Building an initial pricing strategy 101: Agency edition

Figuring out what to charge for products is challenging. Determining what to charge for services is even harder. And when those services are both creative and wide-ranging — like they are at your agency — getting pricing just right can feel downright maddening.

In this guide, we’ll show you what you need to know as you develop an initial pricing strategy for your agency, along with 14 strategies businesses across a spectrum of industries use to set their pricing.

What is an initial pricing strategy?

An initial pricing strategy is the starting point that a business establishes for setting prices for services. It provides guidance or a framework so that every job, contract, or project generates the appropriate profit while meeting consumer demand and budget.

For full-service creative agencies, a pricing strategy determines how you calculate rates for the various services you offer.

Tips for developing an initial pricing strategy for your agency

Your agency’s initial pricing strategy is a starting place, not a destination. How you price services can (and should) evolve over time, but everyone has to start somewhere!

Use these tips to gather information to help determine your business's starting point.

Research and evaluate your agency’s pricing potential

Next, consider your pricing potential, especially considering what you offer, your competitive advantages, your market share, and your operating costs.

What you do and don’t offer likely varies from what your closest competitors do. If you offer broader services (such as email marketing support: a high-value offering that generates $36 for every dollar spent on average), you can likely command higher prices. If your services are narrower in scope, the opposite may be true.

Determine your ideal customer and your buyer personas

Every business must identify their ideal customer to target their marketing strategy and advertising efforts in any way. As you grow, move beyond a single ideal customer type and develop one or more buyer personas (amalgamations of the various traits common to the people who buy your services).

Look at any previous and historical data you have

Assuming you’re not starting a new agency from scratch, you should have some sort of data on past performance. This information shouldn’t dictate your new pricing strategy, but can inform it. Historical data can show you what worked and what didn’t, maybe even eliminating some of the 14 options in the following section.

If you use a marketing project management solution, that's where you’ll find the data you’re looking for. And if you’re not, now is the time to start!

Analyze competitor pricing models

Your competitors are working through this same process (or they already have). So why not learn from their work?

Investigate what your competitors are charging and, where possible, how they arrived at those prices. You don’t always need to undercut every competitor's price, but you should know where you are in the pack.

14 popular pricing strategies for agencies (and when to use them)

Now that you have some initial data, it’s time to plug it into a strategy model. But which one will help your agency find the right pricing balance?

Here are 14 popular pricing strategies that work for agencies like yours.

1) Competition-based pricing strategy

Competition-based pricing looks at what competitors charge for a product or service that’s similar (or in the same category) and uses that as the starting point, rather than other metrics like cost. It’s common in retail, especially for commodity-type items.

Think about buying a kitchen gadget or household item on Amazon. You'll see 20 different cheese graters, 10 of them basically identical. If you’re like most people, you'll probably choose the least expensive option that looks good enough for the job. The vendor that reached the lowest price point won: That’s competitive pricing, or a competition-based pricing strategy.

How does this work for creative agencies? If you’re trying to break into a saturated market or need to differentiate on price rather than quality/results, then competition-based pricing is a valid option. Just make sure you watch your bottom line!

2) Cost-plus pricing strategy

A cost-plus pricing strategy (or markup strategy) bases prices on the cost of goods or services and adds some percentage of markup (that’s the “plus” in “cost-plus”) to that cost. You’ll see this model more often in physical retail, where calculating the actual cost of a tangible item is fairly straightforward. Retailers slap on a markup (ranging from around 15% in groceries to 60% in restaurants), and that markup is their gross profit on each sale.

This strategy is a tough one for creative agencies and other service-based businesses, where the real cost of services can be hard to calculate (you can’t commoditize graphic design like you can breakfast cereal) and competitors’ markup levels are unknown.

3) Value-based pricing strategy

Value-based pricing sets prices based on the perceived value the customer or client receives from the product or service. Commonly used on unique or high-end goods and hard-to-replace services, value-based pricing can generate massive profits — but only if you truly generate massive value.

The more commodity-like a product or service (or agency), the less this strategy works. The opposite is also true: If you deliver something high quality (tangible or intangible) that no one else in your market can deliver, there’s no limit to what the right customer may be willing to pay.

