Top 2 Mistakes Creative Agencies Make With Their Rates

Deciding on your agency’s rates and billing structure will be one of the most critical factors to long-term profitability. To do this, you’ll need to calculate your agency’s billing factor, agency blended billing rate, and staff cost rates to understand the true value of your work.

There are various methods of billing, including hourly and fixed fee. Using the hourly method, it’s easier to capture and bill out for a scope of work, and report on a work in progress. Fixed fee billing has the advantage of being able to bill for a portion up front. The client also has a level of comfort in knowing what the final billing amount will be. Whatever your method, two key elements to your agency’s success will be to know your rates and to track your time. To ensure a long-term, mutually beneficial relationship between agency and client, avoid these common mistakes when it comes to billing:

1. Not Charging Enough

When creative agencies base their rates on industry averages, and not on the specific financial calculations of their particular agency, the rates may not take into account the unique costs of the agency. A feature that should be included in any project managing software is the ability to adjust fees to account for senior staff spending time on projects. You should also be able to analyze reports on the hours spent and the cost of those hours through your project managing software. This will allow you to know whether you’re charging enough.

2. Not Reviewing Historical Jobs

Whether you set fixed fee rates, or bill hourly, it’s critical to review historical projects to determine if they were profitable, and whether you should be using the same rates and structure. If your fixed fees are not adjusted based on historical job information, you may not be charging as much as you should be. Accurate time-tracking reports from a project managing software will reveal whether final invoices have matched estimates in the past, and demonstrate where you need to adjust your staff’s hours or fees.

Function Point provides project managing software that has been designed with creative agencies in mind. To learn more about how Function Point can make your agency more profitable and productive, book a walk-through with one of our experts and see it for yourself.