Ultimate Guide To Accepting Payments for Your Marketing Agency
For marketing agencies and other agency businesses, accepting and collecting payments from clients can be a major issue if we don’t know where to start. Fortunately, however, nowadays there are various technologies and tools available to help agency owners with accepting payments, bookkeeping, and other payment-related administrations to make them more seamless.
A very common issue especially for new marketing agencies is underestimating the challenge presented by accepting and managing client payments. Payment can be a major bottleneck in your workflow, and it’s crucial to have the right strategy as early as possible.
In this guide, we will discuss all you need to know about accepting payments for your marketing agency and the best tools that can make collecting payments easier.
Without further ado, let us begin by discussing how a marketing agency can get paid.
How Do Marketing Agencies Get Paid?
Different marketing agencies can charge their clients in different ways. Understanding these different pricing models and strategies would also help us in managing how we accept payments. Each model has its own advantages and disadvantages, and they can make a significant difference in how your agency should collect payments:
1. Hourly rate
The most basic and arguably the most popular method is to charge by the hour. The marketing agency charges a fixed hourly rate and keeps track of the required hours to finish the project. The client is typically charged after the project has been completed.
The main advantage of hourly pricing for the agency is that it ensures the agency will always be profitable since the profit is built into the hourly rate. However, the main downside is that your agency won’t gain any benefit in finishing the work faster by being more efficient.
Also, if you are implementing a very innovative strategy or idea that can potentially be very valuable, this pricing model won’t be ideal.
Pretty self-explanatory, in this model the marketing agency charges a fixed price for a specific project (i.e. $1,000 for website design).
The main benefit of this model is that it’s transparent and predictable for both the client and the agency. However, in this model, your agency will assume all the risk for managing the project’s costs. If the project costs more than expected for one reason or another, you may lose money.
In this pricing model, the marketing agency receives a fixed percentage of the client’s media/advertising budget. For example, if a client wishes to spend $5,000 on a Super Bowl ad and there’s an agency discount of 15%, then the TV station charges $4,250 and your agency can keep $750 as commission.
Still a relatively common pricing model for advertising and the main benefit of this model is that it’s predictable. Also, your fee is not paid by the client (the buyer of the ad) but rather the seller of the advertising spot, which means less resistance from your client.
The main downside of this model is that a low media budget would obviously produce small commission fees, so this might not be an ideal pricing model for smaller clients.
In this model, the client is going to pay the marketing agency a fixed amount of fee every month (or quarter or every year), and during this “subscription” period the marketing agency will take care of the client’s marketing needs as arranged by the contract.
The main advantage of this model for the agency is security as you’ll get a predictable source of income and better cash flow. However, a retainer project will often require your agency to spend more time and effort for the same amount of money.
As a marketing agency, you can use different pricing models and strategies depending on the client’s preferences and the project’s requirements. However, as we can see, different models might need different approaches in collecting and managing payments.
Generating Invoices and Collecting Payments
The crucial aspect in accepting payments for marketing agencies is generating invoices based on the pricing models we’ve discussed above.
For commission-based and fixed-price models, generating an invoice is going to be pretty straightforward. For the retainer-based model, it’s also going pretty much similar, but you might need to include a report of your marketing efforts every month or quarter, depending on the agreement with your clients.
However, for an hourly-rate pricing model, we’ll also need to accurately track billable hours, and this is where having bookkeeping and project management tools can significantly help (more on this below).
Choosing The Right Tool To Accept and Manage Payments
With so many different variables in generating invoices, collecting payments, and monitoring status, an all-in-one agency software like Function Point can significantly help your agency in tracking billable hours (for hourly-rate projects), build an invoice, automatically send the invoice and manage the required follow-ups. Function Point can help automate the majority of your payment collecting process, which can significantly help if you can’t afford an accountant yet at the moment.
For payment processing, you also have various different options at the moment. If you mainly work with local clients, then bank transfer can be a secure and reliable choice, but your client might want more versatility. In this case, PayPal is always a generally accepted option, which will also allow you to accept credit card payments.
PayPal will also let you work with international clients, but you can also use services like TransferWise if you often work with clients from abroad, which will typically offer better exchange rates and processing fees.