How to Boost Profits with Your Agency Pricing Model

A pricing model can make or break your agency. It’s not just about keeping the business profitable, as it affects everything, from how happy your clients are, how smoothly your projects run, how stable your finances are, and how satisfied your team feels.

On the flipside, if your pricing model isn’t right, it can lead to headaches and misunderstandings with clients, arguments over payments, and end in chaotic situations.

Many agencies set their pricing when they start, then forget about it, which can leave them falling behind competitors. If you’re not regularly checking and adjusting your pricing strategy, you might be leaving money on the table.

In this article, I’ll walk you through what to keep in mind when creating a pricing plan for your digital agency, and how getting it right can boost your profits.

What Is an Agency Pricing Model?

An agency pricing model refers to the framework a digital agency uses to charge for its services. Setting a rate card for each service helps agencies avoid constant negotiations with clients.

There are plenty of pricing models out there, but the hourly pricing model is the most common. Agencies set an hourly rate, and clients are charged accordingly. For example, if the hourly rate is $200 and the project takes 5 hours, the agency would invoice the client for $1,000.

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How to Select the Perfect Pricing Model for Your Agency?

There’s no pricing strategy that works for everyone, so it’s important to choose a model based on the client and the types of services being offered.

Here are some things you should consider before choosing a framework and pitching it to the client:

• The type and number of services you’re offering
• The expected size and duration of the project
• The client’s company size and budget
• Your agency’s size and market share
• The resources you’ll be investing
• Your agency’s goals and KPIs
• The client’s willingness to pay
• The client’s expectations from your agency

Which is the Most Common Agency Pricing Model?

Agency pricing refers to the basis a digital agency uses to charge prices. The hourly pricing model is the most common of these; agencies set an hourly rate, and clients are charged per hour. So if the hourly rate if $200, and the project takes 5 hours, the agency can invoice the client for $1,000.

Popular Agency Pricing Models

There’s a pricing model for everything, no matter what your clientele or service offerings. Choose for Goldilocks: the one that’s just right for your projects, and the industries/niches you specialize in.

Here are some of the agency pricing models you can opt for.

1. Hourly Rates

The hour-based model is the simplest and the most popular among the agencies. In fact, it is the first model most agencies consider when starting out. Simply set the hourly rate for each service, and charge the client for every hour spent on a project.

Pros

• It can help you attract clients with a set budget.
• You can track overall profitability, team-hour management, and individual project schedules. Great for managing limited agency resources.
• Perhaps the biggest advantage of this model is its simplicity: you charge your client exactly for the effort you’ve put in..

Cons

• It’s harder to scale this model for bigger projects.
• The hourly rate model prioritizes time spent on a project over the value delivered to the client.
• It disincentivizes smart work. Did you complete your projects in fewer hours than the forecasted hours? Your efficiency could cost you money.

Of course, whether the hourly model is right for you or not really depends on your agency. Agencies that have just started will likely find it a useful model, while more established places may prefer to use hourly rates for select services. Specify your rates and the basis for calculation in your web development proposal.

Note: Since you don’t spend every hour at the agency working on projects, make sure to charge enough to compensate for non-billable hours – like the time you spend on business development or admin work. Track and allocate hours you’re spending on the appropriate project; no documentation, no pay.

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2. Project-based Rates/Fixed Fee

As the name suggests, this model involves charging clients a flat fee for the project. Agencies estimate the total number of hours required for a project (including non-billable hours), and multiply it by an hourly rate.

Do you offer services like SEO site audits or website development, with clear deliverables and well-defined endpoints? Project-based pricing could be right for you.

Pros

• Fixed fees emphasize expertise over hours spent on the project. So it rewards speedy turnaround time and value for the client.
• Untethered to time, the model is easier to scale for larger projects than hourly rates.
• Clients can enjoy the option of testing out your services before hiring you for a wide scope. It does mean you need a relationship manager or salesperson to constantly upsell services for sustained profitability.

According to Andrew Kruse, founder & director of Lantern Digital, fixed fees are fuss-free:

“Generally, we use fixed quotes based on estimated work days. Our clients expect to receive fixed quotes based on work days, so we follow the industry standard. It allows us to be fairly transparent internally and externally with our pricing. It’s simple to understand, and easy to measure results after project completion.”

Cons

• If you end up spending more hours than you anticipated on a project, you’ll still make the same profit.
• Despite being straightforward, project-based rates can be hard to justify to clients on a strict budget. The model isn’t transparent about how much clients will be paying by the hour, which can lead to anxieties about overcharging. Talk about these details in your request for proposal!

