In our last article on outsourced marketing, we talked about strategies and channels where B2B companies can benefit from outside services. That’s the first step — deciding how an agency can help grow your company.
The next step is deciding how much to pay. In this follow-up piece, we’ll cover some best practices for setting your budget, evaluating different pricing models, and measuring (ROI). Graciously lending his expertise for this topic is Ryan Gould, the vice president of strategy and marketing at Elevation B2B Marketing.
Elevation is a full-service agency based in Mesa, Arizona that specializes in building “multifaceted, holistic strategies” to help B2B companies grow. Their services span across inbound, outbound, social media, partner channels, video production, events, and more.
Back in July, Elevation published an article on their blog detailing a “secret cost formula” for B2B marketing agencies. The article gives a thorough explanation of every variable that an agency uses (or might use) to set their price point. We caught up with Gould recently to ask some follow-up questions.
Based on our conversation, here are five things you should consider when setting a budget for outsourced marketing services — whether content syndication, creative/design, inbound, or paid media.
1. All Marketing and Advertising Projects are Custom
Lack of clarity is one of the biggest barriers to entry when it comes to marketing services and price negotiation. Why does one agency charge less or more for a particular service, depending on what it’s bundled with or the longevity of the campaign? To the inexperienced buyer, it might seem like agencies make up the rules as they go.
Believe it or not, there’s actually a fair amount of standardization in B2B marketing services. “There is a level of industry consistency in the margins and markups used to set pricing,” says Gould. The differences that buyers see reflect the type of agency, the level of their expertise, capabilities, and the quality of their work. Then, of course, there are pricing factors on the client’s side: location, number of employees, size of the account, etc.
“We always recommend our prospective clients compare apples to apples when evaluating agencies,” Gould says. “Don’t expect to see pricing from a small digital agency in a mid-market that’s comparable to pricing from a global agency in New York.”
The “custom” aspect of price setting is the part where the agency builds programs to support your existing strategy (or in some cases, builds a strategy from the ground up). Since every B2B company has different goals and resources, the agency strategy will look and cost different. “We work with each client to create a comprehensive plan that aligns with their specific goals, budgets, and timelines. After that, we segment marketing activities into modules that can be scoped and priced based on the overall plan.”
2. Capital Expense, or Operating Expense?
There’s been plenty of debate about whether marketing services should account for a capital expense (non-recurring expense generated by a one-time acquisition) or an operating expense (paid for on a regular basis to keep the business alive; part of the marketing budget).
Most relationships between B2B vendors and agencies deliver the biggest return when they exist as a long-term partnership, rather than a one-time “flash in the pan,” as Gould calls it. “Sure, marketing can be used to generate leads in a pinch, but it should also be a long-term function for building, maintaining, and nurturing your active client and prospect lists.
An agency should act as an extension of your marketing team.
“Maximizing the effectiveness of an agency largely depends on your short and long-term goals, as well as your current sales and marketing environment. Where a company has a robust marketing and sales machine, using an agency as a temporary lifeline may be worth the cost. Ideally, an agency should act as an extension of your marketing team. Building a lasting partnership with an agency helps maintain brand integrity and consistency throughout campaign execution. Additionally, an agency that is fully integrated cuts down on ramp up time and additional costs associated with temporary solutions.”
In other words, every business will account for marketing services differently, but the ideal scenario is to build a strategic partnership with an agency and fold that cost into your operating budget.
3. The Superiority of the Benchmark Rate Model
There are three prevailing price models for agency services: value pricing, fixed package pricing, and the benchmark rate model.
> Value pricing: Charge based on the perceived value of the effort — better for inexpensive services like email blasts.
> Fixed package: The agency sets non-flexible rates for specific levels or packages of service — marketing as a commodity.
> Benchmark rate model: Based on current data about the average costs of marketing campaigns and projects.
“Benchmark pricing ensures projects are priced at fair market value, providing peace of mind to clients that they aren’t being overcharged for our services,” Gould told us (this is the model Elevation uses). “Benchmark pricing also forces an agency to work efficiently.”
Other pricing models like fixed package don’t account for the complexity of a full-service program, he said. They also force agencies to turn out commoditized work instead of truly custom strategies. “An out-of-the-box marketing campaign is rarely as effective as a well-conceived and well-implemented customized solution.”
An out-of-the-box marketing campaign is rarely effective.
Gould says value-based pricing is bad for agencies and clients because it forces competition between agencies of very different stripes based on a subjective price. In some cases, that means the best agencies (with higher prices) bow out of the bid, leaving clients to choose between market laggards with cheap labor and mediocre service. “[With value-based pricing], you aren’t getting an agency’s top minds and creative assets working for you.”
4. Keep a Close Eye on ROI
“A good agency partner should help you establish metrics, tools, dashboards, and reports that align with your marketing and business objectives,” Gould says.
Wait a minute. Does that meant the agency itself is partly responsible for proving success? You bet. Of course, as a business, it’s your job to run your own numbers, but it’s also in the agency’s best interest to demonstrate how their campaigns are delivering tangible, measurable results. How do you allocate your own reporting and analytical practices into this new partner relationship? Gould offers a few suggestions:
- Don’t fixate on lower-priority metrics. Focus on the metrics that reflect program performance — new leads, conversion rates, average deal size, cost per lead, revenue, and so on.
- Don’t ignore the “micro data.” The details can uncover hidden opportunities to maximize ROI. E.g. look for patterns in audience, geography, messaging, seasonality.
- Lean on your agency for their insights and expertise. Don’t be afraid to ask tough questions and work together toward a solution.
- Demand visibility into all of your data. Numbers don’t lie, but custom reports can. Full transparency keep everyone honest and moving in the same direction.
5. Look for Guarantees, but Be Flexible
It’s only natural to look for some kind of reassurance before entering a new partnership — some guarantee that your investment will be offset or returned in the event of a failure. At TechnologyAdvice, for example, we guarantee 100 percent accuracy and opt-in for all of our leads, and we issue a refund or replacement when that doesn’t happen.
But these guarantees can be difficult to find in the larger world of B2B agencies. In part, that’s because the magnitude of success is unpredictable. It’s also because the metrics for success are contingent upon circumstances — program type, channels, client/agency relationship.
According to Gould, there are some basic areas where clients can push for a promise, like lead volume or information accuracy. Other areas that are less quantifiable or more indirect (market reach, Net Promoter Score), are nearly impossible to secure ahead of time.
Agencies don’t want to fail their clients, but things don’t always go according to plan.
“Agencies don’t want to fail their clients,” Gould says, “but things don’t always go according to plan. The key is to find an agency partner who can prove previous successes, is willing to stand behind their work and, on the rare occasion, will make reparations when things go awry. Even with the right agency, discuss expectations early and frequently. This helps to ensure the only surprises are good ones.”
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As you can see, there are a lot of different variables that go into pricing and budgeting for B2B marketing services. They key is not to look for a magic formula, but to decide what’s comfortable for your business, and shop around before committing to one agency — you know, like buying a car.
Stay tuned for more articles in our series on outsourced B2B marketing.
Ryan Gould is the VP of strategy and marketing services at Elevation B2B Marketing, a full-service agency based in Mesa, Arizona. Gould is an expert search, social, and content marketer with over a decade of experience in various marketing and product roles.