A pricing model tells you what the agency is paid to do
Every agency quote has two parts: an amount and a structure. Buyers tend to compare the amounts and skim the structure, which is the wrong way round. The structure decides what the agency is rewarded for, who carries the risk when things go slowly, and what happens when the plan needs to change.
There are five common structures: a monthly retainer, a fixed-price project, an hourly or daily rate, a fee linked to performance, and a percentage of advertising spend. None is dishonest in itself and none is right for every job. Each one rewards a particular behaviour and makes a particular problem harder to see.
This guide does not quote figures, because a figure without a scope means nothing. It explains what moves the figure, so that you can judge the quote in front of you.
What a monthly retainer rewards and what it hides
A retainer is a fixed monthly fee for an agreed level of ongoing work. It suits work that compounds over time and never quite finishes: search, content, paid media management, conversion improvement. The agency can plan its staffing and you can plan a budget. Most long-running agency relationships are built this way, for good reason.
A retainer rewards keeping the client. At its healthiest that means doing work good enough to be renewed. At its weakest it means looking busy: a long activity report, a steady flow of small tasks, and no hard conversation about whether the plan is working.
What a retainer hides is the link between the fee and the work. Ask what the fee buys in a typical month, in terms you can check: which specialists, roughly how much of their time, which deliverables, and what happens to capacity that goes unused. A retainer described only as ongoing optimisation cannot be held to anything.
Fixed-price projects and hourly rates
A project fee is one price for a defined piece of work with an end: a website rebuild, a technical audit, a tracking set-up, a migration. It rewards finishing. The buyer gets certainty on cost, and the agency carries the risk of underestimating. That risk is why careful agencies define project scope tightly and price changes separately. A tight scope is a sign of experience. It also means that anything you forgot to mention will cost extra.
What a project hides is everything after delivery. An audit with nobody to implement it changes nothing. A new site with no plan for content or measurement starts ageing on launch day. Before agreeing a project, ask who does the next step and whether that step is priced.
Hourly or daily billing is the most transparent structure and the least predictable. You pay for time spent, so you can see where the effort went. It works well for advisory work, training, and small or uncertain tasks that nobody can scope in advance. It rewards hours, though, so a slow worker earns more than a fast one. It also leaves the planning to you, since someone has to decide what the hours are for. An estimate or a cap for each task brings that back under control.
Performance-linked fees sound fair and are hard to design
Paying for results has obvious appeal: the agency earns more only when you do. Models range from a fee for each lead or sale to a base fee with a bonus for reaching agreed targets. Where the outcome can be measured cleanly and the agency controls most of what produces it, this can work well.
The difficulty is that the agency will optimise for exactly what is paid. A fee for each lead rewards cheap leads, whatever their quality. A fee for each sale tempts the agency to claim customers who would have bought anyway, such as people searching for your brand name. Many outcomes also depend on things outside the agency’s reach: your pricing, your sales follow-up, your stock, your website platform.
A workable performance element needs a definition of the outcome that both sides accept, a baseline measured before work starts, a data source the agency does not control, and a rule for what counts as new. Expect an agency that takes real risk to ask for more upside in return, and to want a say in the parts of your business that affect the result. A hybrid, with a base fee that covers the work and a modest bonus tied to a qualified outcome, is usually easier to live with than pure commission.
What a percentage of ad spend rewards
Paid media management is often priced as a share of the budget the agency manages. The logic is that larger accounts carry more campaigns, more creative, more risk and more scrutiny, so the fee scales with responsibility. It is simple to calculate and widely understood.
The conflict built into it is plain: the agency earns more when you spend more, whether or not the extra spend pays back. A sound agency will still tell you to cut a budget that is not working, but the structure does not reward it for doing so. Effort does not scale neatly with spend either. A larger budget rarely means proportionally more work, and a small account with many products can need more attention than a large one with a single offer.
Alternatives include a flat management fee, a fee that steps up in bands, or a share that reduces as spend grows. Whichever applies, ask what the fee includes besides campaign management, especially creative, landing pages and tracking, and confirm that the ad accounts are opened in your name. Our piece on what to let automated bidding optimise for explains why the goal an account pursues matters more than the fee model, and the PPC management page shows what the work covers.
What drives the price, whatever the model
Underneath every structure, an agency is pricing people’s time, with a margin for risk. Five things decide how much time is needed, and whose.
Two quotes can differ widely and both be fair if they assume different things on these five lines. The cheaper one may cover a single channel with a junior team at a gentle pace. The dearer one may assume several workstreams led by experienced people. For search in particular, the drivers are set out in what drives the cost of SEO.
- Scope: how many channels, pages, markets and deliverables are included.
- Competition: how strong the companies you need to outperform already are.
- Starting point: the state of your site, tracking, content and accounts today.
- Speed: how soon you need results, which sets how much runs in parallel.
- Who does the work: senior specialists, juniors under review, or subcontractors.
How to judge the quote in front of you
Ask each agency to state its assumptions on those five lines in writing. Once the assumptions are visible, you are comparing scope with scope, and a low price that rests on a thin scope stops looking like a saving.
Then ask what the model rewards and what protects you from its weak side. For a retainer, that is a defined monthly scope and a review point. For a project, a clear handover. For hourly work, estimates. For performance fees, a shared definition and an independent data source. For a share of spend, a fee that does not depend only on the budget growing.
The structure should also fit your stage. A business with no working channel needs a narrow scope and firm foundations before anything elaborate. SERPMOZ describes its own scopes on the engagement models page without prices, because cost follows a diagnosis of the starting point. Any agency you speak to should be able to explain its quote in the same terms.