For project-based pricing to work in the agency’s favor, be clear on the time you spend on a project, as well as expected and unexpected costs. Reserve this model for use after you’ve finished a few projects and have a good idea of the costs associated with the milestones.

3. Performance-Based Pricing

This model works best for agencies with a proven track record of getting real, measurable results. If you can link your work to a specific outcome—like lead generation, conversions, or sales—you can charge based on the success of that outcome. For instance, if you manage a social media campaign, you might take a percentage of the revenue generated through those social conversions.

To charge according to performance, agencies need to establish:

• Their conversion metrics
• How the conversions will be monitored, and the value of every conversion

Most agencies using this model will charge an upfront payment and a performance fee on top of that.

Pros

• The best thing about using this model is that it relays your surety in your own services to clients.
• Plus, it can be easier to convince clients to work with you when you’ve got a stake in their success.
• It’s also quite scalable.

Cons

• If you don’t deliver, you don’t get paid. The clients have all the leverage here.
• This model is extremely work-intensive. Not for the faint of heart.

For Jeremy Moser, co-founder of digital brand mention agency uSERP, this agency pricing strategy is a no-brainer:

“Our agency uses a very basic, straightforward pricing model of deliverables. We focused on a pay for performance model where our clients only pay directly for the mentions we get for them. As a digital PR agency and founders from PR backgrounds, we were sick of retainers that plagued the industry. Instead, we charge just for the press that we get our clients, with no retainers.

The most important factor in developing our pricing model was value. How can we make it easy for a prospective client to say yes? By eliminating risk. Simplifying our model to focus on only increasing costs as value equally increased.”

CEO Julian Goldie shares a similar view about the pricing of their SEO services. According to him, the model is also useful for obtaining high-budget clients.

“So the pricing model I use is pay-on-performance – that means it’s practically risk-free for my clients. If I don’t manage to build links for their website, then they won’t pay anything. They pay a fixed amount for every link I build, based on their monthly budget.

For me, I wanted to position my company’s expertise and quality.

So I’ve increased my prices high enough to ensure that I deter clients that are only interested in paying the cheapest prices, as they can be difficult to work with.

I also wanted to optimize the amount of trust I build with new clients, and that’s why my prices are paid on performance only.“

4. Retainer-Based Pricing Model

Retainers are for the agencies that like to plan it all out. The fee is pre-negotiated and paid upfront.

Retainer pricing is based on either an agreed-upon duration or a set number of deliverables. In the case of the former, the client prepays for the number of hours at the agency’s hourly rate. It’s important to clearly state here whether the weekly/monthly hours would expire or roll over to the next period.

For the latter, you’ll deliver client services within a specified amount of time. Once that’s done, you’ve held up your end of the retainer.

Creating monthly retainer contracts can be challenging if you’re unclear about client needs, which is why understanding these requirements is an essential prerequisite.

Pros

• Retainer pricing is heavily value-based and client-friendly. The agency is incentivized to improve service efficiency and quality to retain clients.
• Clients also benefit from being able to budget easily.
• On the agency side, since the fee is paid upfront, there is a predictable, guaranteed source of income every month.
• It’s also very easy to scale using the retainer model.

Cons

• It can be difficult to charge new prospects as a client retainer.
• Beware of mismanaging your hours, especially on deliverable-based retainers. Your profitability could be dealt a severe blow.

The pros outweigh the cons of charging a client retainer for Eagan Heath, owner of Caravan Digital:

“We sell our services on monthly retainers, which are based on the ongoing services we’re providing clients.

This helps us grow our monthly recurring revenue and scale our team.

Just make sure you’re charging enough and going after big enough clients. We focus less on upselling and cost optimization, and more on retaining 80% of our clients year-over-year. Some months we put in a ton of work to improve an account so our margins might dip but our retention will hopefully increase.”

5. Value-Based

No agency pricing model is more lucrative than the one based on value. Totally divorced from the hours you spend on the project, value-based pricing is immensely scalable.

Clients don’t pay based on either hours or deliverables, but according to the value you bring to their business. Your services are directly tied to a client metric like revenue or profit.

But there’s a catch. To effectively utilize value-based pricing, the agency has to bring something totally unique to the table. Specialize in content marketing or logo design? This model’s probably not for you.

However, say your agency specializes in promoting virtual musical events through digital marketing and advertising, and you’ve generated six-figure sales for a number of these events (nice!). You’ll find virtual event planners lining up to pay you a handsome amount for the value you’ll bring them.

