If you’ve worked with an agency before (or have even considered working with an agency), you’ve probably been exposed to two pricing models: hourly and fixed bids. It can be tough to reconcile what seem like substantially different offers from agencies when one presents an hourly bid, and the other offers a fixed bid.
So, when you’re working with a marketing agency, when does an hourly bid make sense? And what are the pros and cons of fixed pricing? Let’s take a look.
From a consumer’s perspective, the inherent problem with an hourly pricing bid is that the agency is being incentivized to drag their feet on the project. The longer they take, the more they make. Even if the agency is quick and trustworthy, this can sometimes hamper the project; human nature means that it’s tough to generate a sense of urgency on a project when you’re being paid hourly.
Additionally, the efficiency of an hourly pricing bid varies greatly depending on the agency’s expertise. Simply put, if you’re working with an inexperienced agency, it might take them four hours to accomplish a task that would take a more experienced agency two hours.
On the flip side, though, experienced agencies that offer an hourly rate may be able to offer you a slightly better deal if they can complete your project in a shorter amount of time. This doesn’t happen every time, but it does happen on projects that go well. And clients can play a big role in helping a project to go well, by providing clear scope expectations from the start and by communicating readily with the agency.
It all boils down to the level of trust that you have in the agency to perform the project efficiently.
In contrast to an hourly bid, a fixed bid incentivizes the agency to work efficiently to maximize their productivity. It also sets a firmer deadline for project completion, which can be helpful for websites or campaigns that need a definitive launch date.
Of course, the flip side of fixed bid pricing is that agencies will often pad their estimates to make sure that they can get all of the work done in time and still make a profit. If they think a project will take 20 hours, they might give you a fixed bid estimate for the price of 24 hours, to make sure that if anything comes up, they’ll stay within their budget.
Fixed vs. Hourly Bids: What We Do
At New North, as an experienced digital marketing agency, we’ve seen plenty of arguments for both pricing structures (and after reading this post, you have, too!). Taking into account all of the different variables and rationales, here’s what we’ve come up with.
We offer hourly pricing for shorter tasks (generally website maintenance items, etc. that total less than four hours of work). That’s because offering a fixed bid on shorter tasks requires price padding that’s almost always unnecessary. There are fewer variables to consider, and we tend to knock these tasks out quickly.
For longer projects, like a monthly inbound marketing retainer or a website build, we offer fixed bid pricing, because we want to keep the incentive for productivity securely on our shoulders. Our expertise allows us to offer bids that are as accurate as possible.
The Common Element: Trust
The truth is that there are pros and cons to both hourly bids and fixed bids. Different agencies often prefer different models, and they can usually make a case for why they function the way that they do. When it comes down to it, the most important factor in considering an agency bid is this: how much do you trust the agency?
If you trust them to work hard and serve you well until they’ve delivered a satisfying project, then you can probably trust them to provide a fair price. If you can’t trust them to do those things, then you shouldn’t do business with them, regardless of which pricing model they use.
At New North, we’re passionate about developing relationships with our clients that are based on great work and a deep level of trust. Are you looking for an agency to meet your digital marketing needs? Get in touch with us.
Jon is an inbound strategist with a passion for helping clients take the mystery out of their marketing. His goal is to write about digital marketing using as little jargon as possible. He’s watched a few too many Pittsburgh sporting events.