How Do Marketing Agencies Make Money?

Determine the Right Billing Method for Your Creative Agency

It’s no secret that the creative agency industry has seen change after change in the past decade. Digital marketing strategies and niches have grown as technology has changed. Many agencies have decided to adopt a range of services to compete with other agencies. Others have niched down to offer specific services queuing the birth of advertising agencies, digital marketing agencies, search engine optimization agencies, content management agencies, and much more. In fact, according to industry data gathered by SoDA in their Q1 2025 Sales Pipeline and Outlook Report, 32% of creative agencies owe their revenue growth to strength in a specific service area or project type.

With the introduction of these new agency services, many agencies are considering whether their current billing and pricing models are working as well as they used to. After all, the billing method an agency owner chooses can impact agency growth and an agency’s revenue.

When we review our client’s financials, we consider how their agency pricing models are impacting their financial health. Over time, we have gathered information on the pros and cons of each method and which ones prove to be the most effective. Keep on reading for the insights we’ve gathered.

Hourly Rate

An hourly-rate pricing model assigns a specific dollar amount per hour of work. An hourly rate allows for a great degree of transparency with agency clients because they know exactly how much they are charged for each hour of work completed. Hourly rates also allow agencies to charge for each and every second worked, meaning there is never work completed without pay (as is a concern with the project-based model we cover in the next section).

For that reason, the hourly rate pricing model is a very popular method that has been used by most agencies in the past. However, there are two large issues with this agency pricing model that has caused agencies to reject this model:

Agencies are not incentivized to do efficient work. Now, while many agencies are as efficient as possible regardless of pricing strategy, clients may lack confidence in their agency to do so.
An hourly billing method is unpredictable for both the agency and their clients. Projects aren’t confined to a set number of hours, and therefore the final charge may vary from what was first estimated. This makes cash flow forecasting difficult for agencies and also makes it difficult for small business clients to budget accordingly for a project.

Project-Based/Fixed Fee

Project-based (also known as fixed fee models) calculate expected hours to finish a project and multiply by an hourly rate. Clients are then charged this flat fee allowing them to budget for the project ahead of time. Project-based billing incentivizes efficiency—the faster a project is completed, the faster an agency employee can work on a new project. Essentially, if 8 hours of time are estimated for a project, but an employee completes a project in 6, the client is still billed for those 8 hours.

However, the flipside is also true. If a project ends up taking longer, then the agency potentially loses money. The other downside is that if scope of work changes, a contract or SOW needs to be renegotiated.

Project-based pricing methods are often used for standalone projects (like web design and development or ad campaigns) rather than continual services (like social media management).

Retainer-Based

Retainer-based billing is similar to the retainer method that other professionals like lawyers utilize. An agency charges a flat rate for ongoing marketing services. Often, retainers include an allotted number of work hours. If work goes beyond these hours, additional hours can be added to that month’s retainer for an additional fee.

Retainers allow agencies to budget and forecast much easier—they know how much money is coming in each month based on the number of clients and their retainer prices. Retainers are also often charged upfront, so an agency has cash available to pay for operational costs that come up throughout the month.

The one major downside for retainer-based billing involves contracts. Clients often are locked into contracts for the full month once billed. If less work is needed in a given month compared to the average, clients pay for unused hours.

Retainers are most often used for ongoing services like social media management, email marketing services, PPC and advertisement management, SEO optimization or content marketing.

Value-Based Pricing

Value-based pricing sets a price based on the value or impact of services provided. This pricing model takes into account the time invested by professionals to enhance service offerings. Let’s be honest, it takes a lot of hard work to become an in-demand professional. Often this effort isn’t included in pricing strategies. That’s where value-based pricing truly shines.

However, value is subjective. At the end of the day, potential clients need to be willing to pay for the value you believe your agency provides. This requires your agency to knock client services out of the park consistently. Referrals and case studies are also your friend to convince leads of the impact you could make for them.

Value-based pricing can also be combined with other agency pricing models. For example, value-based pricing can be combined with retainer methods to arrive at a subscription-based model. Essentially, pricing is determined based on value, turned into a retainer that is billed monthly and is drawn out of the client’s account on a specific day each month automatically.

Choosing the right pricing model for your marketing agency can feel confusing and overwhelming. Running different pricing scenarios can help you determine the right method for your marketing agency. If you still have outstanding questions or would like the assistance of an accounting advisor to arrive at the right option for your agency, sign up for a free virtual CFO consultation. One of our CFOs can guide you through how our team helps agency owners scenario-plan and gain insights into the right pricing methods and financial strategies.