Most Common Agency Fee Structures and How They're Calculated

The ultimate aim of any digital agency is to make money, so being able to calculate a digital agency fee structure is essential. You must understand the value of your company’s work while balancing your own costs and time invested in order to ensure you turn a profit.

Finding the right balance is crucial because if you overcharge then you may lose clients to more reasonably priced competitors. On the other hand, undercharging reduces your revenue while potentially undermining your brand.

There is also more than one way to calculate a digital marketing agency fee structure, so we will discuss them in this guide and explain how the calculations work.

What is a digital agency fee structure?

A digital media agency fee structure ensures you receive payment from a client for your work while your client understands exactly what they are paying for.

Digital agency fee structures are often broken down into the various services provided by the agency to the client, and can also be calculated via agreed-upon deliverables.

How to calculate a digital agency fee structure

While there are some customised and complex digital marketing agency fee structures as we explain further below, we focus here on the two most straightforward ways to calculate your own digital media agency fee structure.

The most common digital agency fee structures are:

• project or fixed-fee pricing

• hourly or time-based pricing

Project or fixed-fee pricing

Charging a fixed fee for a project is one of the most simple ways to charge clients, but it does require in-depth knowledge of exactly how much your work will cost you in terms of time and money. This kind of digital agency fee structure is usually popular with clients as they can easily assess the full cost of hiring you.

Benefits of project-based pricing include negotiating all deliverables up front and eliminating the possibility of scope creep – at least without a renegotiation of the fee. This also might be the best pricing structure for a small digital marketing agency as it incentivises speed and quality, motivating the agency to complete jobs quickly in order to take on more projects from other clients.

Hourly or time-based pricing

Charging by the hour is another common digital marketing agency fee structure as it is straightforward and easy enough to calculate. It is probably one of the best ways for new agencies to charge, as they likely won’t yet have enough experience to calculate a fixed fee without risk of under or overcharging.

Set your hourly rate according to how much you value your time in line with the going rate for your skills and services. You should also provide an estimation for how long you think the project should take so the client has a ballpark figure of the final cost (pro tip: always give yourself a few hours slack).

Benefits of charging hourly include being able to absorb scope creep with ease. However, as agency theory dictates, some clients may have concerns about your motivation to finish the project as quickly as you can.

Customised digital agency fee structures

A digital agency fee structure can also be a combination of both fixed-fee and hourly rates. For example, a fixed fee can be charged for the initial project, with an hourly rate used for scope creep or any edits and revisions. Combining these fee structures can complicate matters with regard to transaction fees, so this should be negotiated up front.

There is also the more complex ‘value pricing’ fee structure where a project’s worth is calculated based on the value that the client receives from the final product, and not the time you spent on it. While this method can be very lucrative for an agency, it obviously carries a significant risk should the final product not produce the projected value.

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