Tags – Marketing Budgeting
Clients stop working with marketing companies for a whole host of reasons. Expectations, circumstances, and relationships all play a part.
In this blog, we’ll focus on the reason: ‘company fit’. Interestingly, there can be a fit at one given time but not later. One common reason is because the client has outgrown the marketing supplier.
But, that’s just the top layer of the problem. Learn more here:
Marketing companies usually charge a flat rate.
In most cases, it means marketing companies start by charging for their time.
And, as you can imagine: profits in this methodology are slow, which means good marketing companies can’t keep pace with their clients that they help grow.
Specially, as the marketing company delivers, the client grows and creates a larger appetite. However, at the end of the marketing company, because of a flat rate charge with minimal profits, the marketing company hasn’t been able to build an infrastructure from technology, skills and staffing.
The further issue here is: even the clients view marketing as paying for the time of someone. And that value of time is perceived based on how big the agency already is. Look around yourself and answer: how many freelancers are charging 3-figure sums per hour or 4-figure sums per day.
But, these same businesses will go to a larger agency and happily fork out that money. In reality, if the marketing company that helped the client grow had been compensated fairly, they would have upgraded their methodology, technology, and the staff, while also having a better understanding of the client too.
I would go one step further and say: the client would have been better off too with the existing marketing company, if they were already delivering results. The marketing company just needed help to grow themselves too.
What the Marketing Company Needed
As you may already know, costs in business don’t grow in a linear fashion. In most cases, the rise in cost is exponential.
So, what causes business costs to grow exponentially?
Some of the common reasons include:
- Technology – as a company you’re either constantly on the forefront or way behind and it costs money to keep up;
- Skills – as a company you need to have relevant skills or people with skill sets that are rare so they command a higher pay rate;
- Staffing – as you employ more people, you need to have a more complex organisational structure which costs more.
In a fair world, as the marketing company continues to scale and grow with their client, they will eventually need to revisit how they’re charging in order to remain profitable and keep up with the demand.
And to do so, they have a couple of options.
There are two common ways to price:
- Commission – this is common in sales and is based on a percentage of what is sold. It’s a great way to price because it’s directly linked to the value that is being created. If you’re selling products, then you’re probably going to want to use this model.
- Flat rate – this is common in services and is based on an hourly rate or a package price. It’s not as directly linked to the value that is being created but it’s still a valid way to price. If you’re providing services, then you might want to use this model.
- Price Increase with Workload – most clients don’t like a price increase, especially when they don’t understand that their account is growing, and it needs more time, along with a premium for optimising existing marketing work. So, we can eliminate this option entirely.
So, which option is better between 1. and 2.?
It depends on the situation.
If you’re selling products, then commission is probably the way to go. But, if you’re providing services, then it might make more sense to price on a flat rate, and as the client sees more value in marketing, they can up the budget and invest in more areas.
There are pros and cons to both pricing models but ultimately it comes down to what makes the most sense for your business.
Benefits of Commission-Based Charging
- It’s directly linked to the value that is being created.
- It provides an incentive for the marketing company to continue creating value for the client.
- It’s a flexible way to price, which can be beneficial in certain situations.
Benefits of Flat Rate Pricing
- It’s a simple and straightforward way to price.
- It can be easier to predict costs and budget for flat rate pricing.
- It’s a common way to price services, so clients may be more familiar with it.
Drawbacks of Commission-Based Pricing
- There is potential for misalignment between the marketing company and the client if the objectives are not clear.
- The marketing company may be hesitant to take on new clients or projects if they’re not sure how much commission they will make.
- Commission-based pricing can sometimes be complex to calculate.
Drawbacks of Flat Rate Pricing
- It can be difficult to determine the right price point for services.
- Flat rate pricing may not always be directly linked to the value that is being created.
- There is potential for the marketing company to lose money if they underestimate the time it will take to complete a project.
Both commission-based pricing and flat rate pricing have their own set of pros and cons. It’s important to consider all of the factors before deciding which pricing model is right for your business.
It All Comes Down To:
Commission-based pricing can be a great way to align the interests of the marketing company with the client, but it’s important to make sure that everyone is on the same page in terms of objectives.
On the other hand, flat rate pricing is a simpler way to price services, but it’s important to make sure that the price point is accurate or else the marketing company may lose money.
Ultimately, it comes down to what makes the most sense for your business. Consider all of the factors and decide which pricing model will work best for you.
Let’s take some pointers from sales people working on commission
Learning from Sales Commissions
Sales commissions are a common way for businesses to compensate their sales staff. In most cases, salespeople are paid a commission based on the revenue they generate for the company.
There are pros and cons to using a commission-based pay structure. On the plus side, it can motivate sales staff to sell more, which can be beneficial for the company. However, it can also lead to tension and conflict between salespeople, as well as create an environment where employees feel they need to take risks in order to earn a decent income.
Some companies opt to pay their sales staff a fixed rate instead of commission. This can simplify payroll and make it easier to predict expenses. It can also help to avoid some of the potential downsides of commission-based pay, such as employee conflict and an emphasis on risk-taking.
However, there are also some drawbacks to paying a fixed rate. For example, it can be more difficult to motivate staff to sell more if they are not earning any additional income for doing so. Additionally, a fixed rate may not be enough to attract and retain top sales talent.
We will leave you with this, and let you convert this learning to marketing partners.
To learn more, get in touch with us today.
You may also like: