On Mediapost I read an interesting post and reactions on what and how to charge for online marketing services. The article you can read here. The author, Mark Simon, makes the comparison with a home construction project and thinks it is not wise to charge more, when the Ad spend of client increases. He seems to think that the amount of work for a larger media budget is the same as for a smaller media budget. Also a pay for performance deal is not his choice, because he thinks the client has no advantages in such a deal (without further explaining this point of view). Mark seems to be an advocate of a monthly fixed fee.
I think that clients not only pay their agency for time, but also, and maybe mainly for knowledge and experience. When you see an agency as a contractor, you see the job as a predefined effort that requires a standard skill set. And this goes well for plumbing and other work, but online marketing also requires other skills that cannot be measured in hours. I’m talking about creativity, experience, holistic approaches, empathy etc.
So the reward for an agency should also be a combination of a compensation for the time spend by professionals and a reward for the creativity and experience. That’s why a retainer, covering the labour costs with a surplus, in combination with some sort of performance fee is not a bad idea. Since the relationship beween client and agency is lasting several months or even years, you can expect an appraisal that is honest and stimulating. Several options are possible: percentage of sales, fee per lead, or why not just evaluate together every 3 months and score mediocre, good , super?
Swydo offers several way to manage this. You can track time, see how much effort a consultant did take for a client and even you can define KPI’s that measure online success.