Digital agencies ー like other types of professional services ー sell their knowledge, skills, and abilities to clients who need online and systems help, normally in the marketing space. Agencies deliver value to their clients (both the outcome product as well as the service interaction) and recoup it through payment for those services and product.
When defining a product, you normal talk about the features and value the purchaser gets. What's funky with digital agencies is that the product outcome is highly dependent on the client: their needs, what they want and expect, and how they feel about the outcome, regardless of its actual worth.
Some common outcomes of the work between a digital agency and client.
These are roles that clients don't have at their own business, thus becoming the services that a digital agency delivers to them. Services can be sold on their own or bundled together to create products.
Roles / Service Categories
There are a few ways to price your services and product: hourly and fixed price
You set your billable rate and the client signs off on it. Could be general advice or ongoing work that fluctuates a lot in time investment and neither side can predict the scope. A large, unknown problem space where there's low confidence on what's involved and what it will take to achieve an initial ill-defined problem. You track the time it takes your team to accomplish a set of tasks, multiply that time by everyone's bill rate, and you get a total amount to invoice the client for. Time invested and client invoiced amount (revenue) is linear. As you spend more time, you can invoice for me (but also pay your staff more). There's a fixed profit margin, so agency can only make a certain amount, but is guaranteed a certain margin. High risk on the client because not a solid total estimate of cost.
Digital agencies normally shoot for a profit margin of 30%. Though hourly rate is increasingly becoming less popular, many of the worksheets and models are based off of this math. Even quotes and proposal that look fixed rate, are actually hourly estimates under the hood.
Fixed price / value-based
You set the price of your service as a flat fee. Good when you had a highly standardized product where there isn't much fluctuation in operations and the scope / outcome is fairly well known. You can still use your hourly rate calculations to put together an estimate, then not show the work you did to get there. Easier to do for smaller priced items. Most often used when pricing a retainer, month - to- month "subscription" Agencies have the opportunity to make a higher profit margin if less time goes into producing a great result, though the risk is on them to deliver on budget. If they blow the budget (estimate was off, take too long), they eat the margin. Client has piece of mind for the total cost of the service.
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