Agency coach Robert a Costa explores Value-Based Pricing and the importance of niching to understand your ideal target customer.

Pros

• The value-based model aligns the agency’s goals with the clients – you’re both sharing the risk and reward, and are both motivated by the result.
• Thus, this approach prioritizes effectiveness, adaptability, and value above all else.
• If your agency’s services are in demand, this model derives the highest profit margins.

Cons

• “Value” is a subjective concept that can only be convincing in the most quantitative terms. Your prospects need total clarity on what you’ll bring to their business.
• That means you’ll need a track record of generating enormous value for past clients.

The pricing model has seen a lot of change at Saylor Company. Eventually, value-based pricing was concluded to be the right fit. Drew Saylor, co-founder and CEO, says:

“We use a value-based pricing model. This allows us to command higher fees based on the success of our efforts. It incentivizes and rewards us while providing a great benefit to our clients.

We typically use the design and development of a website as a loss leader to open the door to SEO and marketing services that are much more profitable and see long-term client retention.

We charge a one-time setup fee to help cover our initial workload to start SEO or paid advertising campaigns and then move on to a retainer with added performance-based bonuses.

This has helped us make more sales, but also allowed us to make more money on the vast majority of our accounts.

When we developed our pricing model there were three main factors we considered. First, we wanted to make sure we were pricing in a way that would make sales easier without getting into a race to the bottom. We wanted to make sure we weren’t driving away medium or small businesses with large up-front costs.

Second, we wanted to be able to grow our earnings with the client. This allows us to consistently maximize our earnings with each client.

Last, we wanted to make sure we were creating positive relationships with our clients to ensure long-term retention. In comparison to the fixed price model, we used in 2014 we’ve seen an increase in client retention and satisfaction.

We have unique pricing for every client based on the competitiveness of their industry, the monetary value of their product or service, and the time we need to invest in their project.”

6. Mixed Rates

As the introduction to this piece said, your pricing model should be continually tested and evolving.

No pricing model exhibits this more clearly than mixed rates, where agencies mix up two or more models according to the different needs of their clients.

You can customize your rates, like d3fy’s William Cobb, who uses a month-to-month productized service subscription model. Custom invoicing for custom projects is also available to their clients for additional work. “I wanted no-hassle billing, and up-front information so that everybody could be on the same page before signing up,” he says.

For Milosz Krasinski, Managing Director at Chilli Fruit, this is the strategy of choice.

“I own and run a business that offers outstanding SEO and marketing services to clients around the world.

When I first started my business, I was using a time-based pricing model, however, I quickly realized that this was quite hard to quantify; particularly for short-term projects. These days, I use a performance-based pricing model for short-term projects as this is easy to scale and the metrics used have a positive influence on my clients’ business and, therefore, on the reputation of my brand.

For longer-term clients, I use the recurring pricing model with a discounted annual price plan. This is great for my business as it brings in lots of steady, long-term contracts.

When implementing my price models, the factors I took into account included a desire to build a network of long term clients and to generate a steady income.”

Nat Miletic of Clio Websites concurs:

“We use a number of pricing models for our projects. We have an hourly cost, a project cost for new website implementations, and monthly maintenance costs. The hourly rate is static and transparent, as is the monthly maintenance cost.

Project costing varies based on the size and complexity of the project. I recommend that newer freelancers and agencies focus on hourly costs initially since project-based costing is harder to implement successfully.

The primary factors to consider when developing a pricing model are: a) competition research. What are some of your competitors charging for similar services, and b) Industry averages in the area you are serving.”

Pros

• Flexible pricing allows agencies to customize their pricing packages tailored to the customer’s needs.
• A mixed pricing model can adapt to the changes in the market conditions and client buying patterns.
• Agencies can cater to a wider range of client needs by mixing fixed and usage-based charges.

Cons

• Managing and explaining multiple pricing tiers to clients can be complex.
• Continuously improving a pricing model can be time-consuming and costly.

Mixed rates are also right up Gary Johnson’s alley:

“I use a client focused pricing model. Which is to say that the primary factor I take into consideration when determining how I price services is my clients. I want to make sure that they can understand why I’m charging what I charge, when I charge it. I also want to make sure that it is actually the best possible deal (cost to value wise) they could be getting for this service.

Second to that would be making sure that the pricing model actually allows me to cover costs and get paid.

That being said I use a wide variety of pricing models. Sometimes it’s just a one-time project fee, sometimes it’s more of a retainer type fee, sometimes it’s a set recurring fee, and sometimes it’s just hourly.”

