There are no set rules for agency fees.
So, how do you decide how much to charge?
Knowing how to structure your agency fees and how much you should be charging clients isn’t easy when there’s no set in stone way to calculate it.
However, it’s your agency so you get to set the prices not your clients. Only you know how much work is involved in projects and campaigns you complete for your clients, and as a result only you know how much you’d be comfortable charging. However, there are some things you can do to ensure you’re charging the best amount for your agency’s growth.
Calculating Project Fees
Project fees are much easier to calculate than retainer fees as there are far fewer variables you’ll need to account for, particularly if the project has a clearly defined beginning and end point.
The key variables you need to consider that will influence how much you should charge is your net profit goal, the number of employees that will be working on the project, how much each employee costs per hour and how many hours they’ll be working. It’s also a good idea to add around 25% to the project – this provides a buffer to account for variables like scope, underestimation etc.
However, how you choose to calculate this fee is up to you. Depending on the project, you may not be able to win a client if you include the full 25% buffer. In some cases a brand may be worth sacrificing some, or all, net profit if working with them is going to work wonders for your agency’s growth.
It’s also important to recognise how changes in the variables identified above are possible and could have a detrimental effect on whether or not you charge a client an amount equal to the value of your work. To combat this, perfect your ability to estimate how long a project will take to complete.
Also, ensure there are clear grounds for change orders in case the client decides to change the scope of work expected in the project, adding tasks and activities that were not accounted for in the original scope.
Calculating Retainer Fees
Calculating the fees associated with retainer agreements is more complicated due to their often front-loaded work cycles. Ultimately, there are a variety of different fee structures you can take which we’ll outline below so you can make the best decision for your agency.
House based retainer: The client pays in advance for a number of hours and how those hours are used is at their discretion.
Deliverables-based retainer: The client pays for a specific number of deliverables per fortnight/month/quarter etc. The client isn’t informed of how many hours it takes the your agency to meet these deliverables.
Performance-Based Retainer: Your agency gets paid based on performance milestones agreed prior to contracts being signed. This approach can be risky as you’re taking a gamble that your agency’s efforts will pay off, but it can result in a win-win for both parties.
Hybrid Retainer: The retainer uses more than one of the above methods in its structure to determine fees.
The best way to ensure you’re charging a retainer fee that pays off for you is to nail the negotiation stage and ensure you enter it knowing what you’re worth and what type of fee structure will best for you (firstly) but also the client’s requirements too.
Having clients not see the full value in your work can be difficult, as can being rejected by potential clients because they feel your prices are too high.
So, what’s the solution? Negotiation.
Negotiation isn’t easy. It involved confrontation which, let’s be real, few of us like to deal with. However, if you can successfully communicate the benefits of what you’re offering and explain how your fees are an appropriate price for those benefits, it’ll be a whole lot easier.
The best approach to take is:
1) know the worth of your agency’s work and set a value based on this and the other variables we’ve discussed above.
2) Ask the client about their budget and evaluate if there are any adjustments you can make to fit this.
3) Confidently state your rates.
If you need to reject clients who devalue your work or request discounts explain how it’ll be detrimental not to you but to them. Just because you’re doing more work for them doesn’t mean that work doesn’t take the same amount of time and effort so a discount could detrimentally affect the quality of your work.
Finally, invest in your clients. Whilst it’s up to you to set the prices you charge and estimate the value of your agency’s work, sometimes you may find it beneficial to your growth to invest in your clients. As long as your agency is making money on more jobs than it is losing money on, you can refine your own methods for managing agency fees over time.
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