Agency rate card management is an important component of financial reporting. A creative agency rate card is applied to individual client projects to establish billing forecasts and project budgets. In this article, we will discuss the importance of agency rate card management, how to set up a standard rate card for your agency, and how to correctly manage your rate cards.
If you’re looking to create a new rate card or need guidance on how to manage existing ones, read on.
Why is managing rate cards so important for agencies?
So, why is it important for your agency to have a rate card, to begin with?
Rate cards serve as the first line of defense for creative and advertising agencies, setting them up for long-term profitability and financial success. Rate cards leave little to no room for clients to try and negotiate lower costs, while also giving agencies an opportunity to be transparent.
Moreover, standardized service rates allow you to accurately calculate and forecast project budget, which clarifies clients’ billing expectations even before the start of a project. Clear expectations mean clear communication between creatives and clients, and ultimately, happier customers!
If you’re new to building rate cards, below are some steps to get you started on creating a profitable rate card for your agency’s services:
1. Find the total cost of your Full-Time Employees or FTEs (This includes salaries and benefits)
2. Find the overhead cost per employee (This is your agency’s total overhead costs/total cost of all FTEs)
3. Markup the final cost by 20%
Common challenges with managing rates
As illustrated above, setting up an agency rate card can be straightforward and easy. But managing them and doing it well, isn’t quite as simple. Many agencies struggle to manage rate cards over time. Make sure to watch out for the following challenges associated with managing rates:
1. Not Following the rate card
Agencies love pleasing their clients and often do so by offering “ad-hoc” pricing for creative services. While this may make clients happy and help agencies win a potential deal, off-the-cuff pricing can later eat into agency profitability and likely open the doors to client over-servicing, an extremely common but highly unprofitable practice in the creative industry. Stand by your rate card and be clear on what you offer. Steering away from your rate card for a client should really be reserved for select circumstances.
2. Everyone has a different rate card
If we’re being honest, agencies are certainly known for their creativity. Not so much for their ability to keep things organized. Working in or running an agency is no easy business and sometimes things can get chaotic (chaotic enough that we forget to often update our teams on important process updates). Rate cards are no different. It is likely that we each passing year, and sometimes during special circumstances such as COVID-19, you adjust the rates of your agency’s services. These adjustments may happen overnight and especially if your processes are manual, it’s possible that not everyone in your agency gets an updated version of your rate card.
If you have agency management software, you should be able to update your new rates quickly in the system and this serves as a way for everyone to have central access to your updated rate cards. You don’t have to worry about folks accessing an old document. A single update in the system should update the rates for everyone!
3. Not reviewing & updating rates yearly
Keeping up with frequent changes in your rate cards might be hard but on the other end of the spectrum lies another common challenge – not updating rate cards regularly enough!
Almost all agencies introduce staff salary increases and new overhead cost changes, annually. Remember the steps to calculate your rate card we discussed in the section above? If any of those costs change, so should your rate card price.
As a rule of thumb, update your rate cards on an annual basis, if not more frequently, to ensure you are still profitable and remain competitive in the market.
Deciding on a standard rate card for your agency
When creating your agency’s rate card, here are a few things to consider:
1. Rate Categories
You might find that depending on the size of your agency, the variety of services it offers, and who it services, a single standardized rate card might not be enough. If that’s the case, you might need to build rate card categories. A few examples of categories include:
– Standard Rates
– Rush Job Rates
– Discount Rates (for instance, friends and family discounts)
2. Staff rates or blended rates?
Do your agency’s service offerings depend on multiple staff members who have significant cost differences? This is usually the case for public relations and media production agencies. If the same holds true for your agency, consider defining your rates by staff/job role. If this is not the case for you, consider using blended rates (most used when multiple staff contributes specific hours to the same project). This is most seen in digital and full-service agencies.
3. Use a hybrid model
It may be that your agency’s workflow warrants having both, blended and staff rates. You can certainly have both and this will give your account management teams more flexibility when presenting proposals to prospective clients. However, employing both types of rates can be harder to manage and require the right management system to support them.
Setting up a proper system to manage agency rate cards
If you’re not using an estimating tool or a project management software yet, your best bet is to use a spreadsheet to set up and manage your agency’s rate cards.
However, the downside is that while excel gives you the flexibility to make quick edits, any updates made to rate cards need to be manually shared with your team. There is a lack of central access and automation, with a high risk of misinformation or the repeated use of stale rates; this can cause a financial strain as well as frustrations for both, you and your client.
It would be worthwhile to consider investing in an estimating tool, especially if you’re a growing agency. Below is an example of what Function Point’s estimating tool looks like. FP’s CRM for agencies and estimating tools allow you to blend your rates or charge by the staff member, for accurate estimates every time. You don’t have to pull rates from Excel and hope they’re up to date. Everything is in one place.
As we’ve discovered throughout this article, there is no one secret agency cost formula. How you set up your rates depends on how you run your agency. A design agency rate card is completely different from an ad agency rate card, and that’s okay. What matters is that you standardize service rates, have your teams follow them, and update them regularly to maintain your agency’s financial health and profitability.