To keep expanding your agency or freelance consultancy, you will need the right business model to fuel that growth. The correct choice, though, won’t be the same for everyone. So much is dependent on the size of your operations, your client base, and the type of services you offer.
While many models exist, the two we most recommend are a monthly retainer or project-based pricing. These models give you the necessary structure to build your operations, so your workflow runs smoothly and your clients leave satisfied with the quality of your work.
In this article, we outline the idea behind each of these two business models, when each one works well, and what to consider before proceeding with one of them. Use this guide to figure out which business model best fits your agency or freelance consultancy.
Project-based pricing model
Also known as fixed or flat fee, it’s one of the most straightforward models for clients to understand. It puts a clear and defined price tag on a project from the start. While many newer businesses begin with hourly pricing, transitioning to a project-based model is a good opportunity for growth.
That’s because, at a certain point, an hourly pricing model starts ‘punishing’ you for using your technical expertise to complete projects faster. Eventually, you’ll notice that you’re reaping a lower profit for the same exact tasks.
A project-based pricing model, on the other hand, rewards the advanced skills you bring to the table. You’re selling the value of the deliverables you create for a client.
When it works well:
If you specialize in a few types of web projects, you have a great setup to optimize your speed with each round. As you finish each project even faster than the one before, and find ways to automate more stages of the web design process, charging based on value - as opposed to hours - will ensure you’re getting the compensation you deserve. Plus, reducing time spent on each will let you take on more projects. In tandem, those two outcomes will offer a boost to your bottom line.
If you are looking to scale your business into higher pricing tiers, the project-based pricing model is a useful tool for reframing how you think about payment. If you need a way to ease into asking for more than you initially think you ‘should,’ this could be the right model for you. Especially if you have good data on how long projects generally take you, you’ll be able to gauge the ‘real’ hourly cost, and then adjust to reflect the value of your expertise and continued increases in your production efficiency.
What to consider beforehand:
Underestimating time: It’s human nature to underestimate time. When it comes to your business, that miscalculation can cost you if you’re using a project-based pricing model. Getting the number right takes a few rounds of experience, and refining your knack for estimating time. What to do: Avoid getting short-changed on your project pricing. If you’ve been using an hourly model up until now and methodically tracking your time, you should have a bank of data to reference when quoting a client.
Scope creep: When scope creep starts calling in the form of additional client requests, it can leave businesses using a project-based pricing model with an uncomfortable dilemma. One option is requesting more money to move ahead with the request, which can make for an unpleasant client interaction. The other possibility is losing out on well-deserved profit if they don’t ask - not great for their bottom line or workplace morale. What to do: There’s a way to avoid this no-win situation altogether. From the start, sit down with clients to outline your procedures for late-stage project alterations. Finalize your discussion by incorporating that policy into your contract.
Retainer fee pricing model
As a professional, you’re the first one to know that a high-performing web presence doesn’t come with a fixed completion date. Instead, it’s a process that requires continual evaluation and adjustment.
That’s where a website maintenance retainer agreement comes in. It’s a contract, either measured in time or value, of the work you will for an account each month.
When would a monthly retainer be relevant? For instance, clients looking to use their web presence to advance concrete business goals, like increasing sales or growing a subscriber list, require ongoing analysis and optimization. Periodic services you would provide for them might include: SEO, social media marketing, A/B testing, and a regular email newsletter.
When it works well:
If you’re looking to scale your business into a more sustainable venture. The consistency of the monthly retainer offers a reliable source of income. This financial security gives you a base to rely on as you expand your client and project reach going forward.
If you fear clients might hesitate at your project quote. Reframing the price as a monthly installment rather than one bulk expense minimizes sticker shock. Also, many clients will appreciate the structure of regular payments - or at least their accounting departments will.
If you’re hoping to build a long-lasting relationship with your client. When you work with someone who you ‘click’ with professionally, it’s worth continuing to find excuses to embark on new projects together. A monthly retainer is the model that enables that. With ongoing communication and meetings built into your schedule, you have plenty of chances to build your relationship with this client, and continually improve how well you collaborate. It’s a great tactic for future business, whether with this account or with someone they refer.
What to consider beforehand:
Fear of commitment: Signing up for long-term maintenance services can be a big commitment for new clients to make right from the start. That hesitation can be due to a variety of reasons. Perhaps they’re not convinced yet of why they would need someone to take care of their email marketing or implement a multi-stage SEO strategy. Or they think it won’t be too much trouble to do it themselves. Maybe they’re waiting to build trust with you before turning over their business into your hands for the long haul. What to do: Consider starting new clients on the project-based pricing model, and then exploring moving them over to a monthly retainer later in the project. This gives you time to earn their trust, and also sufficiently educate them on the importance of website maintenance.
Unexpected timing: If your website retainer runs according to value (i.e. you are obliged to provide a certain number of deliverables each month, rather than hours), you could find your workload taking much longer one month that it has previously, due to unforeseen factors. Unfortunately, under this model, you have no grounds for charging more that month. What to do: Advocate for a time-based monthly retainer that lets you detail the exact hours will you commit each month to a set number of tasks for that client. This will give you more precise numbers to work with as you calculate a feasible work schedule, taking employee and project numbers into account as you do.
Both of these business models comes with their own advantages and disadvantages. Choosing the right one is a result of taking stock of where your business is today: your range of projects, the size of your client base, and your employee resources. Then, envision where you want it to be several years down the road. The business model you select should be the one that connects your current business reality to the one you want to create.
By Joanna Kramer
Editor, Wix Partners Blog