Live from SMX Advanced: How Much Do I Charge for SEM, Especially Now! Search Marketing Agency Pricing Models
<< by on June 3rd, 2009
With the challenges facing the economy today, pricing, needless to say, is an issue on the minds of many search marketing agencies. Today’s “How Much Do I Charge for SEM, Especially Now Search Marketing Agency Pricing Models” panel was anchored by Andrew Beckman of Location3 Media, Matt Walker of Best Rank, Inc. and Marty Weintraub of AimClear.
Matt was up first and discussed how his agency, Best Rank (a full service SEM agency), perfected their pricing model. He indicated that there was a lot of trial and error in pricing and failure certainly teaches them what to change. So don’t be afraid of failure!
With the current economic client, he feels that certainly budgets are being scrutinized and cut, potential clients are shopping many more firms, and they are taking their time paying — definitely a challenge. However, there are some good things out of the recession: a) there’s good talent out there, b) while budgets are being cut, more is being shifted to more cost-effective marketing, like search, and c) clients are looking for more creative solutions.
Before the recession, Best Rank used a revenue model that:
- recurring revenue model
- sell the methodology (6-12 months)
- limited services (mainly going after SEO)
- tough sell in many cases — clients wanted more offerings together
- typical pricing was $100-150/keyword
How did he change with the recession?
- He wasn’t a fan of lowering prices, so he added more value services, including basic social media, like article writing and promotion.
- They still want recurring revenue, but he did offer a lower priced model to get the clients in the door and made the “switching costs” high. He also felt he could upsell clients once they were in the door. Another approach he tried was giving discounts by having a client paying upfront (10% discount) – which also addressed the late payment issue.
- They implemented “phased pricing” by chunking up services. Again, he said upselling opportunity was very high once they were in the door. But he also made it a bit higher cost for each tactic when subdivided.
There are markets that still have demand, for instance start up businesses and medical, government, and alternative energy.
- If you can do SEO successfully, then many other services are easy. You can also always partner to offer more services. Some offerings to consider are video production and optimization, social media campaigns, and consulting and training.
- Target complementary businesses with established sales staff to sell your services as an affiliate.
After Marty gave his colorful resume (always a hoot, that Marty), he focused on short term contracts to ease recession jitters and inspire client confidence, which they did at AimClear.
Marty wanted to accelerate growth with short term and long term mix of contracts. He required an SEO audit and plan BEFORE they can sign an SEO contract — primarily because they want to know the client well and build the long term relationship. Short term contracts CAN lead to long term ones. Short term contracts allow the client to vet the agency AS WELL AS the agency to vet the client. So they decreased their retainers to 3-6 month retainers.
Marty said that they were able to triple the year over year revenue from first quarter. Clients also perceived the agency as highly confident and holistic. It also is a competitive advantage in an increasingly crowded space. Most of all, it allows you, the agency, to get the RIGHT clients and get rid of the WRONG clients. It also builds two way trust and they part as friends. This model also allowed them a more diversified client base — which helps recession-proof their agency.
The challenges of this model:
- Use timecards — but make them real-time to be easier.
- Segment your services in categories for timecards and billing.
- One drawback can be selling hourly consulting vs. a one price model — works best for boutique agencies selling special value.
- Creates a layer of administration.
- Your advice better be great!!
Andrew covered some of the versions.
The management fee has often been a percentage of advertising spend — typically 15% or so. But there are pressures with that model for both the agency and the client. If spend goes down, the agency loses revenue. So Andrew’s firm decided to experiment with a hybrid model based on the greater of a flat management fee or percentage of ad spend — essentially setting some minimum fees in case the media spend decreased.
Another model they’ve tried is the flat cost per click model. The client gets one rate and the agency often saw a greater return than the standard management fee. But, the margins might be too high for the client to make a profit using this model.
The ideal campaign type is the cost per lead — a performance-based model. It involves a fixed rate with price dependent on the competitive nature of the data passed. For example, a dating sign up might be $5/lead, but an education sign up might be $65/lead. This model provides an ability to control the ad spend and margins and delivery a volume of leads.
Another option is to take the lead to another step. The lead is captured, but you are relying on the salesperson to convert the sale — so you lose some control.
A cost per sale model is ideal with ecommerce. Typically it is a percentage of the sale, with ranges from 5-10% of the sale price. No affiliates should be allowed with these deals, and tracking can be sticky with 30-day cookies.
Another option is an hourly rate model, which is ideal for social media monitoring. There’s no real ROI to quantify, so hourly works well. He’s seen some positive feedback with this model.
On the SEO side, they normally charge on a retainer basis based on number of keywords, and they charge at least $10k/month. Content development is on a per page basis with at least 350 words per page. He added that technical challenges add to the total cost of the retainer.
One type of pricing model for SEO he is interested in is an SEO CPC model — focusing on non-branded terms. Look at the average click count per month, what they would pay on a CPC model for PPC, charge that CPC fee. Certainly this is a type of “pay for performance” model for SEO.