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August 19, 2010

9

RE: SEO Pricing: How Much Should You Pay For SEO Services?

by Anthony Verre

How Much Should You Paying for SEO?So a good friend, Hugo Guzman, wrote a really great piece today “How to figure out how much you should pay for SEO services?” I consider Hugo to be wise, wily, and trusted in all things SEO and SEM. That is to say, you can trust his advice because it will rarely ever lead you astray.

The same is true of his last post. With a few exceptions. Per estimated possible achieved conversions is a smart, efficient, and fair model for both sides. Chances are, with this model, an agency or individual would earn more than if they simply estimated hours and deliverables.

The Exceptions

Exception One: Client Knowledge

This exception is the client. It’s the biggest exception and wild card of all. While Hugo states in the post that a client would earn $100 profit from a single widget, we’re under the assumption the client produced that number for them. Here’s the problem with that single assumption: most clients have no idea what their profit from a web lead is.  I know, it’s hard to believe. And you probably think I’m full of crap. Experience has taught me that only a small percentage know (could be bothered after nearly a decade or more of search marketing) to find out what their margins are from web leads.

What they do know is how much that widget/product costs to produce. What they do know is the margins they make selling that widget/product at retail price. Hence the term “loss leader”.  This, however, is not the same as CPA (cost per acquisition). If the $100 they stated is the margin based on the cost/retail equation, then this is simply incorrect. Marketing has a cost, and all too often, clients and companies do not include this as part of the CPA equation.

Exception Two:  What is a True Conversion?

For this, I have to step out of the B2C/B2B e-commerce world where conversions are tracked and measured online. If that’s all of your clients, then consider yourself fortunate to have that data at your fingertips. If you’re like most of us, you deal in conversions through contact forms, sign-ups, and requests for quote. SEOs and SEMs do and should consider this a legitimate conversion, but to your client it isn’t.  Not included in the CPA equation to achieve true ROI from website “conversion”

The conversion for your client is the physical sale/contract farther down the funnel. As SEOs we get clients 80% of the way to a sale; deliver targeted, interested, and consumer-ready leads to their doorstep. All the client has to do is knock that last 20% out of the park. Nonetheless, that last 20% isn’t even revenue yet. It’s still accumulating costs until it closes the full 100%.

Exception Three: Corporate Sales Channel Organization

This is beyond your control. I understand that and deal with it daily; I feel your pain. And yet, most companies sales channels are an absolute mess. Most have no idea what’s up or down, if it’s this or that. Here’s the problem: without accurately tracking the leads life-cycle, the client honing their own sales channel into an efficient machine, there is no possibility of true ROI to ever be attained. And, if you’re honest with yourself a moment, you know that your clients aren’t the only ones that suffer from this. Your company does too.

Exception Four: Market Fickleness

Even though Hugo was taking an entire year’s worth of data, accounting for seasonality, it does not account for market fickleness. 2008 being a perfect example. Taking all of 2007′s data would have produced a number that would have been unachievable in 2008 and subsequent two years due to a complete global economic meltdown. In this case, how does the pay-per-performance model shield the client?

Traditional SEO Pricing ModelWhy Most Still Use Hours/Deliverables Method

If nothing else, the three exceptions above should sufficiently cover why many might still want to use the “traditional” method for SEO pricing. Let’s be honest, many SEOs are either clueless about different pricing models, or simply follow steadfast tradition because “that’s the way it’s always been done”.

Hugo did bring up a very good point that by using pay-per-performance model (of sorts), you can actively price-out and have to turn away potential clients. Additionally, using the per-per-performance model, seems to be geared to fairness and reward for both participants, but one must remember the consumers and markets are volatile and never a “sure thing”.

