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How to Create Your Hourly Rate for Digital Marketing Services

by Rob Eleveld  |  
August 14, 2013
  |  37,558 views

In this article you will learn six steps for creating your blended hourly rate, including...

  • How to competitively price your services based on market conditions
  • How to determine employee bill rates
  • How to determine the partners' bill-out rates

The good news is that you don't need an MBA and you needn't have taken an accounting class to get the basics of your cost structure and an associated billable rate.

Let's roll through a simple set of steps to understand your overall strategy, which will dictate the underlying cost structure and associated blended rate of your services.

And though I typically write for the digital marketing agency ecosystem, these steps really apply to any services business. You can—and should—double-check these steps with your friends who are consultants, lawyers, accountants, etc.

Cost Structure: Important for a New Firm or Any Dynamic Operational Change

Depending on how long your business has been operating, many of the concepts in this article may be well understood, but it never hurts to start with the basics.


Even if your digital marketing agency is well established, should you be launching a new service, or opening an office in a new city, or taking on a new large client that will entail expanding your resources, you will want to roll right back to these basics for a sanity-check on doing smart business.

What's the objective of understanding your business's standard billing rate? The objective of this exercise is simply this: When your firm puts together a bid for a client, you and your team should be able to quickly check whether that bid equals profitable business.

Therefore, in the Keep It Simple spirit, my recommendation is to come up with a single blended hourly rate for your business. This way, everyone knows what is good business for your firm, assuming you can accurately estimate the number of hours involved.


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Rob Eleveld is CEO of Optify, a digital marketing software provider for agency marketers. He has more than 15 years of B2B technology experience.

LinkedIn: Rob Eleveld

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  • by ChrisB Wed Aug 14, 2013 via web

    I'd prefer to see an article on Value Pricing/Value Billing/Fixed Price Proposals.
    Selling time by the hour, in my opinion, leads to a conflict of interest for client and service provider.

  • by Nicole Wed Aug 14, 2013 via web

    This article is exactly what I've been looking for. It can be so difficult as a new business owner to ever know where to begin when setting your rates. This is great advice to get started and for going forward. It gives me more confidence to charge what I'm actually worth. Thanks a lot!

  • by Goleng Wed Aug 14, 2013 via web

    Very nice article!!

  • by Randy Milanovic Wed Aug 14, 2013 via iphone

    Go ahead and set a rate. But, you better not bill hourly if you want to be profitable!

  • by Tom Cox Wed Aug 14, 2013 via web

    Awful advice based on flawed assumptions. To suggest building an hourly rate based on how much you want to make -- instead of how much value you create for your clients -- is just bizarre.

    Any hourly rate borders on a conflict of interest -- because the service provider earns more by being less productive, and earns less by being more productive -- and it puts the buyer in the position of having to guess what value they are receiving.

    Unless your hour is a generic hour that can be exchanged for other similar hours -- or unless the person paying is also managing the project and is taking responsibility for quality -- I consider it unethical to charge by the hour. It's also foolish.

    I can create thousands of dollars of value -- for some clients under some circumstances -- in under an hour. I've seen far better people than me do even better.

    The more ethical approach is to charge by the project, based on the delivered value of that project. Period.

  • by Pam Ivey Wed Aug 14, 2013 via web

    As a service provider, we are constantly told that we place a definite cap on our earnings if we charge hourly - there are so many hours in the day.

    I agree with Tom Cox. You rates should be based on the value you provide your clients. An excellent book on this subject is 'Breaking the Time Barrier' by Freshbooks' CEO and Co-founder, Mike McDerment, that can be download free at http://www.freshbooks.com/blog/2013/06/12/breakingthetimebarrier/.

  • by ChrisB Wed Aug 14, 2013 via web

    While we're recommending value based billing books, if you haven't read 'Value-Based Fees' by Alan Weiss, the rock-star of management consulting, you're simply not in the game.

  • by Mary Ellen Wed Aug 14, 2013 via web

    Ugh. What a wasted exercise.

    Hourly billing is a nightmare. No one wakes up and thinks "Man, I have GOT to go buy some marketing HOURS today. I wonder who has some HOURS to sell me."

    So we productize our offerings, and price them based on the value of the leads in our target industries. We're producing what our clients actually want to buy. No mathematical gymnastics required.

  • by Nicky Matthews Thu Aug 15, 2013 via web

    Thank you for this I love it it never ceases to amaze me how rarely people discuss billable amounts which is dangerous when starting out as if you get it wrong you either set yourself up to fail or set yourself up for massive disappointment.

  • by Rob Eleveld Fri Aug 16, 2013 via web

    Really appreciate all of the comments, both pro and con.

    Regardless of other types of positioning or framing pricing as "value based" or "fixed bid" or anything else, it is very important as a starting point to understand the underlying cost structure of a services business. Ultimately, without that cost structure understanding as a baseline, there is no understanding of what is good business or better business in terms of profitability.

    Generally speaking, I agree whole-heartedly that the more service providers that get to value based pricing or retainer-based services, the better for both firms and their clients.

    Here is a good post on many different types of pricing structures. http://bit.ly/14TPRI6

    A digital marketing agency pricing eBook can also be found here. http://bit.ly/1eQUrbD

  • by Tom rector Sat Aug 17, 2013 via web

    A good analysis, providing a starting point for the exercise. I must argue with the bullet point suggesting that you calculate what you needed to make and use that as an element to set your price. Price is based on value provided, not on cost. What you need to make is important but should not affect where you set your price for services.

  • by Sophia Zhang Fri Aug 23, 2013 via mobile

    As Rob stated at the very beginning, this article provides info as a starting point for pricing, there is always much more complicated business situation for which we need keep building our pricing metrics or creating different strategy.
    Hourly rate exist in many business cos it has it's reason to be accepted by client as which can serve as a very clear pic in terms how and on what you bill your client.
    Value based pricing sounds good but still you need cover your cost to be able to make profit for your agency and your staff.
    In short, personally I think this article could be very helpful for lots of starters, for least, you can check against your existing pricing strategy to see which methods or areas are more applicable to your business.

  • by Jay North Thu Dec 26, 2013 via web

    Nice article! However I think it should not be so complex to determine ,I still do it traditional way.

  • by Good Approach Wed Jun 11, 2014 via web

    Digitization has grabbed the world in a spectacular way. The support as such in terms of the business management keeps extreme level approach. Hourly rate definitely keeps importance in the segment but the way to manage it keeps importance. One tool that has helped me manage the strategy in the best approach for hours management is the cloud based hours tracking tool from Replicon. No doubt I am in the sales profession, but the digital marketing approach also keeps importance in the segment. Check out the link to the same - http://www.replicon.com/olp/hours-tracking-software.aspx

  • by Veronika Wed Dec 10, 2014 via web

    Hi these are some really helpful tips. Would like to add some tips for invoicing:

    1. Online invoices should be supplemented with reports of the work done

    2. Late fee and payment reminders for clients to pay up on time 

    3. Invoice templates to look more professional

    Manager
    www.invoicera.com | https://www.facebook.com/Invoicera

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