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August 22, 2007

SEM Pricing Models

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We’re nearly the ending of the day, folks! This time Misty Locke is moderating the session with panelists Rand Fishkin (SEOmoz), Lance Loveday (Closed Loop Marketing), Ken Jurina (Epiar Inc) and Mike Murray (Fathom SEO). Misty is very excited. She’s making us clap for all the speaker introductions. I think Misty was recently caffeinated.

Up first is Rand Fishkin who asked that I be mean to him. How can you be mean to Rand? He’s got those cute yellow shoes!

Rand starts off listing off the various types of search engine optimization services, things like site auditing reports, standard consulting, keyword research, content creation & copywriting, link building, strategic planning design/reports, viral content creation/promotion, social media marketing, reputation management/control, brand tracking & reporting and webdev/Web design.

Rand lists off some of the different types of pricing models:

  • Hourly Consulting: Hourly rates range widely. Rand reveals that three months ago SEOmoz was charging $400 an hour, now they charge $1000 an hour. He also notes later that he won’t do onsite training for less than $8,000 a day.
  • Monthly Retainers: You struggle quite a bit to set that a retainer includes how much work exactly and how many people.
  • By-the-project Pricing: One set price for the entire project.
  • Pay-for-Performance: Rand says that Greg Boser does a good job with this. A lot of the time, you’re getting yourself into a bad situation. You’re trying to do the counting for your client.
  • Profit Sharing: You build the product, you do the marketing and then you say you’re taking 5 percent of the net.

And, of course, there are hybrid models that intermix all of the models above.

A look at some sample contracts from SEOmoz:

Travel industry Website: The company needed keyword targeting, link building, measuring/ROI calculation systems. The project was basically consulting. Rand charged $24,000.

Large, Media Web Property: Company needed search engine optimization training and search strategy consulting. There was on site meeting/training and ongoing consultation by phone and email. They charged $25,000. It was $10,000 down, $10,000 upon training, $5,000 the following month.

Classifieds Website: They needed a search engine optimization audit of 2 Web sites, recommendations for link building and on-page strategies. It was done via remote consultation. Cost $16,000 for 40 days.

Personal Reputation Management: Needed two listings pushed to page 3+ results. It was done via remote link building and optimization. Cost $20,000.

Rand talks a bit about the consulting business model/scalability and rattles off some equations that I think are self explanatory:

Clients = hours= people
More clients = more income = more people.
High Costs + High demand for people = Hard to Scale

Services = Time/Contract
Products = One Time Investment + Continued Return
Services – Scale With People
Products – Scale with marking + Development

Lance Loveday is next.

As a search engine company, you have the following pricing goals. You want to minimize risk, maximize upside, keep your prices rational/justifiable, competitive, in line with client expectations, as well as what works best for the client

Lance notes that he has tried all sorts of different pricing models including flat fee, hourly, cost plus, CPA, percent of spend and the retainer method. The only models he has kept are the flat fee, percent of spend and retainer (rare).

Lance says he charges a fixed cost for set up ($7k+) that includes discovery, keyword themes, strategy, campaign structure, writing ads, keyword research, and tracking and campaign setup. The fee is determined by scale of campaign, news vs. existing client, international, geo-targeting, the PITA (pain in the ass) factor, size of the client, and estimated time.

On the management fee side, they go primarily with percentage of spend, using a tiered model.

In terms of some general guidelines, Lance says your setup fee will usually equal 2-3x what the monthly management fee is. The number of keywords is less important than the number of campaigns/ad groups. He charges additional one-time fees for major campaign expansions/reworking. Ad hoc consulting on Landing Pages, Analytics and other online marketing best practices is included – Design & Configuration is extra.

Ken Jurina is up.

Ken says the big question everyone wants to know is how much you should charge for your search engine marketing work? Answer: The way that is going to make you the most amount of profit and deliver the highest value for your idea client. Ken is a genius.

Four Industry Pricing Models

  1. Retainer-based (2K-50K month)
    1. Monthly feeds
    2. Search and Peck
  2. Pay for performance
    1. Delta difference
    2. Skin in the game, commission structure
  3. Fee for service model ($2500 to $1+ million)
    1. Project based with finite scope
  4. Hourly consultation

Know thyself and get niched. Ask yourself what are your strengths and weaknesses? Do a SWOT analysis. Choose your service offering – organic search engine optimization or PPC or both? Are you established in SEM? This will affect how much you are able to charge.

