If you service clients, it’s quite likely that you’ve faced some of the same pain points I have when trying to design a “product” out of your “service”. The words product and service in our industry tend to be interchangeable as our products are digital products.
Pricing for SEO, or any type of digital marketing service, has been written about quite a few times and there’s never been a real clear answer as to what the sweet spot is for pricing.
I actually do not believe there is a clear or semi-clear answer to pricing but what I do believe is that there is a clear path you can set for your company which makes many aspects of your business easier to automate and easier to manage. I refer to it here as “productizing” the business.
Where to Start
Some products can be priced more easily than others. If you are selling just your time (consulting) then you can do it by hour, obviously. I think the “future” of the SEO consultant has been here for awhile anyways. Many have already evolved into the broader areas of digital marketing like:
- Technical SEO
- Competitive Research
- Broader Online Marketing Strategy and Execution
There are other areas like paid search, email marketing, and so on but the above covers a good chunk of what many of us having been doing on our own properties for awhile and client sites as well. As more and more of us service clients and perhaps start agencies it’s important to start from the beginning.
This will differ in analysis if you have a much larger agency, but here we are focusing on the more common freelancer and small agency. The steps I would recommend are as follows (this is in relation to pricing/products only, I’m assuming you’ve already identified your market, brand messaging, etc):
- Determine a sustainable net profit. What do I want to earn as a baseline number?
- Determine acceptable margins based on desired size of staff and potential cost of contractor work.
- Determine the required gross revenue needed to achieve your net profit.
Why Do it This Way?
I do it this way because net margin is very important to me. I don’t want to become the Walmart of digital marketing where our margins become paper thin as volume goes up.
Here is an example of what I mean. Consider the following scenario:
I’m leaving my job as a dairy farmer here in rural Rhode Island and I want to make $ 1,500,000 per year.
So, you’re going to pay a little bit more assuming you are a single member LLC versus a traditional W-2 “employee” (again, keeping it very simple) because of the self-employment tax. Your CPA can go over the different options based on your business set up and such but the base calculations are the same as far as determining the core numbers go.
If you just look at just “earnings” you are missing the bigger picture. What you should want to achieve for short, mid, and long term viability are healthy margins. Here’s an example:
Jack’s SEO Shop had a net income of $ 1,000,000 dollars in 2011. Their overall sales were $ 5,000,000. In 2012 they had $ 1,500,000 in net income with $ 10,000,000 in sales.
Jill’s SEO Shop had net income of $ 500,000 dollars in 2011. Their overall sales were $ 2,000,000. In 2012 they had $ 1,500,000 in net income with $ 4,000,000 in sales.
In this case we look at a basic calculation of profit margin (net income/gross sales) and see that:
- Jacks’ 2011 profit margin was 20%
- Jack’s 2012 profit margin 15%
- Jill’s 2011 profit margin 25%
- Jill’s 2012 profit margin 38% (same net income as Jack)
Certainly 15% on 10 million isn’t something to necessarily sneeze at but I’d much rather be Jill in the current state of web marketing. A 38% profit margin does so much more for your overall viability as a company when you take into account being able to respond to competition, algorithmic changes, increased cost of quality labor, and so on.
In this example a conversation about simply “making” 1.5 million per year is quite misleading. Once we have these numbers figured out we can begin to “design” our “products and/or services” to somewhat fit a pricing model by backdooring it via preferred margins.
Setting Up Your Products
Many folks in the industry have had exposure and direct experience with a number of disciplines. At the very least, a lot of us know enough about “how” to execute a particular type of service without maybe the specific knowledge of how to go in and “push the buttons”.
There’s a tendency to do all types of service but a good way to start is to look at your core competencies and determine what makes the most sense to offer as a product. If you are just starting out you can start this from a blank slate, there’s not a big difference either way.
You will run across a couple different types of costs, direct and indirect. Let’s assume for the sake of simplicity you are a freelancer or just a solo operation. In terms of selling a service you will have 2 core types of cost:
- Direct (utilization of outside contractors to accomplish a task)
- Indirect (your time and any other overhead like office costs, insurance, tools, marketing costs)
There’s some debate as to whether you should include the estimated cost of your marketing as part of a per project cost to accurately determine your margins. I say why not, using it only makes it more accurate in terms of hard numbers.