With a hours/deliverables model, there is a very likely possibility someone (you or the client) will get the sharp end of the stick. Either it takes you more hours than estimated to deliver what was promised (LOSS | Client: Gain) or it takes you less time to accomplish the work (GAIN | Client: Loss). Nonetheless, pricing out a client still has roughly chance depending on hourly service rates. Secondly, hours/deliverables model is rarely affected by market/consumers, only in the most dire of times. And, even then, corporations believe that search marketing is a right bit cheaper than a traditional campaign.

Finally, clients are accustomed to a hours/deliverables method. New systems are puzzling and raise suspicion, even properly demonstrated and explained. You have to earn trust right from the get-go.

9 Comments
  1. Aug 19 2010

    Excellent article Tony.

    Personally I prefer to set a fixed rate price for my work, and if it happens to take less time for me to deliver than my own internal estimate of time, I don’t believe the client is getting the sharp end of the stick at all.

    The reason I feel this way is because of one question – did the client get the value from my work that justifies the total cost charged?

    For example, my minimum rate to direct clients for SEO audits is $2500. My general hourly rate to direct clients is $250 for audit related work. On that premise, you’d assume I set 10 hours for the audit.

    Sometimes it turns out I need to take 12 or 13, other times, I only need 7 or 8. Yet the end value to them is always infinitely more than the fee charged, regardless of hours. Because that audit/action plan gives them a road map to generate exponential additional revenue. If they implement what I recommend.

    And in that range of hours process, I don’t mind putting in a couple extra hours if needed and NOT charging for them. Because it’s all about producing a result that I can be proud of.

    The same holds true for my $5,000 audits and even my $10,000 audits. A few less or a few extra hours is part of the process, yet it all comes down to that end value.

    • Aug 19 2010

      Alan,

      Exactly what I was thinking; did the client get overall benefit from the work regardless of the hours? And, that’s exactly right: END VALUE. I also prefer fixed rate for the majority of clients that walk through the door because, as you so eloquently stated, it’s about end value. And, yet, it seems to me, that Hugo’s model works as well for client’s too. I’ve done it both ways. There definitely isn’t a one-size-fits-all model. In the end, no matter what pricing model you adopt, it has to be about end value to the client.

      Excellent comment, sir!

  2. Jey Pandian
    Aug 20 2010

    Tony,

    I like end value too but how does one break out the value proposition such that we do not get penalized or forced to sacrifice heavily to the point it’s actually detrimental for us to do this work despite bringing the client very good value?

  3. J-Boy
    Aug 20 2010

    Pay for performance involves risk. It’s a gamble some folks are not willing to take and why should they? SEO’s relying on sales channels (people) to deliver their part of the ROI equation are taking a risk they can’t control. The operative word is control. It’s like going to a casino for your weekly paycheck. You have little or no control as to a paycheck for each week. Billable hours brings control to both sides of the business equation

  4. Aug 20 2010

    First, good post

    Second, I am going to be a devils advocate here, and what I am about to say I do not endorse per se.

    The traditional way of pricing works, but it comes down to the subjective nature of “value”. This is true in all service related fields. But even if we or the client gets “shafted” how do you determine the client got the “value” you profess. If I say it is going to cost $10,000 dollars to do X, how do we evaluate that client got more value than they invested (Rankings, Traffic, Contacts, Sales. Phone Calls, Etc). That is the beauty of Pay-Per-Performance. It is a tough pill to swallow, and there are a lot caveats as Tony mentions, which I agree on.

    My only question is how do you justify value or expected perceived value?

  5. Aug 20 2010

    Solid post, Tony! But let me clarify a few things:

    My post was geared toward the client (not the provider). The question was how much can a company afford to pay for SEO, and the illustration I used was intended to reveal the fact that most businesses underpay for SEO (because they fail to properly calculate its value) and because of that, they end up with sub par providers.

    Also, my calculation is intended to determine a price ceiling (i.e. the max that can be spent). This is something that can be used to as a guide whether hiring a third-party provider (agency, consultant, etc) or hiring an employee or team of employees.

