It’s Not a Cost, It’s an Investment – How to Understand Agency Pricing

by | Jan 24, 2020 | JFG News

Every business or organization relies on marketing, whether it’s to gain customers, increase exposure or simply grow awareness about a product or service. While some handle their promotional and advertising work internally, many turn to a marketing and advertising agency to assist with their needs.

However, choosing an agency involves a lot of different considerations. What kind of services do they offer? How are prices calculated and how does billing work? How will they show results of the campaign? What makes them better than doing it myself?

While different agencies may offer similar services, that doesn’t mean that you should expect similar pricing – or similar outcomes. So why is that the case? To help clients better understand the process, let’s take a deeper dive into how we handle agency pricing, process and strategy.

Slicing Up the Pie

To start, let’s talk about pizza.

Everyone loves pizza – and frankly, if you don’t, you can go ahead and stop reading now – but we all like something different when it comes to our favorite pie. Maybe you like a traditional, floppy and greasy New York-style slice. Perhaps you like the thick and filling Chicago deep-dish style. Or maybe you prefer something different – the thin New Haven style, wood-fired or brick oven, or Buffalo’s unique and distinctive blend of doughy, saucy and cheesy.

aspects of marketing strategy Whatever style is your favorite, you also know you can get it a few different ways. There’s the cheap option – the closest national chain location that won’t make a really great pie, but can offer it at a low price. Then there’s your neighborhood shop that makes a pretty good pizza at a reasonable cost. Or, of course, you can go to an upscale or artisanal pizza shop that uses only fresh, locally sourced ingredients and offers a premium pizza for a premium price. Finally, you can make a pizza at home with your own fresh ingredients, but depending on your kitchen skills or your favorite style, it could be a tall order – or result in a fire, if you’re foolish enough to try and replicate that wood-fired taste in your oven. And all of this is a decision to make before even getting to the details – toppings, size, crust style.

There’s a lot more that goes into pizza selection than perhaps you thought, but one thing is for sure – while all the options to choose from will result in you getting a pizza, you can’t compare the quality equally across the board. The same is true when choosing an agency.

Pricing Your Pizza

OK, so we know what you can expect from these different types of pizzerias, but why are the prices for these pizzas so different? It comes down to a lot of different factors, ranging from staffing to experience and even the ingredients – many of the same factors that go into pricing at different marketing agencies.

Every agency has overhead costs that need to be covered as part of the price they charge for any client job. Just like a pizza shop has to pay for its ingredients, workers and overhead costs, your agency needs to do the same. Except its ingredients are things like materials, hardware and software; its workers include creative directors, copywriters and digital marketing experts; and its overhead costs – well, they’re largely the same for keeping the lights on and the heat running.

Regardless of where you order your pizza, the more there is to your order, the higher the cost will be for the finished product. A small cheese isn’t going to cost the same as a large with pepperoni, jalapenos and onion. Similarly, the more complicated your marketing request, the more it will cost. The pizzeria needs to cover its costs for your toppings, the salary for its employees, the overhead cost and a bit of profit. Your marketing agency does the same.

And what about doing it yourself? You’ll probably save a bit off the top since there’s no delivery fee, but you will still need to go to the store for your own dough, sauce, cheese and toppings. Then get everything chopped and prepared. And then cook it in your oven and clean up afterward. A pizzeria offers a big advantage on that front – they take care of all of that for you. It works similarly with an agency, where they handle taking the raw ingredients – your input and ad requirements – and combine it into something great. It also means you don’t need to pay for expensive design software and hardware, or invest your own time in creating and revising, or coordinate ad placements and scheduling yourself.

The Agency Pricing Model

Depending on the marketing agency, there are different ways that you may be charged for a given project. Some bill on an hourly rate schedule. Others use project pricing or quote out each job individually. And then there are outside vendor costs. So how does it all work?

Hourly Rates

A standard price point for many agencies is to assign a number of hours for a given project to cover the expected time for work to be done. This is most commonly a simple equation where the hourly rate is the employee cost times the number of hours for the work. However, determining the employee cost varies from agency to agency.

A majority of groups – JFG included – use what’s known as a blended rate which determines an average rate across all employees. This rate varies depending on the experience level of staff at the agency and even the physical location of the firm. This also means that whether you have a senior creative director or a junior copywriter working on your account, the rate is the same. Worldwide, the average blended rate ranges from roughly $150 to $200, depending on the agency size, location and – in some cases – the length of a client engagement (i.e., six months versus 24 months), according to Credo’s 2019 pricing survey.

As of January 2020, JFG charges a blended hourly rate of $150 for projects.

Outside Costs

For many projects, there are also outside costs that your agency will charge for with a slight markup. This may include printing costs, mailing or shipping fees, digital ad placements or other expenses. Typically, an agency marks up this cost by a margin of 5 percent to 30 percent, depending on what is being purchased. This is meant to cover the agency’s time to quote, coordinate, place and confirm the order – plus manage changes or issues – and cover any upfront costs incurred from paying the vendor ahead of receiving client payment. The markup also serves as a way to offset potential agency risk, such as a situation where a client doesn’t pay their bill or is late with a payment.

Package Prices

Sometimes a specific project will be individually quoted as a unique or one-time job. This is often the case for larger initiatives such as a product line guidebook with details specs or a major website redevelopment that has requirements that fall outside of a typical scope of work. When you get a quote for this kind of work, it will include the agency’s estimated hourly cost to complete the job, inclusive of meetings, reviews and proofing. It may also include any external costs, such as printing, mailing, website hosting or other fees.

This model offers benefits and risks for both parties. For the agency and the client, this creates a simple billing structure, but can skew if the project takes more or less time to complete. If the agency can complete the job quicker than expected, it can make a larger profit on the project – but on the other hand, if the client requests numerous changes or updates, it can require more time than quoted, making the job less successful or even a loss for the agency.

Our Business Is Your Business

Finally, the last thing for a client to know when considering an agency is that the agency is itself a business – but its success relies on your success. For some, working with an agency is a smooth process and results in some truly remarkable and successful campaigns that help both businesses grow. Others don’t fully understand the agency-client relationship or pricing model, resulting in a schism that breeds mistrust and failure before the campaign ever has a chance to thrive.

marketing agency at workLet’s take it back to the pizza shops. If you bought a pizza and it came to you cold, late and with the wrong toppings, you wouldn’t order from them again. The same is true of your agency – they want to deliver piping hot, fresh ads, creative materials and more that keep you happy with their work and help increase your sales. As your business thrives from the agency’s work, your agency can also grow to offer you a greater range of options and capabilities. As you become more successful, your agency can scale alongside you and help take your business even further.

The relationship between agencies and businesses is symbiotic, not parasitic. An agency shouldn’t exist to take your money and give nothing back – your agency should be your partner, working in tandem with you and understanding what your goals are to help you meet and beat them, allowing combined growth together.

Grab a Slice with Us

Don’t just take our word for it – let’s discuss your needs or your concerns about working with an agency and show you how we can help you succeed. Break bread – preferably covered with sauce, cheese and your choice of toppings – with us and we can discuss how to make you more dough. Contact us today at 716.433.7688 or fill out our online form, and let’s start growing together.