7. Client Lifetime Value (CLV) Pricing Model

This model looks beyond a single transaction and focuses on how much value a client can bring to your agency over the long run. Instead of charging as much as possible for an individual project, you consider the potential of a lasting relationship—factoring in renewals, upsells, referrals, and ongoing services.

Agencies that prioritize client lifetime value often make more flexible pricing choices upfront. For example, offering a lower starting rate might make sense if it means securing a retainer or long-term agreement down the road.

Pros

• Encourages stronger client relationships built on trust and long-term collaboration
• Helps with forecasting future income more reliably
• Supports better planning for resources, hiring, and growth
• Clients may be more likely to stay if they feel your pricing reflects commitment over time

Cons

• Relies heavily on having data to estimate client value accurately
• Not well-suited for agencies focused solely on one-off projects
• Can strain cash flow early in the relationship if the long-term payoff doesn’t happen
• Risk of overestimating loyalty or retention if expectations aren’t met

8. ROI-Based Pricing Model

With ROI-based pricing, your fee is tied to the results your work delivers—such as increased sales, better lead conversion, or improved operational efficiency. This method is all about value exchange: if the client earns more thanks to your efforts, you earn more too.

It’s a strong option for performance-driven services, especially in areas like paid advertising, conversion optimization, or sales funnel design. It also sends a message to clients that you’re confident in your ability to drive real outcomes.

Pros

• Builds trust by showing your agency is invested in client success
• Offers the potential for higher revenue when results exceed expectations
• Sets your agency apart from competitors who stick to hourly or flat rates
• Encourages clear goal-setting and performance measurement

Cons

• Can backfire if results are affected by factors outside your control
• Not ideal for services where ROI is hard to track, like branding or design
• Requires careful planning and clear agreements to avoid confusion over deliverables
• May lead to disagreements if expectations aren’t aligned from the start

Agency Pricing Models: A Summary

Here’s a summary of the agency pricing models mentioned in this piece, for your convenience.

Model	How It Works	Pros	Cons
Hourly Rates	Clients pay based on time spent per task.	Simple to set up Clear time tracking Ideal for new agencies	Limits scaling Pays for time, not value Profit dips with inefficiency
Project-Based	Flat fee per project, scoped in advance.	Rewards speed Predictable costs for clients Good for one-off work	Scope creep risks Needs accurate estimates Potential underpricing
Performance-Based	Paid based on results like leads or conversions.	Aligns goals High upside Motivates quality work	No results, no pay High risk Tracking challenges
Retainer-Based	Monthly fee for ongoing services.	Recurring income Scalable Builds long-term relationships	Harder to pitch Scope drift risk Clients may underuse time
Value-Based	Fees based on value delivered to the client.	High profit potential Focuses on outcomes Great for niche experts	Hard to price Needs proven results Not fit for all services
Mixed Rates	Blend of hourly, retainer, or performance models.	Flexible Customizable Fits complex deals	Harder to manage Client confusion risk Requires tight scoping
Client Lifetime Value	Pricing strategy based on long-term revenue from a client.	Encourages loyalty Supports upsells Steady growth	Needs good data Poor retention hurts Slower initial ROI
ROI-Based	Fees tied directly to client return on investment.	Trust-building Big revenue upside Results-focused	Risk of no payout Tough to quantify External factors affect ROI

 

When to Charge Your Clients?

Cash flow is a crucial part of your overall pricing strategy. I’ve already touched upon the appropriate time to charge your clients based on your pricing model. Let’s delve into this in some detail.

Charging Upfront

Convincing clients to part with their hard-earned cash upfront may well be the opposite of taking candy from a baby.

This kind of payment collection is incompatible with the hourly model, and only really works for retainers or project-based pricing strategies.

On Completion

While charging on completion can help demonstrate to clients your commitment to and confidence in delivering, it’s the riskiest mode of payment collection.

Stories abound of clients attempting to renegotiate, or outright disappearing after the project is completed.

However, it can definitely help new agencies land clients when they’re starting out. So it’s suited to agencies using hourly and project-based rates.

Agencies following the performance-based pricing model usually charge on completion.

50% Upfront, 50% On Completion

This is the best of both worlds. By charging a percentage upfront, you can cover your upfront costs. At the same time, your client has the security of knowing they’ll only pay once they’re satisfied.

This kind of pay collection works for the project, retainer, and value-based pricing models. Agencies using the performance-based model will often charge an upfront payment and the performance fee on top of that.