    There is no doubt that from provider’s perspective, hours/deliverables must be taken into account. In fact, at my agency, we have made calculating deliverables/hours for a particular engagement a science. Why? Because we need to make sure that the price we charge will allow us to provide the level of work that gives us the best chance of meeting the client’s expectations (both in terms of hard ROI figures and that personal and strategic touch that turns a client into a partner).

    As for your point about companies not knowing what the value of a conversion really is, you couldn’t be more correct. And sure enough, this is another way that we help our clients. We essentially help our clients figure out that number (if they don’t already have one) so that we can, in turn, plug it into our ROI calculations, so that they can see just how valuable our services really are.

    And incidentally, we rarely if ever charge on a pay-for-performance model. We charge a fixed monthly cost (based on hours/deliverables) and simply use this calculation to show our clients just how much they are profiting from our engagement (in other words, they’re spending X per month but are making 5x in terms of incremental revenue from SEO efforts).

    Thanks for adding to the conversation, Tony, and I’m looking forward to the next time we can grab some beers!

    • Aug 20 2010

      Jey:

      The value proposition, if it is a new client, has to be stated through past examples of work with caveats that this was the case for them, but we certainly believe we can attain the same results with you. As the relationship progresses, the value is in identifying what you have brought to the table in terms of conversion opportunities.

      One great tip I picked up from reading Avinash Kaushik’s book Web Analytics 2.0, is to set values to goals, even if they are forms. Even if it’s only $1, by adding this in, you can have your client’s visually see profit and value through the data. Thanks for the great comment!

      Adam:

      That’s really the question, isn’t it? How to justify value or perceived value? To me, that seems to be the lynch pin every client dealing, regardless of results, at some point. I think we’d all love to believe that increasing a client’s bottom line will ten time out of ten always earn you the right that the client has seen and gotten value. As I mention with Jey, monetizing the non-monetized forms in analytics is always a great first step. But if you have a strained partnership (not relationship) it won’t matter a hill of beans how much money you make them.

      As Hugo points out in his comment, and I agree whole-heartedly with, value is about endearing yourself to clients. Creating Partnerships, in my opinion.

      Hugo:

      Thanks brother, I try. :-) Awesome edition to the conversation as well! I think we’ve given some folks a lot to consider and think about. Beers soon!

  6. Aug 20 2010

    I love this topic and have wrestled with it from every angle for years now!

    Hugo, you developed the term “marketing equity” and to me that means that the client does not make a quantifiable ROI on their SEO right away; that is if you charged properly.

    Why, as SEOs, do we always get the shaft in terms of the marketing equity LONG after the client has stopped paying us (in a retainer/hours model)? If you look at SEO traffic gains over a two year period there is almost always a great ROI. But companies cannot think that far out.

    Now what about a performance model. Works well for ecommerce when you have accurate revenue tracking. But even then there are issues with returns, etc. But how long do you get paid on that performance as an SEO. I would argue that it should be AT LEAST a two year agreement if you consider marketing equity. Also, you SHOULD get paid a great deal more in a performance deal. You as the SEO are taking on a much greater percentage of the risk. In an hourly/retainer model the risk is with the client, therefore the cost should be less.

    I agree with Alan’s comments on how he charges and charge similarly. Another consideration is the years of knowledge and experience we have built up. How do you equate that to someone’s consulting that has less experience. I figure that they are paying for my experience because I am going to definitely see things that most people do not and am probably going to be more efficient with my time. I, like Alan, don’t mind putting in extra hours if the situation calls for. But then again I am genuinely concerned with improving my clients’ business instead of just being concerned with rankings or deliverables (didn’t mean for that to seem like Alan or anyone else here is not like that BTW).

    Performance is OK in ecommerce situations, and in lead gen situations where the client clearly knows the value of a lead. The other 95% of clients need retainer/hours based pricing.

    This is just such a great topic. I could go back and forth on it forever.

  7. Sep 15 2010

    We (we are a team of SEO at Techmodi) do agree to “Alan Bleiweiss”, the rate varies from work and time.

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