Importance of Customer Profiting: Find the right bowl of porridge. Not every prospect is your ideal client. You’re a magnet, some clients are wool.

Small companies = low pricing, high volume, quick sale.
Big companies = high price, low volume, long sale cycle. (Note: as prices to up, pettiness goes down.)

Midsize clients are just right. Owner or C-level executive approval. Pricing is reasonable to their budget.

Ken’s company (Epiar) does 90 percent fee-for-service, 7 percent pay-for-performance and 3 percent customized services. Stick to your profitable business model. Don’t compromise yourself for your clients.

Not every client’s needs are the same. There are different levels of services available, including site audits, Web analytics, monthly maintenance plans, hourly consultation, etc.

Epiar’s initial pricing model was fixed. This caused some sticker shock to occur. No opportunity for clients to taste the goods before buying. But pricing models change over time. Phases and variable pricing. Clients comprehend cost/phase and accept the price.

Location, location, location. Pricing based on what market can bear geographically. Outside the major markets premium pricing can be a hard sell. More difficult to justify high pricing for no good reason. In Canada people think he works for beer.

Have proper detailed proposals. Make sure the client signs it. That’s why it’s there.

Mike Murray is up next.

Beware of bizarre price factors. Some people will promise you the world. Below are some actual lines found in contracts:

  • 20 placements, 8 engines
  • Refund admin fee
  • 900 directions – no SPAM
  • 10 top 10 ranking… one or more popular top 10 search engines
  • If cow jumps over the moon…

I have a feeling that last one wasn’t real.
Pricing Options: Hourly
Pros: Only pay when you need help, rates based on availability, expertise.
Cons: Experts may be overbooked. Short term approach may not account for iterative process. May be expensive.

Pricing Options: Custom Fit Model
Pro: Tailored to clients specific needs, comprehensive.
Cons: Could be expensive, practitioner-centric, hard to be consistent as a SEM company grows.

Pricing Options: Performance based Model
Pro: Only pay for what you get, may generate significant revenue, could work with established brands.
Con: Could be neglected if not producing revenue, focus on leads may not ensure quality, issues involving trust, tracking and pricing.

Pricing Options: Retainer
Pros: Ability to plan resources, continuous process improvement, easier to measure iterative proactive effort, allows for relationship development, mutual trust.
Cons: Longer duration could involve larger client investment. If quality of work is an issue contract continues.

Pricing models should be easy accessible for small and mid-sized business; time tested; comprehensive; easy to train consistently; accommodate teams with diverse skill sets; simple, short, easy to understand and scalable.

Mike outlines a few of the pricing models his company uses:

Search Engine Optimization Model: Annual with monthly payments based on the number of keywords and pages. Clients can add extra keywords or extra pages. They post updates to move program along, which is convenient for the client. Follow strict process. Long-term fits ongoing optimization. $800 to $1,800 monthly plus options.

Online Public Relations Model: Annual but with monthly payments. Hourly focus provides campaign direction. Vast offerings (links, guides, news releases). Campaigns crafter quarterly, measured. Follow strict process. Long-term reflects sound plan.

Pay Per Click Model: Three month commitment in monthly payments. Management fee and 5% percent of media spend reflects efficiencies, limits investment.

Conditions: Mike admits they used to have a money back guarantee if clients weren’t satisfied within the first 6 months. It doesn’t necessarily drive more sales from serious prospect. They also tried a right-to-cancel model. They didn’t like it because it creates a premature focus on rankings and traffic. You can’t demonstrate the full program merits in a short period.

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3 responses to “SEM Pricing Models”

  1. Rajesh writes:

    Excellent description Lisa.Thanks. Any discussion happened on the ethical side of this thing called ‘link build’?

  2. Dan Jablons writes:

    Thanks for posting this. There are some pretty big variances in here. We are servicing the small to midsize retail store. Does anyone have any experience working in that arena, and how did they charge?

  3. John Bertrand writes:

    Great information Liza. I love reading this topics.
    I agree, people want more then only top positions. I would be happy to meet some people working like this.



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