Never sell digital media as a percentage of revenue.
This might be surprising, as it goes against how most media buyers and media buying platforms sell media, and may even go against how you sell your digital media buying services to your clients. Yet, this deviation from tradition is directly tied to what makes digital media so popular: its ability to segment audiences and so reach the right people at the right time in their buying journey.
Successful Segmentation Is Commission’s Downfall
If the profit on your digital media services is directly tied to the amount of media the client is buying but your segmentation and optimization strategy is to cut out media, you are setting your agency up for a falling profits.
Additionally, every new segment you add increases the overhead to place, optimize, manage, reconcile and bill that media. So the more complicated the campaign and the better you optimize it, the less commission you get to actually pocket as it goes to cover the labor of setting up and maintaining the media.
But this doesn’t mean that you can’t make a profit from buying and managing digital media. If you don’t already offer your clients digital media buying solutions, there is a relatively low barrier to entry. If modeled correctly, can add a nice bump to revenues and profits. By offering digital media buying, you also build-in metrics and feedback on which of your work is most effective for your clients, allowing you to improve your services over time. As an added benefit, simply optimizing the digital media you’ve placed can lead to more work as you design different ad versions for split tests, or introduce entirely new audiences and messaging. Add reporting to the mix, where the client becomes part of the iterative process and can see your insights first-hand, and you become a valued partner, worth more than your next creative idea.
Profitable Digital Media Buying Pricing Models
However, there is a downside to billing for digital media buying using the hourly model. In many cases, the hourly model does not reward you for the value that you bring to the client. If a particular strategy or tactic only takes a few hours to set up, but results in hundreds of thousands of dollars in revenue, then you are not being adequately compensated for the value you have brought.
In addition to being undervalued, there are also no benefits for your efficiency. If your program is running successfully and accomplishing its goals, then optimizations for that period may be limited. On the flip side, if Google releases a new algorithm or updates the format of its text ads, multiple hours will be needed to update accounts just to stay competitive; hours that a client may not see the value of.
Though the hourly model has become less popular in recent years, it is an option for profitably structuring digital media buying services as every hour is accounted for.
Pay For Performance (Results)
Clients love this model because they are only paying for the results, or overall value, that they receive. And this model can be attractive to agencies as well: the more results you produce, the more the agency will make. However, this is naturally a high risk strategy for agencies, as this model does not account for poorer than expected results or how long it takes to achieve results in the first place. One more thing to keep in mind when you are delivering on results is that results are often an “after-the-click” experience, which is all too often beyond the agency’s control.
In addition, flat fee projects present your digital marketing offering holistically rather than as a sum of certain digital marketing activities, and also increase your agency’s positioning as a value-added service while resulting in higher profit margins.
However, flat fee pricing is not without its risks – if the project costs more than expected then the agency will lose money.
Each of these pricing models offers modern agencies the opportunity to make digital media buys more profitable than their current commission-structure model. Even agencies that are outsourcing or white-labeling their media services can reap the benefits of an hourly, results-oriented, hybrid or flat fee model.
If your current vendor relationship won’t let you explore one of these more profitable scenarios, we would love to talk to you about our line-item pricing model and how, together, we can align your client’s goals with your profitability.