Let’s Kill the Hourly Rate: We are Leaving Money on the Table
One of the hottest topics and hotly debated threads on r/ppc is about rates and what you should charge. What does an agency charge? What should I charge as a freelancer? How do you charge if you do work on Amazon versus Google or Facebook? Different ways to charge clients There are a lot of models for how you are going to charge a client. No one model is perfect and you have to do what is right for your business in the end. Hourly Bill for each hour of your time and track how many hours you worked that week. This is one of the most common ways we have seen freelancers charge for their time. Pros Work more hours and you know you are going to get paid more (all things being equal). Clients love to love the hourly rate because they are familiar with it from designers and other creative industries. Cons As you get better at a task and it takes you less time, you end up making less money even if you are getting better at your task. How does that make any sense? This is the biggest drawback to the hourly rate, in my opinion. Percent of spend Scale that spend up and bill each of your clients more money at the end of the month. This is the most common way we see agencies charge. It’s what clients expect to hear but increasingly clients do not want to pay this way as it can lead to abuse. Pros As clients trust you and they spend more money, you see your agency revenue increase in lockstep with that higher spend. Assuming that increase is leading to a profitable business, this can work out well for both sides. Cons Not every client loves this because it can be abused by some agencies to just spend money but not have it be profitable. Also, there are some clients who don’t think an agency should be paid $10,000/month, even if they manage a large ad spend budget that has a good ROAS. This can lead to “negotiation” on agency fees or firing the agency and taking it all in-house. The latter being from a lack of value for what agencies can do and thinking they are easily replaceable. You can not in-house an outside point of view for your business. Monthly retainer Charge a fixed or flat monthly fee for the work that was agreed upon in the contract and proposal. Pros It keeps billing simple and both sides know what to expect each month. It’s easier to sell it to clients versus other methods above. Clients are less likely to feel like they are getting ripped off. Cons Scope creep can increase the workload and yet, it can be harder to increase that monthly fee. If you don’t think about where you will be a year from now with that client, you could find yourself with an unprofitable client on your hands. Performance-based Not as widely used but an interesting model we have done with clients. You set a target based on top-line revenue you bring into the business. As you hit different tiers, you get paid on that tier level. Pros Clients love it because they feel the agency is putting skin in the game. If the agency is good at what they do and the client’s site is top-notch you can make a lot of money each month. Cons This depends on trust from both sides and a site that is ready to convert. If that site is not good, you can spend a…
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