January 29

How Much Should A Digital Marketing Strategy Cost?

Unfortunately too many companies most often reward digital marketing agencies for our execution of campaigns. But at our core, agencies are thinkers and our greatest value to clients is our ability to think not execute.

But it seems like not a week goes by that I’m not involved in a conversation with a colleague, prospect or both, about a proposal, a fee or some form of compensation matter. It always starts with someone feeling something just shouldn’t, couldn’t possibly take that long and cost that much to craft a marketing strategy.

I’m not surprised because we agencies did it to ourselves. We started charging by the hour, which immediately devalued thought and began valuing execution. Then we started undercutting each other with lower-cost bids, loss-leader projects, etc. And in doing so,  we continue to divert attention away from that which matters most — thought and more importantly the value of thoughts — and not the amount of time it takes to execute those thoughts in the form of campaigns.

This is nothing new and certainly not just the province of digital agencies, as full-service agencies too have to justify costs too. But having worked at full-service and digital only agencies,  I must confess digital agencies do have to deal with this issue more often. I attribute the phenomenon to the inherent trackability of digital. Companies erringly think this trackability should extend to the actual thought creation behind great marketing too.

Great Marketing Is Built On Great Thought

Over the years I’ve tried many, many different arguments to help those that would challenge the validity of a “expensive proposal” or “hefty fee.” But I’ve recently found what seems to be the most logical and effective of all arguments.

I ask a simple question.

How long does it take to think a thought?

And while it doesn’t stop the conversation, it at least alters it and moves it from a focus on execution to a focus on outcome and value.

The other party almost always responds that they don’t know and then turn the question back to me.

To which I respond, “Depends.”


What Kind Of Thought Would You Like Today?

I ask if they would prefer a perfect thought? A half-baked one? A big thought or small one? A legal thought or maybe a dirty one? I could go on. The point is we never really know how long it will take to think a thought, especially a really good one.

Yet every day in our business we are asked to tell clients how long it will take and then ascribe a cost based on the amount of time we think it will take to craft an innovative or effective marketing strategy. Like we have a magical calculator that has a special connection with time and space and somehow can spit these things out in neat little estimates for signature.

Which leads us to the second half of this thought. How much should a solid good ole thought cost? It’s easier to craft costs for executional things. When clients as “how much should a social media program cost?” or “how long should it take before a social media program shows results?” I can answer that because there is a body of work that can be examined and averaged.

But thought is a different animal altogether.

You may sit for hours contemplating a marketing challenge. Then the next morning while you’re jogging the answer pops into your head. But how long did it take? Should you bill for just the time you’re jogging or should you bill for all of that time you spent “sleeping on it” too?

Additionally should that cost be based on the time it takes to think it or the value the thought itself creates? I’d vote the latter. The innovative marketing idea that drives a 20% increase in sales is just as valuable to the client if thought of in five minutes or five days. So why should a highly creative digital agency be penalized for being efficient? Likewise, big ideas can often be elusive. But a blank check isn’t fair either. After all, clients have finite budgets.

So what is the right answer? There isn’t one.

Compensation is an imperfect science at best. The first step is for clients and agencies to learn to trust again. Clients need to invest in agencies and agencies in clients. We need to create compensation packages that underwrite effort and reward brilliance regardless of how long it takes. Clients and agencies need to recognize that four singles are just as valuable as a home run. We all need to rededicate ourselves to the core offering — thought — and ensure that the person or persons responsible for creating the really big, really valuable thoughts are justly compensated.

But that could just be me… what do you think?

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  1. My good friend and former partner once told me something that I have remembered (and implemented) every day since: “Don’t charge to hammer nails. Charge because you know where to hammer.” Hourly billing incentivizes many inadequacies in professional services of all stripes. Just say no.

    1. Obviously, couldn’t agree more Jay. Yet, if given the opp I don’t think anyone would willingly do hourly billing. Yet the vast majority do…. why?

      Or maybe more importantly, why do you think client side marketers are still so caught up on hourly rates? Why do they place such value on the execution vs the strategy? Is it because they can actually “see” execution? Because they can look at something and think, yes that would likely take X hours to build… but with strategy, it’s an almost invisible deliverable.


      1. I think it’s because most agencies are poor at demonstrating value at the business level, so both sides end up looking at the relationship solely through a tactical prism.

        Hourly rates are how client side marketers keep agencies “honest” and make certain they are “getting their money’s worth.” And if you haven’t proved that your value extends beyond tactics, that’s never going to change. But it does take two to tango, and I disagree that agencies don’t prefer hourly. I’ve seen many do it that way on purpose, ostensibly because it helps them calculate staff utilization better.

  2. Charge for the value of the service. It may be utterly disproportionate to the exact hours expended at the time -and it is probably disproportionate in the opposite direction to the hours and years spent formulating the expertise.

    1. Steve,

      Think you nail it on the last part. To riff off Jay’s point — an old carpenter probably doesn’t really nail the nail 10x better than a brand new one… after all, it’s just pushing piece of steel into wood. BUT – knowing how to put the wood together in just the right angle or form so that the nail, and whatever that nail is holding together is still standing 20 years from now — well that’s the place where the 10x experience comes into play IMO>

  3. Thinking is, without doubt, the most important thing I do. Execution is what ultimately matters, of course, but often not enough *thought* goes into 1) the idea, and then 2) the implementation of that idea, before 3) starting the so-called “real work.”