4) Dynamic pricing strategy

Dynamic pricing strategy uses highly fluid pricing that adjusts rapidly to market conditions. We see this model in action when we buy airfare or book an Uber during surge pricing (ouch!). In retail settings, dynamic pricing is only possible with the right mix of modern tech.

Creative agencies can (very carefully) leverage dynamic pricing according to market demand. If you serve customers with seasonal ebbs and flows, set your prices high during crunch time and offer discounts during the slow season.

But proceed carefully, especially if moving from another more stable model: Dynamic pricing done poorly can upset or frustrate customers.

5) Hourly pricing strategy

This strategy needs little explanation: It’s a per-hour rate, plain and simple. This model is how millions of workers think about their jobs, and if you work with freelancers, some of them may charge you by the hour.

Some agencies make this strategy work by setting a (high) hourly rate and then billing working hours across the entire project or contract. It’s consistent, straightforward, and fair (at least until hiccups like scope creep muddy the waters).

But clients are often leery of paying by the hour, either fearing dishonest reporting or believing the model leads to slower results (and higher bills). You also run the risk of training clients to value your work as hourly labor rather than by the results you accomplish.

If your agency does simple projects in high volumes, hourly pricing may make sense. The same is true if your competitors are charging by the hour. But be aware of the risks.

6) Skimming pricing strategy

The price-skimming model sets prices quite high when a product is first released. Then, prices gradually taper off as interest and demand wane, eventually landing at a much lower price than at launch. So, the “skimming” here is out of the bank accounts of early adopters, who contribute the largest share of your profits.

Skimming works well for flashy, in-demand new products like game consoles and other electronic devices, where consumers don’t mind paying higher prices and creating greater profit margins. (As far as the prices declining over time, it helps that the manufacturers’ costs usually come down over time, too.)

Most creative agencies don’t sell physical products with release cycles like the latest gaming console or the next iPhone, so this strategy can be hard to map across the board. However, this strategy has its place: If you’re among the first to add a new service line (such as AR or metaverse advertising, for example), you can charge your early adopters accordingly.

7) Premium pricing strategy

Rolex. Lamborghini. Tiffany. Louis Vuitton.

What comes to mind with brands like these? Prestige, pride of place, status. These brands are symbols more than anything — no one buys a Rolex simply to tell time, and no one buys a Lambo thinking it’s a reasonably priced commuter vehicle.

Premium pricing, or prestige pricing, sets prices far higher than production costs demand as a means of projecting the worth and status of the item (and the person who owns it). Brands using this pricing strategy intentionally limit their reach, but the increased margins (and the pride in the quality of the product) make the trade-off worthwhile.

Can you use this pricing strategy in your creative agency? If you have the clientele, experience, and results to back it up, absolutely. But for those of us who haven’t directed a multi-million-dollar TV ad campaign, it might not be the best option.

8) Market penetration pricing strategy

How do you break into an existing market and convince customers to leave their current choice? This question exists practically everywhere: shaving cream, cellular carriers, entertainment streaming, and even creative agencies.

The market penetration pricing strategy answers this question by jumping into the field at an aggressively low price, undercutting legacy players and pulling their clients your way. This strategy shows up often in venture-backed tech. For example, Uber was a great deal for passengers when it launched, but arguably only because it operated at absolutely stunning losses (thanks to loads of VC funding).

In the agency world, market penetration pricing isn’t sustainable because you can’t turn a long-term profit. But new agencies that have yet to develop significant overhead can use it to grow an initial customer base, as long as they protect cash flow. Bringing those customers with you when you eventually switch to another model is a separate discussion.

9) Project-based strategy

Project-based pricing sets a flat rate for a project that isn’t tied to the number of hours worked (at least not publicly). Whether the project takes one hour or 20, you can expect to be paid the agreed-upon rate as long as the deliverable is satisfactory. If you work with freelancers and contractors, you’ve probably used project-based pricing with them.

Imagine contracting someone to write a blog post like this one. Setting a flat fee, agreed upon at the outset, is a reasonable way to keep everyone happy. You don’t have to worry about how long the writer took (or whether it was the “right” amount of time). As long as you love the end result, it’s all good.

