1. Fixed-Rate PPC Pricing Model
A fixed rate is a widespread pricing model that works great, especially for young and small agencies. It could help your revenue if you’re unsure what to charge clients or don’t like making estimates based on hourly fees or a cost percentage. (Or any other method, for that matter.)
Advantages of Fixed Pricing
Your clients will know what they will have to pay you monthly, and you’ll know how much profit you will make based on those fees. This is better than leaving clients to guess about the final cost of a project.
It also makes it easier to get paid: when you have an hourly or value-based pricing model, it can sometimes be a pain for your client to break down what your services cost them. However, once you start offering fixed rates, the process becomes effortless. If a project takes two weeks to complete and costs $150 per hour, that’s it.
Disadvantages of Fixed Pricing
If your price is too high, it could dissuade clients from hiring you. But, on the other hand, you’ll have to look at other revenue streams if you’re not making enough money from your base fees. Besides, it’s easy to misestimate your fees, especially if you’re starting, then you’ll be at risk of getting underpaid for the workload you’re absorbing.
If you want to use a fixed-rate PPC pricing model, we recommend contacting a financial advisor. Also, amass as much information as possible about your current workload. The more data you have about your current agency costs, the better you can price your services in the future. Also, pay attention to scope creep.
2. Project-based PPC pricing model
This pricing model has a similar logic to fixed-rate pricing. Still, your payment will depend on short-term campaigns or specific deliverables instead of you working for a flat rate indefinitely. For example, you could charge $1,500 for a PPC audit, $1,000 to manage a particular campaign or $2,000 to manage and provide a copy for the same campaign.
Advantages of Project-based Pricing
Project-based pricing allows you to build loyalty and grow your portfolio. For example, you could start with a client by doing a PPC audit, and once the job is done and everyone’s happy, you can upsell your full range of services.
It is also a nice pricing model for PPC because our industry is very project-oriented. Our business is mostly about doing one job after another, so having deadlines at sight fits perfectly with being paid by the project.
Disadvantages of Project-based Pricing
As with fixed-rate pricing, you could blow your profitability if you don’t estimate well the time you’ll take to finish the job. And the last thing you want is to have the feeling of working for free. Besides, upselling is a major aspect of being profitable in the pricing model, so if you have difficulty building that relationship with your client, you’d better find a salesperson to manage it; otherwise, finding a different pricing model might be the way to make good money.
3. Hourly fee
The hourly fee model is the most common PPC pricing model, widely used in the U.S. and Canada. It means your agency will earn a proportionate amount of money for the work you do for your client. You’ll usually be paid by the worked hour or based on an estimate of how many hours this work will take.
Advantages of Hourly Fees
As with the fixed-rate model, you’ll know how much to charge clients before you start working on a project and have better control over profit margins. It also limits the number of estimation errors since fixed pricing estimations may lead to too much or little profit for your agency. Just be sure of how much to charge clients: one method is to divide your monthly salary by the number of hours you plan to work every month. As you adopt hourly rates, you’ll soon adjust your fees and be more prepared to decide which pricing model works best for you.
But for me, the greatest advantage of the hourly fee model is to provide you with the easiest way to distribute your resources and ensure you’ll be paid for every bit of work. In a nutshell, it can give you much less headache at the end of the day.
Disadvantages of Hourly Fees
Hourly rates may leave you in a tough spot depending on how you make money or if you don’t do much steady work. There is a possibility that your agency becomes unprofitable if it doesn’t have new clients constantly. In this case, you’d probably make more money using different pricing models.
4. Value-Based PPC Pricing Model
The value-based pricing model depends on the perceived value that your work brings to the client. For example, if you have an industry-leading star in your team or have delivered perceivably amazing, award-winning results in the past, value-based pricing might be a way for you to make a profit.
Advantages of Value-Based Pricing
If you use this method, having an agency that focuses on multiple services is a great advantage. You’ll be able to accurately calculate the value of each service you provide and give clients a better idea of what they will be paying for. Value-based pricing also enables you to drive higher margins, depending on how you sell your value to clients. Prove that you can do wonders with your high-value team, and your price can only increase. (Be sure you’ll be able to deliver.)
Disadvantages of Value-Based Pricing
If your business is starting, you may not have enough work history to price your services using the value-based model accurately. It’s also easier for new agencies to offer fixed rates or hourly than other options to ensure their businesses remain afloat. However, once your business becomes more established, your portfolio becomes richer, and you start offering multiple services, value-based pricing may be an option.
Even so, value is subjective, hard to appraise, and difficult to sell, so you must be sure of your value (and willing to negotiate) when you put it on the table.
5. Performance-based PPC pricing model
Per this method, your agency charges a specific amount per output unit. For example, if you’re a PPC agency that charges $10 per lead generated through Google Search Ads, you’ll charge $10,000 for those 1,000 leads generated last month. With performance-based pricing, you should closely track how well your campaigns are doing and make necessary adjustments if they cost too much or bring in too little. You can also use performance-based pricing to track how well each employee performs over a year or project. This PPC pricing model is ideal when managing high-volume e-commerce accounts.
Advantages of Performance-based Pricing
First of all, performance-based pricing is easy to sell. Virtually all clients will be happy to pay you based on your input. Secondly, it’s easier and less time-consuming than other pricing models. You can track how well your campaigns perform, how much money you’re making, and make changes if necessary, while estimation methods make you rely on more extrapolation to see the numbers.
Disadvantages of Performance-based Pricing
The main disadvantage of performance-based pricing is that it requires much more work than other pricing methods. You must track sales and performance daily to report how your agency is doing accurately. If people aren’t performing as they should, you must also determine why and what can be done, which can become very time-consuming. Nevertheless, I’d recommend this pricing model for large agencies because you’ll likely have a bigger staff, which usually takes less effort to meet your goals.
Which PPC pricing model is the best?
As I’ve shown you before, there is no one-size-fits-all answer. It depends on your expertise, business maturity, past experiences, and clients. Ideally, though, I’d say the hourly rate is fairer than the rest. You know you’ll be earning money for the exact amount of time spent on the work, and you can’t be wrong if you estimate your fees correctly.
What do you think? Do you manage your pricing differently? Do you feel you need to change your model but want some advice? Get in touch!