Perhaps you whittled down your offerings to:
- Technical SEO Audits
- SEO Competitive Analysis Audits
- Conversion Optimization
- Content Marketing
We can assume that you might have the following tools in your toolbelt:
- Screaming Frog SEO Spider (roughly 158$ per year if you are in the US)
- Majestic SEO subscription (roughly $ 588 per year for the Silver plan)
- Ahrefs subscription (roughly $ 948 per year for the Pro subscription)
- Visual Website Optimizer subscription ($ 588 per year for the Small Business Plan)
- Raven SEO Tools for competitive research, content marketing strategy and execution, SEO audit work ($ 1,188 per year)
- Buzzstream for outreach and additional link prospecting ($ 1,188 per year)
There are more tools we could add but at a baseline level you would be able to produce quality products with these tools. Total cost is $ 4,658 per year or $ 389 (rounded up, per month).
The same formula (annual and monthly amounts) would be used for any other overhead you deem necessary but for the sake of simplicity let’s say you are spending $ 389 per month on “stuff”.
Knowledge + Tools = Win
Tools are only 1 part of a 2 part equation. Tools without knowledge are useless. There are a variety of costs one could associate with knowledge acquisition:
- Building your own test sites
- Going to conferences
- Participating in online membership sites
The costs for knowledge acquisition can vary from person to person. You might be at a point where all three make sense or at a level where only 1 or 2 make sense. I would recommend looking at these options relative to your skill set and determining the cost, annually, of what makes sense for you. Take that number and just add it to the example cost I gave for tools I recommended earlier.
Breaking Out a Product List
The next step would be to look at each type of service you are offering and productize it. The first 2 areas are more likely to be your time only versus your time + outside contractor help. Conversion Optimization and Content Marketing will probably incur additional costs outside of your time for things like:
- User testing
- Content writing
- Content design
- Promotion help
- Programming for interactive content
When setting up products I use this:
- GI is Gross Income
- Tax is GI * (whatever your total tax percentage is)
- NI is Net Income
- GM is Gross Margin (E2/B2)
- NM is Net Margin (G2/B2)
In that example I used $ 150 as my hourly rate and assumed 40 hours for an audit. Now I can play around with the direct cost and price to arrive at the margins I am looking for.
One thing to keep in mind with indirect cost is usually it’s something that can be divided amongst your current projects.
So I might revisit my pricing table from time to time to revamp the indirect cost based on my current client list. In this example I assume no clients are currently onboard and no income for my own properties so this audit eats up all the indirect cost against its margins.
You can design your products however it works for you but I usually try to find some type of baseline that works for me. In the areas I assumed earlier I would try to make sub-products out of each section:
- Audit based on size and scope of site (total pages, ecommerce, dynamic, etc)
- Conversion Rate Optimization based on total hours for ongoing work and a few different prices for the initial audit and feedback
- Content Marketing based on the scale needed broken out into different asset types for easier pricing (videos, interactive content, infographics, whitepapers, and so on
- SEO Competitive Analysis based on total hours needed for ongoing work and different prices based on the scope of the initial research (or just a one-off overview)
There are so many variables to each service that it is impossible to list them here but the general ideas remain the same. Start with a market and break them out into “things” that can be sold which cover “most” of your target market.
Manage Your Workloads More Efficiently
One of the reasons I mentioned direct cost as being your hourly rate is so you can set a baseline of how many hours you want to work per month to achieve the amount you’d like to earn. Combining what you want to earn with the hours you want to work will help you work out a minimum hourly rate which you can adjust up or down, along with desired revenue, to hit your pricing sweet spot.
Using your hourly rate in conjunction with designing specific products makes it pretty easy to assign hours required to a specific product. When you assign hours to each product you can do a few things that will help in managing your workload:
- When a new project is being quoted you can quickly gauge whether, based on current projects in process, you have availability for the project
- If you know ahead of time you are stretched out a bit and need to bring in outside help you can add those additional costs to your proposal and get outside help ready ahead of time
- If you take on projects and you find your assumed hours are over or under the amount really necessary you can adjust that for future projects
Assigning your required hours to each product you sell will help you manage your workload better and give you more fluidity during peak times. Inevitably there will be periods of peaks and valleys in the demand for your service so if you are able to manage the peaks in a less stressful and more profitable manner the valleys might not be as deep for your financially.
Other Areas Where Productizing Helps
Custom quoting everything that comes through the door is a pain point for me.
Post-quoting you have things like contracts that have to get signed, billing that has to get set up, and task processes that have to get accomplished.
When you have specific products you are selling, it becomes much easier to automate:
- Proposal templates that get sent out
- Contract documents
- Billing setup
- New client onboarding into a CRM/PM system
- Tasks that need to be completed and assigned
- Setting up classes and jobs in Quickbooks to track financials per client or per job
It can be a pretty lengthy process but making your services into products really helps your business in a number of areas