As an agency founder and CEO with 20 years of experience, I’ve learned a thing or two about setting hourly rates. Here’s a comprehensive guide to help you set competitive rates that cover your costs and allow you to grow your business.
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Factors to Consider When Setting Hourly Rates
- Agency reputation and experience: More established agencies with a proven track record of success can typically command higher hourly rates.
- Location of the agency: Hourly rates can vary depending on the cost of living and operating expenses in your agency’s base city/country.
- Size and structure of the agency: Boutique agencies often have lower hourly rates than large multinational firms.
- Scope and complexity of the services you offer: Agencies that offer a wider range of services or specialized services may command higher hourly rates.
- Target market: Businesses in certain industries, such as technology or finance, are often willing to pay higher hourly rates for advertising services.
What Should Be Covered in Your Hourly Rate?
In addition to the factors listed above, you should also factor in the following costs when setting your hourly rates:
- Overhead costs: This includes things like rent, utilities, insurance, and office supplies.
- Training costs: Investing in your employees’ training and development is essential for staying ahead of the curve and providing the best possible services to your clients.
- Non-billable time: Not all of your employees’ time will be spent working on billable projects. Be sure to factor in non-billable time, such as time spent on administrative tasks, networking, and new business development.
- Profit margin: Your hourly rates should also include a profit margin so that you can reinvest in your business and grow your agency.
When I first started my agency, I was hesitant to charge high hourly rates. I was afraid that I would scare away potential clients. But I quickly learned that it’s important to charge what your services are worth. If you undercharge, you’re not only doing yourself a disservice, but you’re also doing a disservice to your clients.
I’ve also learned that it’s important to be transparent with your clients about your rates and fees. Don’t try to hide anything. Be upfront about what your clients are paying for and how their money is being used.
Tips for Setting Competitive Hourly Rates
Here are a few tips for setting competitive hourly rates. This is how we did it in our agency:
- Know your competition. See what other agencies in your area are charging for similar services.
- Factor in your costs. Make sure your hourly rates cover all of your costs, including overhead, training, non-billable time, and profit margin.
- Be transparent with your clients. Explain your rates and fees to your clients upfront so that they understand what they’re paying for.
- Offer value-added services. Consider offering value-added services, such as market research, content marketing, and social media marketing. This can help you to command higher hourly rates.
Typical Problems with Hourly Rates
Hourly rates can be a challenge to work with, both for agencies and clients. Here are some of the most common problems:
- Scope creep: This is when the scope of a project changes over time, resulting in more work for the agency and higher costs for the client. Scope creep can be difficult to avoid, especially when working on complex projects with multiple stakeholders. However, there are a few things that agencies can do to mitigate the risk, such as creating a detailed scope of work at the beginning of the project and holding regular check-in meetings with the client.
- Underestimating the amount of time required for a task: This is a common problem for new agencies and agencies that don’t have a lot of experience with certain types of projects. When an agency underestimates the amount of time required for a task, it can lead to missed deadlines and budget overruns.
- Overbilling: This is when an agency bills the client for more time than was actually spent on the project. Overbilling can be accidental or intentional. In some cases, agencies may overbill clients due to poor time-tracking habits. In other cases, agencies may intentionally overbill clients in order to increase their profits.
I’ve experienced all of the problems listed above during my time as an agency owner. Scope creep has been the biggest challenge for us because we were always very client-focused. I’ve found that it’s important to be very clear with clients about the scope of work at the beginning of the project and to communicate regularly with them throughout the project to ensure that we’re all on the same page.
I’ve also underestimated the amount of time required for tasks in the past. This has led to missed deadlines and budget overruns. To avoid this problem, I now take the time to carefully plan all of my projects and to create a detailed timeline. I also build in a buffer of time to account for unforeseen delays.
Finally, I’ve had a few clients accuse me of overbilling. In all of these cases, the problem was due to poor time-tracking habits on my part. I’ve since invested in a time-tracking tool to help me keep track of my time more accurately.
Tips for Avoiding Problems with Hourly Rates
Here are a few tips for avoiding problems with hourly rates:
- Create a detailed scope of work for each project. This will help to ensure that everyone involved in the project has a clear understanding of the work that needs to be done.
- Communicate regularly with clients throughout the project. This will help to keep everyone on the same page and to identify any potential problems early on.
- Use a time tracking tool to track your time accurately. This will help you to avoid underestimating the amount of time required for tasks and to avoid overbilling clients.
- Be transparent with clients about your rates and fees. Explain your billing process to clients upfront so that they understand what they’re paying for.
- Be willing to negotiate with clients on a case-by-case basis. Not all clients will be able to afford your full hourly rate. Be willing to negotiate with clients on a case-by-case basis, especially when working on long-term projects.
By following these tips, you can minimize the risk of problems with hourly rates and build strong relationships with your clients.
Try Allfred to keep your project on track. This tool helps you stay on top of your project timeline. It can help you manage complex projects, assign tasks to members of your team, and evaluate the impact of each small change.
Setting the right hourly rates for your advertising agency is essential for ensuring profitability and sustainability. By following the tips above, you can set competitive hourly rates that cover your costs and allow you to grow your business.
Additional Tips on hourly rates
- Be willing to negotiate. Not all clients are willing to pay your full hourly rate. Be willing to negotiate with clients on a case-by-case basis.
- Offer discounts for long-term projects. Clients are often willing to pay a lower hourly rate for long-term projects.
- Use retainer agreements. Retainer agreements can help you to generate a steady stream of income and ensure that you have the resources to invest in your business.
By following these tips, you can set competitive hourly rates that will help you to grow your advertising agency and achieve your business goals.
Why It’s Important to Track Time When Billing Time
When you bill clients by the hour, it’s important to track your time as accurately as possible. This will help you to ensure that you’re billing clients for the actual amount of time you spend working on their projects. It will also help you to identify areas where you can be more efficient and productive.
How Much Time is Billable?
The amount of time that is billable will vary depending on the nature of your business and the type of services you offer. However, a good general rule of thumb is that 60-70% of your time should be billable. This means that the remaining 30-40% of your time will be spent on non-billable activities, such as administrative tasks, networking, and new business development.
In my experience, it’s realistic to plan on only 6 billable hours per day in an 8-hour workday. This is because there are always unexpected interruptions and tasks that need to be taken care of. For example, you may need to answer client emails, attend meetings, or review work from your team members.
Hourly Rates Are Not the Only Pricing Model
While hourly rates are the most common pricing model for advertising agencies, there are a number of other pricing models that agencies can use. These include:
- Project-based fees: Clients are charged a fixed fee for a specific deliverable or campaign.
- Retainer agreements: Clients pay a monthly or annual fee for ongoing services.
- Performance-based fees: Clients are charged a fee based on the results of the campaign, such as increased sales or leads.
Which pricing model is right for your agency will depend on a number of factors, such as the type of services you offer, your target market, and your business goals. We combine them successfully on different project, I will come to it later.
I will cover other pricing models in more detail in a later post. Stay tuned!