing models.

The right plan for you will depend on what kind of services you offer, the type of clients you’re targeting, and your overall objectives for the agency. Take the time to research options, do competitive analysis, and set pricing that’s aligned with the value you create.

Whichever model you choose, recognize that your time and expertise are hugely valuable resources. Price them accordingly, and don’t be shy about commanding premium pricing for premium services.

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