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Tips to Boost Your Agency’s Profitability (Beyond Choosing the Right Pricing Model)

The pricing model you choose is directly linked to your bottom line. But there are other important ways to improve your profitability. For instance, you should prioritize superior customer service, build a stable pipeline of leads, and ensure your website is supported by the right hosting provider.

In this section, let’s glance at four ways to boost your agency’s profitability.

How to Upsell Clients

Upselling clients can be the difference between growth and stagnation.

When you offer additional or premium services to existing clients, you get to profit off them without accruing new customer acquisition costs. For instance, if you’re selling WordPress development services, you can encourage your client to purchase a premium service bundle that offers them more value.

Clio Website’s Nat Miletic is a proponent of this technique:

“My agency focuses on profitability by outsourcing tasks that are not our core competency, keeping our costs low, upselling certain services like SEO and affiliate products, client retention, and client referrals.”

Gary Johnson has a similar viewpoint:

“Upselling, when done right, is really just understanding the clients wants and needs and then pairing them with other services offered. A lot of times small business owners are weary about digital marketing or web designers so in order to show your value it’s best to just start by getting a quick win with one small service and then moving onto others.

And if you are actually listening to them and helping them understand their problems it will just flow naturally into other services you offer.“

Retaining Clients

It costs a lot more, and takes a lot more time, to acquire new clients than it does to retain existing ones.

Client retention also affords you more referrals, which smooths out the sales process.

As Drew Saylor of Saylor Company says:

“We are able to use a combination of optimization and client retention to improve profits on any project. Using a value-based pricing model helps us retain clients by making sure they’re only paying what they feel they should during down months and fostering a trusting relationship. When we first started in 2014, we worked on a set monthly fee and found that it tended to leave either us or our client in a position where one party was unsatisfied.”

Learn more from Jan Koch as he shares the techniques to sell a WordPress maintenance retainer to your clients.

Changing Pricing Models

Constantly revisit your pricing model to ensure it’s working for your agency.

In the beginning, for instance, you can start with an hourly model that’s easier to sell, even if it’s not the most lucrative. As you gain more clout, you can switch to a value or performance-based model, depending on your needs.

Your pricing model can’t be set in stone. Keep evolving it to enhance your profitability.

One great way to change your pricing model without upsetting existing clients is by adopting a multiple-tiered pricing approach.

As Brice Gump of Major Impact Media says:

“We use a two tier retainer model: you can choose the lower monthly retainer or the higher monthly retainer. It makes managing our clients incredibly simple.

We tried everything: hourly, custom billing by project. All of it led to a ton of work to create and design a proposal for a new client. Now we have simplified it by having one service offering at two different levels of service and when a new client signs up they can choose between Option A or Option B. It goes on a recurring monthly subscription and we get paid up front for the work we do.”

Cost Optimization

Make sure you have an in-depth understanding of all of your agency’s costs and turn it into revenue, and find opportunities to optimize them for effective client management . Look into automation tools that help with client reporting, and streamline client and staff management. Use our Pricing calculator tool to determine web hosting costs.

As Drew Saylor says:

“We also maximize our profits by optimizing our campaigns and SEO. Not only do we earn more on more efficient accounts, but we also have the flexibility to adjust budgets as needed to make sure we’re hitting goals or to set us and our clients up for greater success in the future.”

And according to Gary Johnson:

“Cost optimization is also a really great way to not only, usually slightly, up profits but more effectively increase client retention by providing more value in relation to their current cost. This is done by internally reevaluating how that service is delivered and getting that cost lower so the savings can be passed on to the client or at the very least so you don’t have to raise prices year after year.

Looking at cost optimization this way is definitely a way agency owners can reinvest back into their business for continued growth. Of course, sometimes cost-optimization means adding a little extra profit onto what you make, but again, this is usually small unless you have a lot of clients on that service.

And even then, it might be best to show your clients just how much you appreciate their continued trust and support and give it back to them in one way or another.”

How to Ask Your Clients For a Higher Price

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Conclusion

By determining (and constantly evolving) your agency pricing model, you set your agency up for increased profitability, growth, and client satisfaction. Pairing this with resources like Cloudways’ Agency Partner Program can further accelerate success by providing access to tools, support, and a network designed to help agencies scale efficiently.

Now that you’re well-versed in what each model entails, you’re well on the way to pricing your services appropriately and raking in the profits. Check out this Cloudways webinar video on getting high value clients for your marketing agency.