What is the most effective way to bill for social media marketing and why?
Eg. Activity based costing / retainers / hourly rate / contract fee per campaign
Enjoy your day!
Do you find it difficult to come up with an effective billing method that suits both you and your client?
Many service providers don’t really seem to care about how they should get paid as long as they are making money. The problem with many billing methods is that some of them will be unfair to you while others will probably be unfair to the client. Some of the billing methods will cost you money, while others will make you way more for the same amount of work!
No matter how perfect your proposal is to your client, there will always be some additional things that come along the way. If you don’t have an effective billing method in place, you’ll find yourself doing way more work for the same amount of money, and nobody wants that to happen!
When you’re working with a client for the first time, there will be some reservation from both of you. The key is to be fair with your client as well as with yourself. In order to understand the pros and cons of each billing system and the system that I personally prefer, here are the most common among them:
1- Activity Based Costing:
Not all tasks are created equal, RIGHT?
I really like this billing system mainly because it takes into account the effort you put into each activity. Responding to comments on your blog doesn’t require the level of effort/creativity as writing an original post does, although they both might take the same amount of time. This concept was first introduced in the manufacturing industry where factory owners calculate how much their product will sell for and then go backward to figure out how much they should pay their contractors according to the total number of sales MINUS (the cost of production + profit).
– You Get Paid What Each Of Your Skills Is Worth
If you’re a virtual assistant who happens to help the client with content marketing, then it’ll be unfair to charge the same amount of money to each task while you know that people charge around $100 for a good article that takes you 2 hours to produce and get paid $40 for it (if you charge $20 per hour).
– Lots Of Variables
Although this is considered one of the best costing systems, it seems to be very hard to calculate in many industries. It might be easy to calculate ROI in manufacturing, but what if you provide social media marketing services. You know the eternal love story between ROI and SOCIAL MEDIA, RIGHT?
This costing system is based on assigning a cost to the activity that causes the cost, but what if you’re unable to accurately calculate the return each activity produces?
How are you going to assign a pricing to managing a Facebook page VS managing a Twitter profile while you can’t really measure the real short term ROI?
– It Might Turn Client Off
Many clients I worked with aren’t really ok with this concept at all. Many of them want to pay you for your time and not your expertise, and that will be really unfair for you!
Before you start working with your client, you need to make sure you explain to them that you charge differently for each task so they’ll be in the same frame as you. When you send your proposal, make sure it’s detailed and includes all the possible tasks you might perform for your client. Also, make it clear that if new tasks come along the way, the pricing may change. Also, list the importance/priority of each task in terms of ROI so they understand why some tasks are more expensive than others.
This model is like an upfront payment for future work. It was mainly designed for Lawyers (Attorneys), but it was adapted to other service providing industries as well. Some people call it “Advance Payment”, others call it “Down Payment” and it’s basically reserving the services of social media marketers or any other service providers. I believe that busy people with great reputation are the ones that make use of this system the most, because clients know/trust them and will be more than happy to reserve their time in advance.
– You Are Always Covered
This system is great, especially for service providers because it saves them from the headache and frustration of sending repetitive emails to clients to pay them. When you have a payment in advance, your job will then be to only focus on providing quality services and not worrying whether you get paid or not!
– It’s Also Great For The Client
This model isn’t only suitable for service providers. It’s also great for clients, especially if your services are perceived as high quality. Imagine if you find a great restaurant that you know people are going to fight for spots there and you get to reserve a spot 2 or 3 weeks ahead! Wouldn’t that be great?
The great thing for clients is that they don’t have to bother with a custom pricing for each service. They have a fixed amount of money that they pay you each month, and it’ll be easier for them to introduce it into their overall budget (expenses).
– It Might Decrease Your Work Quality
This depends on the person of course, but some people get lazy when they’re paid upfront!
When you’re doing the work before you get paid, you’ll always try to push yourself into providing the best work so you keep the client always happy. When you ensure that you’re paid before doing the work, then the quality of your work might be affected because of that.
– It’s Not Flexible
Unlike activity based pricing, this model isn’t really flexible. You blindly offer your time and expertise while you don’t really know what is required to get the job done for your client. Also, the client may request new tasks that you’ll find hard to introduce into the pricing.
To give you an example, let’s say that you get contacted by 2 clients. One is a small business and another is a large corporation. You offer a package of a “Social Media Strategy” for a price of let’s say $500. Both of them will pay you that same price while you might take longer to make the strategy for the big corporation (not counting your expertise). Wouldn’t that be unfair to you? Also, if the other small business is just starting out with social media and they only need a very basic social media marketing plan, wouldn’t that be unfair to them?
– Most Clients Won’t Do It!
Most new clients that you’re going to work with won’t pay you upfront. The lack of trust at the beginning makes them suspicious until they work with you enough to determine that you’re reliable and do as you advertise. Unless you have a solid social proof of previous happy clients, this model won’t really work for you.
3- Hourly Rate
With this type of pricing, you get paid by the hour. The more you work the more money you’re going to make. Service providers determine their rates differently. Some think of how much they want to make in a year, and then determine how much they should charge for the hour depending on how many hours they’re willing to work each week. Others look at what other social media marketers charge by the hour and replicate that.
– No Worries For Both Of You And Your Client
Many people prefer this model because the payment is automated. There are many applications in the market that can ensure that the client pays you for real work and you get paid automatically for your work as well. Also, many job platforms such as oDesk.com and eLance.com have a desktop application that can log your time. These platforms can also determine your activity so you don’t get smart and try to trick the software into making it think that you’re working while you’re not. They can track keyboard strokes, mouse activity, do screenshots of your screen every 10 or 15 minutes, and some can even take photos from your camera!
