SEO agency owners and freelancers need to protect their bottom line to ensure scalability and profitability, especially as AI and developments disrupt the industry.
To accurately assess an agency's profitability, it's business owner database important to understand the revenue-to-expense ratio. After all, a team can deliver great results for the highest-billing client while losing money for the company.
So how can you set competitive prices to maintain profits? Below are a few considerations and steps to take when setting SEO agency prices to create a healthy profit margin.
Define your value proposition
The first step to determining an SEO pricing model is understanding what makes an agency valuable to potential clients.
Defining a unique value proposition (UVP) can help you better contextualize your product or service pricing. A value proposition is a statement that communicates the key benefits of a business, product, or service—essentially, a “why” statement. For example, “Why should a customer sign a contract with the company?”
Pricing Models for SEO Agency
Monthly fixed rate pricing
For SEO agencies, the flat rate pricing model involves setting standard prices for specific services or packages, offering clients simple billing and transparent upfront costs.
Experience working for an SEO agency targeting small businesses highlighted the problems associated with this pricing model, particularly for lower-tier clients. The effort required to achieve results for these clients often exceeded their fees, resulting in excessive costs and financial strain for the agency. This situation highlighted the risks of over-expecting and under-delivering, impacting client retention and the agency’s financial health due to a lack of clear expectations set from the outset.
Hourly pay
The hourly model calculates prices based on the amount of time an agency spends on SEO tasks, making it critical for freelancers, consultants, and agencies. It provides flexibility and compensates for all work performed. However, it can lead to unpredictable billing for both the provider and the client. For freelancers and consultants, hourly rates are largely based on the market value of similar services, making it easier to set prices.
The downside to this pricing model is that it can lead to clients becoming very conscious of the amount of time spent on a particular job. This can often be addressed with additional client education, but this will depend on the relationship between the client and the agency.
Project Based Pricing
This model is based on an assessment of the complexity, duration and resources required for individual projects. The agency (freelancer) assesses the project individually and sets the price according to the specific requirements of the project. This model is suitable for one-off projects or when the scope of work is clearly defined from the outset for technical website optimization or other specialized projects.
Prepaid pricing
This approach involves providing ongoing SEO services for a fixed monthly or quarterly fee. Fee-based pricing provides agencies with a stable income and clients with ongoing support for their SEO strategies.
To calculate an agency's hourly rate, you first need to calculate your hourly cost by dividing the total cost of the project (excluding profit) by the billable hours.
Formula: Total Hourly Rate = (Total Costs/Total Billable Hours) x (1 + Profit Percentage)
The amount of profit will vary depending on financial goals and funding.
Performance-based pricing
Performance-based pricing ties compensation to the achievement of specific, measurable SEO results, such as rankings, increased traffic, or key performance indicators. This incentivizes agencies to deliver results, but requires clear alignment on goals and measurement methods to ensure accountability.
Now, we need to discuss how you can protect your rates by defining the scope of work.
Define a work plan
A good SEO project helps avoid scaling and sets reasonable client expectations.
When writing a job description, you need to ask the right questions. For example, if it is a technical SEO project, you need to ask questions like:
Who is implementing technical SEO? This is important because you need to understand the resources for implementation and the number of hours that will need to be spent on it.
Is there any way to manage downloads in the CMS? Working with the CMS interface can be time consuming and difficult, which can negatively impact your profits.
What products, programs, or services are supported and what are their priorities? Some products or services are more difficult to compete for than others, which dictates the need for spending. For example, the complexity of the product may require hiring a specialized specialist who will pay more per word.
What problem needs to be solved? Understanding the client's needs allows for a detailed analysis of their area of activity, solving their main problems.
Failure to ask these questions may result in unexpected expenses.
Communicate prices and expectations to customers
The next step is to familiarize clients with the developed job description. With any method, it is recommended to tie the results and tactics to a specific goal or task - this will ensure transparency and build trust.
Evaluate and adjust the pricing model
Once the agency's pricing is up and running, it's time to evaluate the success. You'll need to see if the offer is worth it in terms of the end results.
The pricing model can (and should) change under certain circumstances. Profit margins can change depending on demand for services, and even this can affect what is profitable for an agency to offer.
Evaluate and repeat
Once you’ve defined your pricing model, it’s time to test it with benchmarking. After all, the only way to develop a pricing strategy that your agency and clients will love is to dive deep into the numbers.
At the deal stage, you should monitor internal and external costs to ensure the profitability of your products or services. And compare prices with competitors to get an idea of strengths and weaknesses. Once you do this, you can scale your prices to help maintain and grow revenue.