Agency Pricing Models for B2B Marketing
In just a few years the role of marketing has changed for B2B’s and as a consequence, what B2Bs expect from their marketing agency and agency pricing. Today investments in marketing must help a business sell more stuff. Anything else that it achieves is nice, but it’s complementary to that main goal. At the same time there is an increasing number of challenges and trends B2B’s need to address, including privacy, technology and changing customer expectations. How should you pay for your agency services? What should be your agency pricing model?
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B2B Marketing Agency Services
Lets first be clear on the type of services B2B agencies charge for. These can vary widely, including:
- Strategy & Tactics
- Content Marketing
- Display & Remarketing
- Search Engine Marketing
- Lead Generation
- Content & Video Production
- Marketing Technology
- Email Marketing
- Campaign Management
- Social Media Marketing
Some services have a more direct relation in ‘helping sell more stuff’, think of generating qualified sales leads. But other services, like the production of a video, can have a more indirect relation with the top line. Normally a combination of the services above is needed for marketing to be most effective. For instance, lead generation is less effective when the buyer journey is unclear and content is of poor quality.
6 Agency Pricing Models
Now, how should your agency charge for its services? Let’s discuss 6 agency pricing options, the pitfalls of the different options and how agencies and clients can benefit from these different deal types.
The 6 basic agency pricing models you can choose from include:
1. Time & material
The most straight forward (and traditional) way of working in which the cost is based on actual time spend on a project and an hourly rate is calculated.
Pitfall: The pitfall of this pricing option is that there is no common incentive. There is an incentive for the agency to spend more time on the service that really needed, as this implies more billable time to be spend. An incentive to maximize revenue which is contrary to the client objective of keeping cost in sync.
Benefit: Time & material are a flexible way of working together, when during the project ideas and demands change there is flexibility to adjust.
2. Fixed prices
In a fixed price the budget is set in advance for a combination of services to be delivered. For instance a fixed price can be set for the development of a set of content.
Pitfall: With a fixed price inflexibility can be a result. When ideas change during the project, chances are there is no (or not enough) room for adjustments.
Benefit: Clarity on the budget.
Increasingly agencies work based on a fixed price per month for a combination of services. Typically a tactical campaign plan and targets are set per quarter and these need to be realized within the budget and time-frame.
Pitfall: In a retainer there is more flexibility, as the co-operation can be adjusted over the months. But the pitfall here is the planning cycle. Be clear on objectives per month or quarter and communicate clearly so everyone is on the same page.
Benefit: Clarity on the budget.
4. Performance based
In a performance based cooperation, pricing is based on realizing certain KPI’s. For instance B2B agencies can work with a client based on a pay-per-lead agreement.
Pitfall: The main challenge in a performance based cooperation is a common view on the performance. For instance, a common view on the quality of leads in a pay-per-lead partnership. Another challenge can be a lack of focus on indirect factors that contribute to success in the long run, for instance investments in the insights in the buyer journey and the quality of content mentioned earlier.
Benefit: The main benefit of performance based deals is the alignment of incentives.
In certain campaigns an agency can also be partly compensated by a kick-back from the media partner or technology vendor.
Pitfall: The technology vendor or media partner is aligning incentives with the agency here, not the client.
Benefit: When the agency earns money from a supplier, there can be more room for discounts towards for the client on additional services.
An alternative for kick-backs, especially for media buying, is using an agency fee on top of the negotiated net prices of the media partner to cover cost related to the media buy. This makes the actual media cost 100% transparent to clients.
6. Hybrid models
Finally combinations of the pricing options above can be used to customize a partnership between the company and the agency.
Looking at the models above, our preferred pricing model for B2Bs to work with an agency is a hybrid model in which:
- A retainer is the basis, providing the flexibility to adjust services to needs and a quarterly plan made to align objectives and measure success of the agency continuously;
- A performance incentive can be made part of the cooperation, for instance based on KPIs in the quarterly plan;
- Limited kick-backs are fine as they can be used as leverage in lower pricing of the agency services
Summarizing pros and cons per agency pricing option
There is no agency pricing ‘holy grail’. The challenge is to find a pricing model in which the interests of both the client and the agency are most aligned. In determining a partnership, consider the following pros and cons:
|Time & material||Flexible||No common incentive|
|Fixed price||Clear budget||Inflexibility during project|
|Retainers||Clear budget||Don’t plan to far in advance|
|Performance based||Incentives are aligned||Discussions on lead quality|
|Kick-backs||Can result in lower pricing||Incentive on higher budget|
|Hybrid models||Customize partnership||Can become complex|
In discussing your next partnership consider these pros and cons to find an agency pricing model that works best for you.