– It Has Some Sort Of Automation
The great thing about this model is that the client gets billed automatically and you get paid automatically as well. No invoices, no risks and no cheating!
– You Get Paid For Your Time Not Your Expertise
I personally don’t like this model at all. I don’t like to get paid for my time; instead, my expertise is what the client should be paying me for.
Each of us has different things we can achieve in one hour. One can increase a website’s conversion by 50% in one hour while another can respond to 20 comments! I’m not discrediting any activity here, but high return activities take lots of time and effort to acquire. Also, put in mind that each day your understanding of your client’s market increases, your expertise increases as well and you’ll end up getting paid less than what you’re really worth. You could increase your hourly rates, but what if the client hires you for a several months contract, what will you do? Increase your rates each week! (that might turn them off).
Let’s say that you charge $25 per hour for managing your client’s social presence. With time, you’ll be able to get the work that used to take you 3 hours a day done in 2 hours. So now you’ll be paid $50 a day instead of $75. If you put a monthly payment of $1500 ($25 * 3 hours per day – weekends), when your experience increases you’ll end up getting paid the same amount, but for much less time.
– Some Service Providers Find It Intrusive
Many people find the applications that log hours a little bit intrusive. I personally don’t, but I understand their feeling. They feel like they’re being watched by their clients, and that might decrease their motivation.
Never trade time for money. We have a limited time on this earth, but there is no limit to the expertise we can acquire. There is literally no limitation to how much you can charge for your expertise. Some people who have great expertise charge in one hour what many others charge for 3 months. It’s true that it takes time and skills to acquire such an expertise, but the return on this investment will be hundreds of times better than if you invest all of your time doing the same work that you’ve been doing for 10 years and getting paid the same amount of money!
4- Contract Fee Per Campaign
Also called “Project Based Payment”; It’s basically charging the client per project or campaign. Although this model lacks the flexibility of “Activity Based Pricing” as well, I find it very helpful for social media marketers as well as many other service providers: SEOs, email marketers, PPC campaign managers…etc.
Let’s say that your client wants to launch a new product. They give you the launch date which is 2 months ahead (so the project will take you 2 months). They say that you should design a digital marketing strategy in that time frame to get as many people into the funnel as possible. This model can use all of the previous models. You can estimate how many hours you’ll be working on this project and what skills are required to get the project done (you’re going to find JV partners, do PPC advertising, find guest posting opportunities or interviews…etc). You can calculate the cost of each task separately (to get the benefit of activity based pricing) and then sum them altogether into a one fee per project.
– You Can Charge For Your Expertise
Unlike the hourly pricing, with the project based model, you’re going to be paid for your expertise. The more experience you have and the more ROI you’re going to bring for the client, the more you can charge for your services.
– Easy For The Client
This model makes it super easy for the client to estimate the cost of the whole project or campaign. This can lead them to making better decisions about what the return of the whole project should be in order to cover the cost and bring in a good profit.
– It’s Hard To Calculate
The problem with this model is that it’s very hard to estimate what you should charge for the whole project, especially if the client doesn’t exactly know what should be done. Put in mind that no matter how much you plan in advance, there will always be new things that pop-up along the way. When you’re writing blog posts for a client for example, you know exactly what are you going to be charging for each post depending on the number of words or time taken. However, if you’re assisting a client doing a product launch, you might adjust your initial strategy several times before you achieve your goals. No matter how much expertise you have, there will always be trial and error because you can’t understand the client’s market needs from the first time. You might find that guest posting is bringing traffic, but it’s not resulting in subscribers, so you need to adjust your landing page, change the lead magnet, change the criteria for selecting blogs to guest post on OR drop the idea altogether…etc
What I Personally Prefer!
You’ve probably guessed that already, but I’m not a big fan of hourly pricing. It’s limiting and I hate limitation!
The model I prefer joins the pros of the 3 remaining models. Not all clients will approve it, so you should be flexible and choose the model that benefits each one of you. Also put in mind that each service might need a different model. Social media management works best with retainers or even hourly pricing, while social media strategy and implementation works better on project based pricing.
Sometimes if I’m doing a project based or a monthly work with a new client, I tell them that the payment should be on the middle of every week if they don’t agree to pay upfront. I do this only for the first month or 2 to protect myself and the client as well. There are thousands of scammers out there both as clients or service providers, and you don’t want to get involved with one. Breaking the fee into small payments will limit your losses as well as the client’s. When you work together enough time, then it’ll be fine to charge monthly upfront or at the end of the month.
Another thing you should keep in mind is that you should be clear with your clients before you start working together. You should let them know at the beginning that not all activities cost the same amount of money. Also, let them know that if new things get introduced into the initial plan, there might be a change in the pricing structure. You might think that this will turn the client’s off, but that’s your time and hard earned expertise we’re talking about!
Although there are some principals that you shouldn’t compromise, flexibility is a crucial factor to getting and keeping clients. I know that we live in a crazy competitive world today, and playing by your rules might not always be a viable option. You should be flexible and professional so you can figure out what works best for you and your clients. You have your doubts, so is your client. You should know that you both need each other, and you should work together to achieving your goals no matter how much compromises you both need to make!
So what billing method you prefer for social media marketing?
Image Credit: boklm