I'm sure you've asked an agency before, or heard about it, and I'd bet our marketing budget that you've searched longingly, done the reading, and made big hopes to then be told:
“Well, when it comes down to the price … every project and business is different, so we can not give a precise estimation.”
These are the empty words coming out of the mouths of companies that serve dozens of customers, have been in business for years, and have more than accurate figures which they send quarterly, to their local tax office. Words from brands that track average revenue per client, categorize projects, and have accurate data and statistics on duration, effort, and project requirements.
I mean, what do they do? Roll the dice to determine the price of a project every time a new customer reaches the shore? Look at the client’s business, trying to figure out how much they can squeeze out of them, afraid that they will lose money if they quote numbers somewhere on the internet?
That can't be right, right?
1. Most agencies don’t show prices
Imagine a supermarket without price tags where you have to ask at the checkout for an estimate. Or a restaurant with a range of $5 - $50 for drinks you can buy. How would that make you feel? Confused, weird and suspicious? Would you quickly vacate the seat and look for a place that provided the information you were expecting? Probably yes.
So why do they do it anyway?
Agencies are simply afraid. They are afraid that competitors will steal the information and betray them. They are afraid that customers will jump up, scream and run away, embarrassing themselves in front of everyone, and they are afraid to put price tags on their work because they aren’t sure how much it’s really worth.
And while that may sound a bit exaggerated, it's true. That's their thought process. Wherever you look in the industry, no one seems to worry about it and business still seems to work. So doing nothing feels easier than addressing the pricing issue and making an effort to bring clarity to this topic.
But let's face it, these worries are unfounded and fed by half-knowledge. One out of a few customers might jump up as soon as he sees the price and scream in fear, but that's only because he doesn't qualify for the services in the first place. So what’s the point of slowly revealing the price to this person after 5 emails and a 2 hour conversation?
Why we need prices everywhere
People like you and me like certainty and confidence when it comes to money. We don't want to go to the hairdresser, restaurant, supermarket, creative agency … it really doesn't matter where we go, only to have them stammer and ask us cautiously if the price is right. We want numbers, not justification, and then we want to make our decision if it’s worth it or not. And that's a good thing. Having a price in mind as early as possible saves all of us a lot of time and effort in many ways and industries.
2. They all charge the same
Sounds ridiculous, but is it really? Would it be so surprising if there was a natural median in the design and development industry, and certain products and services cost a similar amount on average?
Let's turn it around, do you think a client would pay every agency they could work with something entirely different for the same solution? Or would it make more sense for him to already have a budget in mind and then work with an agency that roughly utilizes this budget?
I think we can agree on a point here. Let’s continue.
3. How agencies actually calculate price
Let's spill the beans, shall we? That's what we're here, and not to make empty promises:
Immersive Studios charges 200€ per hour.
There it is, we said it, the secret is out. €200 per hour, based on the total hourly effort of the team members involved, is how we calculate a project and how every other agency calculates their price. They may not tell you, or they may phrase it differently (and we'll get to that later), but in the end, that's what it comes down to.
How Creative Studios work
In every design, development studio the highest expenditure is on staff, which they buy at a certain hourly rate (e.g. €100) and then resell at their specific studio rate (e.g. €200). Of course, there are a number of other expenses and obligations, but that's how these cash flow machines work in a nutshell. Their goal is to satisfy market needs and realize a fraction of the value provided as profit with a difference to the expenses.
So each agency determines how much their work is worth per hour and then has to figure out whether this is still significantly less than the value they are giving back to the market. In the end, it decides whether customers are willing to pay this amount of money or walk away when the number rings in their ears. When agencies have been around for a long time, it’s likely that they have found their “sweet spot” where their hourly rate pays them a good rate and they can work with enough clients. And from there there is only one way and that is up. Which makes sense, because as more customers come and the more experienced the agency gets, the more valuable their service becomes and perhaps because of things like inflation.
For all the naysayers
Yes, there are people who say they work a different model. They say they have one customer they can charge 10x their rate and with every other customer they make a different deal, and then call it "value based pricing". I think this is because these companies are not established, aren’t scalable and poorly understand their market and impact of services sufficiently. That doesn't mean that their work is bad, not at all. Rather, it indicates the differences between a brand that merely exists and is stagnating and one who figured it out and whose primary goal is to grow and provide maximum value in the most efficient way to the market. By the way, this has nothing to do with the size of the company or even a freelancer can do that. Especially since most agencies are rather small with an average size of 10-50 people. In any case, it's not just the big ones who get the hang of it.
4. Never become the donkey
Like in all other areas, there are premium service providers, best for your budget solutions and cheap rubbish thrown at you on demand. (The third is usually the case when customers expect too much for their budget and are inclined towards tempting offers.)
Tipp: Don't be silly and think you've hit the jackpot when it's more likely that someone would sell you steaming shit packed in wrapping paper. Before you accept this “gift”, smell it first.
The quality and value you can expect to receive is strictly tied to your budget and to understand this better you can look at a normal distribution.
Simply put, if a reputable, established company charges you a premium amount for a service, you can expect a premium result with great certainty. And vice versa, if your budget is very modest, you shouldn't get your hopes up because it’s incredibly unlikely that someone would offer you a premium solution at low cost.
To make this clear, I'll repeat it once again: “If you want the Mercedes, you have to pay for the Mercedes!” It's simple and yet there seem to be comprehension problems everywhere in the market, resulting in thousands of dollars evaporating into thin air.
5. The 3 pricing models to look out for
As I mentioned before, everything comes down to an hourly price. We'll leave it at that, yet there are unlimited options to come up with pricing models. Every single one of them has different advantages and use cases and they can be either more client-friendly or agency-friendly. I will present the 3 most important ones here.