If you use this model in your creative agency, you may well use another pricing method behind the scenes, basing your rates on the hours you’ll invest or on the value of the work to the client. But to the client, it’s simply a per-project rate.

This strategy works well for many creative businesses. Just make sure to put pricing practices in place so you don’t burn time calculating project rates (or under-quoting and losing money).

Not sure the right project price to ensure profitability? Then you need the profitability calculators and tools within Teamwork.

10) Bundle pricing strategy

Bundling is a powerful psychological tactic: Getting more for less is a powerful motivator that pushes all the reward buttons in the brain — even if the person knows on some level that the deal isn’t real.

Whether you offer products separately or you only offer them in one or more bundles, the principle here is that the customer should feel like the bundle is a bargain — even if it’s really just the price you expect to receive for your creative work.

True bundles might seem like a loss of profit, but it’s all in how you build them. Some services you offer may amount to very little extra work if you’re already performing a complementary service. So instead of charging double for what is far less than double the work, charge a little less. You may even make more, and your customer senses a deal.

11) Psychological pricing strategy

Psychological pricing strategies are any tactics that prey on the way people think and respond to stimuli. Ending all prices in $.99 is one such tactic. “Fake” bundling (part of the previous strategy) is another. Even setting your prices higher than bargain options can fall in this category because it conveys higher value.

Creative agencies can employ some psychological pricing tactics by offering discounts or “sales,” which aren’t particularly common in the industry. Just make sure to protect your margins as you do so.

12) Geographic pricing strategy

Geographic pricing modulates the price of a product or service based on economic factors tied to geography. Quick service restaurants in Hawaii charge more than those in the mainland U.S. because of increased geographic costs, while the same restaurant chain may charge less in developing countries for economic reasons.

Geographic pricing is a possibility for a creative agency with regional, national, or global reach.

13) Freemiumpricing strategy

Freemium pricing is any business model that offers a basic service for no cost in an attempt to attract customers to a more powerful paid solution. Countless websites and SaaS tools follow this model, dangling just enough functionality to be attractive in the free version but keeping all the stuff people really want in the paid version.

Time-limited trials fall into this category as well. In the creative market, freemium offers should be limited to freebies and tools with no ongoing resource commitment.

14) High-low pricing strategy

This strategy introduces products at a high price, then drops the price when the products reach the end of high demand. Seasonal retail, which introduces the Spring Collection at full price and then drops the prices significantly six months later, is a perfect example.

There’s rarely, if ever, a good reason to drastically drop creative agency pricing, so this strategy isn’t a common one in the industry.

How to decide which pricing strategy is for you

Choosing the best pricing strategy or strategies is a personalized process that starts with answering some probing questions about your company and your market:

• Are you an established player or a newcomer?

• Do you offer something others don’t, or do you offer similar products/services as your competitors?

• What do your closest competitors charge?

• What are your operating costs?

Established agencies with solid reputations could move toward value-based pricing and away from “money for labor” hourly pricing.

Newcomers might start out with low rates using market penetration pricing and then transition to hourly or project-based. Those with numerous similar competitors might be better off positioning themselves using competitor pricing information.

Bundles and psychological tactics can be useful for just about every creative agency, while dynamic pricing can be a great choice if you serve clients in industries with heavy seasonal swings.

Ultimately, the right pricing strategy is the one that maximizes your reach and earnings potential, gives you a clear position in the market, and converts leads into customers.

Teamwork makes it easy for creative agencies to keep team projects on track, whether you’re tracking hours for clients or quoting prices per project. Get started here for free.

Keep your workflows organized with Teamwork

Choosing the right pricing model is important for creative agencies. But it’s even more crucial to iron out process issues, bottlenecks, and dropped balls that are holding you back from being as effective and attractive as you want to be. Disorganized, broken workflows can harm an agency just as much as a suboptimal pricing strategy.

Teamwork is the project management platform built for creative agencies. Our tools will help you rein in processes and organize workflows, empowering you to wow your clients and deliver on time.

Sign up today to get started with Teamwork!