    Unfortunately, some think they should only pay for the “real work” part. Another reason why consulting would drive me insane.

    1. Says the ex-lawyer. LOL

      Do you think we’ll ever see a movement towards value vs hourly? Can agency side folks afford to take the risk when so often they may not actually oversee or control the execution of the entire sales process? Thinking specifically in the B2B arena here — where great marketing ideas may create sales leads but then a sales person doesn’t win the business due to lack of ability vs quality of lead generated.


  4. “You’re not paying me to strain electrons and neurons for 60 minutes.

    You’re paying me to strain electrons and neurons that have been conditioned over 25 years of working in communications.”

    What we need is a clearer expectation of a Deliverable versus a Relationship.

    When you pay me for a deliverable, I can account for the time, effort and resources required to provide the result.

    When you pay me for a Relationship (most likely on a retainer,) you’re really renting my brain during every random cycle. I might have a thought at 10pm which relates to saving you time and money. But it’s a Relationship, because you trust me to know your organization and needs well enough to contribute to your success.

    Deliverables solve known problems.
    Relationships solve unknown problems, and exploit new opportunities.

    So are you paying me to be the guy who hands you a known report?
    Or do you want me to be the guy who flags you down, and alerts you to something you’d never even considered in your own data?

  5. Great post, Tom. I don’t bill by the hour – but I’d be happy to if my clients really wanted me to. With 20+ years in the business and a billable rate of $400/hour, it doesn’t take long for my brain to get expensive, quickly. I remind prospects on a regular basis that all I have to sell is my intellectual property and, as Jay mentioned, knowing where to hammer is exponentially more valuable than knowing how. A comprehensive strategic marketing plan is not inexpensive, but it’s certainly less expensive than paying for someone to execute a bunch of tactics without any goals or a plan in place, realizing zero results, then starting over. Thankfully, most people who hire V3 have already gone down that path so it doesn’t take much to convince them that doing it the right way will be not only be a shorter path to tangible results, it’s just good business sense. And while they probably knew that going in, it’s always tempting to hit the “easy” button when it looks less expensive.

    I’m at an enviable spot in my career (mostly because I’m old) and say ‘no’ to prospective clients more often than I say ‘yes.’ And when they balk at the thought of paying for a strategic marketing plan or any of the other components of developing an integrated marketing plan that not only makes sense, but that also will work, I’m happy to wish them the best of luck and move on. Life is too short to spend time trying to convince people (who may or may not listen) that there’s a right way and a wrong way to do things.

  6. What a great post and string of comments. Love the carpenter analogy, Jay. I believe Tom brings up a very important question in this, what if the client receives “marketing qualified leads”, but the sale staff can’t close? What if the processes aren’t in place on the client side to complete the campaign that the agency is trying to complete? That was a problem I ran into at a recent place of employment. 1) there were discrepancies over whether the leads were actually being qualified and 2) the sales processes weren’t in place to close those leads. So who’s to blame here? The agency or the client?

  7. Tom,

    I ran an agency team for almost five years, and one of the reasons we were successful was that we shifted from costing projects based on hours to costing them based on value to the client. It takes really good account people and strategists to do this, since you have to be able to know what the client will value and how to measure success. Some clients were a little more obsessive about hour rates, costs and markups, and once you go on retainer, that basically forces the agency to focus on hours and not value.

    From the client perspective, I don’t think it matters if an agency does value pricing or cost pricing–I can decide if I am getting proper value and proceed accordingly. But, I don’t get to make the decision alone, and once the Procurement department gets involved, it again shift attention back to costs and markup. I’ve never felt that Procurement can bring the same value to purchasing creative services as they do purchasing widgets, but that is the way the corporate world works, I’m afraid.

  8. Couldn’t agree more. We push our marketing clients that we represent on the AgencySearch side of our business to engage on a retainer and not an hourly basis for the reasons everyone outlines above.

    And we constantly encourage our agency clients on the RSW/US side of our world to open up conversations with prospective clients first – talk about their business and share thinking – versus diving into the tactics of what the marketer might want to/feel more comfortable talking about.

    All agency do the same stuff – it’s those that deliver smarter thinking and better strategy that ultimately will win the day – if they don’t get driven down the hourly cost gutter.

    Thanks Tom!

  9. What do I think? I think I’m going to send this to every prospective client from now on 🙂 Really I probably won’t do that, but I think it goes back to the greater “ready, fire, aim” issue. So concerned with results, some people would rather push out mediocre crap than pay more for greatness. It’s a trade-off, and I don’t understand why some clients don’t understand that. When people start asking me the question of what and when exactly they’re going to get something back from each tweet sent or creative idea implemented, the red flags pop up in my head and I kindly try to end the conversation. I feel like a big part of the problem is a lack of understanding, of critical thinking, and of the real meaning of “results”. And that’s an issue with both the client AND the agency. If agencies aren’t setting up clear expectations from the beginning and not every idea is bringing in money, then no one is going to be happy. More agencies need to educate before they agree to work with new clients. Then, clients need to understand the value of everything you mentioned and decide whether this agency is providing that value based on the price. That’s what I think.

    1. Jess I like how you think. You’re right, agencies should show more care in hiring clients. Funny though in my 20+ years that has never changed. Agencies still take almost any business instead of taking the right business.

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