5.1 Project based pricing
Project-based pricing is probably the most widely used model for large-scale projects that require intensive planning. Put simply, a strategy is developed before the project begins, then all the requirements that arise are precisely summarized and given a fixed price.
The fixed price does not apply to additional services, but protects the client from unforeseen prices and problems during development. It is the agency's responsibility to ensure correct and timely completion and to make refunds in the event of defects.
With this pricing model, customers can expect agencies to charge a premium of 10-30% on the total price to pay for the guaranteed security (also known as the buffer).
5.2 Daily Rate
A payment that slips once a day from the client's account to the agency and ranges from one to several thousand US dollars. Welcome daily rate!
Let's assume a client has a project, or perhaps only certain parts of it, already has a strategy and wants to start development quickly. The agency takes a look at it, gives a rough estimate of the number of working days, and then they can get started.
The daily rate makes it possible to start projects quickly and end them at any time. It is based on a fixed number of hours per day that the agency devotes to the project, and the client decides what the agency works on.
Overall, this model is more agency-friendly, as the responsibility of the agencies lies in realistically estimating the time frame and justifying how much time is needed to implement certain things, instead of calculating entire projects on a fixed basis. If something takes longer or unforeseen problems arise, the client must decide whether or not to continue and pay for the project.
5.3 Hourly rate
Here we are back at the beginning, with the hourly rate. The model that is least used in practice, which makes sense in a way. I mean, as a client, you don't want to start a project and then let the agency figure out when and how much they're going to work and end up billing for a crazy number of hours.
But let's talk about the positive side of the hourly rate, because it forms the solid basis for every other model such as the daily rate (which is made up of a fixed number of hours) and the project model (a calculated internal effort in hours with a buffer). It serves as a benchmark for every agency. Internally, this is the turnover per hour that the company must have in order to achieve its margin goals. With this value in mind, projects can then be calculated reliably and quickly. Externally, clients can use it to understand what costs they will incur and how the price is calculated.
6. How much a website really costs
Let’s have a look at what agencies charge to get a website off the ground these days. Did you think so? Then let’s do it differently. The truth is, you will get a website at any price, whether it is €1 or €1M, someone will sell it to you but the differences are big.
So what do we do? Pretty easy. We figure out how to frame a good budget and then find an agency that works at that range.
Anything below 1k€
Okay, let's get this over with. This is a solution for people who are starting out and building a business with little money. We have some options with this budget if we are willing to do most of the work ourselves. We can buy a design and development course and take the whole thing into our own hands, and then despair about it after a few months. Well, not such a good solution.
But what we can do is set priorities and take a realistic approach. With tools like wix.com, we can combine design and development to get a cost-effective website that we can build all by ourselves without any knowledge. That's a start, isn't it? With the rest of the money, we can either hire freelancers on platforms like upwork.com to do important work like content creation, or we can use it to teach ourselves how to create content. It always depends on whether we have more time or money available.
The "best for your budget" solution
Let’s face it. Most businesses don't have an abundance of money and their website has a slightly lower impact on generating revenue and increasing company value. Nonetheless, a large number of people visit their website, spend time there and form an important first impression. These companies often initiate development because they think their current website does not look good, isn’t up to date or important information is poorly accessible. In general, they are dissatisfied with their website.
Okay, so let’s find an agency to solve these problems.
1. Solution in the upper budget range (20-50k€).
This budget range is always in the premium segment. We can work with a top agency that puts together a complete website for us and guides us through a proper process from start to finish, advises us and develops a long-term strategy with which we can position ourselves well, present content in a user-centered way and score points with top design and accessibility. We can expect comprehensive and high-quality services in the areas of design, content creation and development. With a budget like this, we can also talk about integrating real-time 3D into the site. (In the split, about 25% of the money goes to development, 25% to design and 50% to strategy and content)
2. Solution in the middle budget range (10-20k€).
With this budget, we can develop a modern website with many pages, but we can't ask for too much, especially when it comes to the strategy behind it. We are in the best hands if we already have a plan in mind, already have some of the content and know how our website will be structured. By doing this, we take the pressure off our partner and even ensure that they can concentrate fully on good design and clean development.
And that's what this is all about, it's a collaboration and not something that's served up on a silver platter. In this budget range and below, the agency and the client must ensure that a good result is only possible by working together on the project.
3. Solution in the low budget range (1-10k€).
With this budget, it will be difficult to develop entire websites, but for a single site it is possible. You can expect individual services such as design and development rather than a combination tailored to your needs. You will have to take care of a strategy yourself. If you want an entire website, you'll have to compromise on design and content quality to accommodate the total development effort. If you work with teams or consider freelancers, you have the best chance of achieving good results.
The Premium website
Let's say you have an established business or a successful start-up and you need a website that fits your brand and plays an important role in your marketing strategy. Your website is seen by thousands, if not millions of people who land here via organic results, advertising and social media. All the information about what you do is here, your products and services are listed here, you acquire new customers, register new users for your software solution and may even have apps that are live on the web. Most of the time people spend with your business is spent on your website. Think about it.
Overall, your website has a huge impact on the overall revenue of your business giving it a high value.
So what should we do? Throw money around? In this case, yes, because the math works out. We should choose from the absolute premium segment. The agencies we can consider have years of experience and a portfolio with first-class results and unwavering customer satisfaction. It's not about price, it's about finding the best solution to maximize leverage and a high return that can add up over the years.
In this case, a website should cost you between €100,000 and €1 million.
Final words
Well, what can I say - That how much a project ultimately costs always depends on the customer and their individual requirements? - Just like everyone else. And while that may be true, I should add that we still can define clear budget ranges and quality differences as well as an industry standard. When it comes to transparent pricing, most agencies just don't seem to care, preferring to drown in their creative work and forget everything that's going on around them.
