What is the “right” agency pricing model for my brand?

You’ve begun the evaluation process, meeting with prospective agencies and discussing their services. Undoubtedly one of the key factors you’ll be considering is cost. How much will we be paying and how are those fees calculated?

Unfortunately, what you’ll find is there is no single approach when it comes to agency pricing. And there’s a reason behind that. An agency must consider a multitude of factors, each unique to them - team construction, brand recognition, key competitors, overhead and ultimately their bottom line.

Despite this variability, there are some general pricing models you’ll want to understand before moving forward.

For our purposes, we’ll bucket each model under one of the following categories.

• Input-based: The agency completed X work, therefore we pay Y
• Output-based: We saw X performance within the affiliate channel, therefore we pay Y
• Value-based: We believe we’re receiving X value from the agency, therefore we pay Y

Let’s jump into it…

The Major Players

Hourly pricing (Input-based)

The easiest to understand but rarely seen. Agencies charge a set hourly rate for their work and submit an invoice, usually at the end of the month. Typically this is paired with time-tracking software (e.g. Harvest or Timely) which is updated & shared across teams.

Pros

• Easy to understand
• Only paying for the number of hours worked
• Works well when a single expertise is needed (e.g. landing page optimization)

Cons

• Requires clearly defined scope of work
• Agencies are not incentivized for efficiency or performance
• Hours can be misappropriated

Fixed project rate (Input-based)

Think of this as hourly pricing with guardrails, either on the scope or number of hours. You’ll see this model used quite often across other industries — web development, writing, design, etc. It’s not as common in the affiliate world simply because of the dynamism required to scale an affiliate program. For that reason, this approach only works if all other aspects of program management are covered by an existing resource. In those instances, layering on a fixed-rate project can help fill in any gaps.

Pros

• Easy to understand
• Easy to forecast costs
• Final product or outcome is well-defined, at least in theory
• Offers evaluation period before signing a long-term contract

Cons

• Requires clearly defined scope of work
• Inaccurate estimates can lead to receiving “good enough” work
• Limits agencies impact to a very specific area

Retainer (Value-based)

Likely the most common model - an agency charges a flat rate, usually on a recurring monthly basis. The services are outlined in an SOW and assigned a cost. The contract will span 6-12-18 months and include a range of services wider than the previously discussed models. These services are typically performed by a full team - each individual fulfilling a specific role.

Pros

• Both parties know what to expect regarding fees and terms
• Wider scope will lead to a more holistic, sustainable approach to growth
• Takes advantage of individual expertise

Cons

• Could be “overpaying” if value is not clearly defined or realized
• Little incentive for the agency to drive performance as it isn’t reflected in the bottom line

Performance (Output-based)

It’s exactly like it sounds…fees are calculated based on performance, often defined as the monthly revenue or ad-spend driven through the affiliate channel. The agency will take a percentage of that volume. For example, a brand sees $100K in monthly revenue and pays their agency 10%. They would have $10K in agency fees that month.

With this model, performance goes up, the agency charges more. Often times you’ll see a minimum monthly fee included with performance-based pricing as it ensures the agency makes enough to cover their basic expenses.

Pros

• Aligns all parties around a specific goal
• Brand only incurs increased fees if performance improves
• Easy to calculate key cost metrics (CPA, CAC, ROAS) as agency fees can be baked in

Cons

• Significant month over month variability, especially during high seasonality
• Requires clear alignment on the KPIs
• Performance inflation - could lead to pushing of volume over quality

Our Approach

So what pricing model does Jamdesk adhere to? Well, we don’t have a one-size fits all approach to pricing since each client has a unique set of needs BUT more often than not we offer one of the following…

Monthly retainer with performance incentives

Our bread and butter (jam). We set a flat monthly rate that covers our basic expenditures. Think of this as - what is needed to keep the lights on? We then layer on a smaller performance incentive that ensures we’re motivated to drive the results a brand is looking for.

Project-based

Over the years, it’s become more and more common for brands to bring affiliate programs in-house, which is a completely reasonable strategy. Yet sometimes the internal team, heck maybe even another agency, needs support in a super specific area. A good example here is recruitment. In that scenario, we will offer a project-based contract that has a designated # of hours and resources with expertise in onboarding new partners that fit a specific criteria. There’s a clear understanding of what the project is, who is working on it, and what defines “success”.

Final Thoughts

I want to close simply by stating the obvious — there is no “right” pricing model. Ultimately, the best approach is the one that creates the incentivizes and value needed to accomplish your goals. As long as there’s a clear understanding of services and alignment on key objectives, we feel that any of the above could lead to a successful partnership.