Demystifying Digital Marketing Agency Costs in South Africa

Whether you’re just starting with digital marketing or you’re looking to switch, your chosen digital marketing agency’s cost crucial to consider.

(Should you decide to go that route).  

You want to find an agency whose pricing model is a balance between matching your budget and achieving the results you’re looking for.

It’s also important to consider goal alignment.

I.e. Are you and your agency working towards the same goal? 

That’s why in this article we’re also going to give you an overview of the different pricing models digital agencies use, and how to determine which is the best fit for your business. 

But first, let’s give you a rough idea of how much this is going to cost. 

Overall Digital Marketing Agency Cost Estimates

The lowest amount you’re likely to spend on hiring a digital marketing agency is around R 7 500 (excluding ad spend). 

The R 7 500 fee is for their services, so any paid digital marketing they do for you is typically charged on top of that. 

We recommend our clients start with a minimum of R 3 000 invested in paid media spend.

This is generally enough for us to start getting you good results from one campaign, but this obviously varies by agency. 

This means you’re looking at an absolute minimum of around R 10 500 to hire a professional digital marketing agency. 

This varies drastically depending on the services and pricing model the agency in question provides you with. 

Whether they only manage one channel or multiple or if you need creative services, etc.

It’s also important to note that the larger the agency, the larger the fees that they charge because they have to cover their own costs.

If you go with a household name agency, you could pay up to R80 000 per month in retainer fees.

Generally speaking though, you do get what you pay for. 

Smaller agencies can still provide great service, but they don’t have the capacity to execute complex creative-based campaigns that the larger ones do. 

The Different Kinds of Digital Marketing Agency Costing/Pricing Models Explained 

Hourly Pricing Models 

The “traditional” model for many agencies is to charge hourly for their services.

This has fallen out of popularity in recent years, for many reasons we’ll explore below, but some still use it.

Essentially, you’re charged for the number of billable hours it takes the agency to finish the tasks or projects you assign them.

Agencies typically either work out an average hourly rate (blended rate) or charge an hourly rate per employee assigned to your account depending on its needs. 

It’s also worth noting agencies will typically apply a margin on top of the actual costs to their company, to ensure they also make a profit out of doing business with you. 

Hourly Pricing Model Pros: 

• No set retainer. You pay only when you’re using their services. 
• Average transparency. If the agency keeps good records (and it should) you know exactly what you’re paying for. 

Hourly Pricing Models Cons

• You pay for hours, not for value. If your marketing isn’t providing a good ROI, it’s your problem managing it. 
• Pricing can be inconsistent if you pay per employee assigned to your account.
• Typically works out to be significantly more than a retainer fee over the long run, since retainer fees use averaged costs (I.e. so it brings down the costs of your “peak usage” of their services). 
• Poor goal alignment. Agencies are incentivised to spend as much time as possible on your account, which may not necessarily translate into value for you. 

Retainer Based Pricing Model: 

A retainer is typically the second most popular pricing model for agencies.

They charge a fixed monthly rate averaged across all the services the agency offers. 

It’s typically found more amongst boutique or specialist agencies with a standardised “package” type offering. 

This is a much better pricing model in terms of goal alignment, so it’s becoming increasingly popular. 

Retainer Based Pros: 

• Costs are consistent. You know almost exactly how much you’re paying each month. 
• Easier to work out ROI. You can compare the average earnings the agency helps you generate with the costs each month.
• Good value. Because costs are averaged, you typically end up paying less over the long term. 
• Decent goal alignment. Agencies are incentivised to keep you happy long-term 

Retainer Based Cons:

• They usually involve contracts, making it harder to switch agencies if it’s not working out for you. 
• Your costs will be higher than hourly pricing in “off” months where you don’t need much marketing. 
• Less transparency. Agencies are less likely to keep detailed records of the work they do, though they should still provide you with metrics to show if it’s working or not. 

Pay Per Service Pricing Model 

Pay Per Service is a similar pricing model to paying a retainer, but instead, you pay a smaller retainer for each of the agency’s services you need each month.

It can be thought of as a “micro-retainer” model, where instead of paying an averaged price you can pick and choose which services your business needs.

It’s great for when you need to outsource only a few specific marketing functions

Pay Per Service Pricing Model Pros: 

• You pay only for what you need. This can provide good cost savings if you need a few specialised services. 
• Decent transparency. You know exactly which services you’re paying for.
• Easy to work out ROI. You can even break it down per service, to see what’s adding value and what isn’t. 

Pay Per Service Pricing Model Cons: 

• Also typically involve signing contracts. 
• Can work out more expensive than a straight retainer if you need many services. 
• Some discrepancy in goal alignment. Agencies are incentivised to try and cross-sell as many services as possible to you. 

Project-Based Pricing Model 

In a Project Based Pricing Model, the agency works out a single price upfront for the work you need to be done.

They average out the number of hours needed to accomplish the project in total and determine an overall price upfront.

This is typically used more for short term and once-off campaigns or projects, such as launching a new product or developing a website.

Project-Based Pricing Pros: 

• You know what it’ll cost you upfront, which makes it easier to plan your budget. 
• No ongoing costs to worry about.
• Good goal alignment for once-off projects as the agency is incentivised to complete the project on time and budget. 

Project-Based Pricing Cons: 

• You have to make a hefty investment up front, which is especially difficult for smaller businesses. 
• Bad goal alignment if you need ongoing support. Once the project is complete, the agency is not incentivised to follow up and provide you with long term support. This can be countered by having a separate deal for long term management of the project.

CPL Pricing Model

CPL (Cost Per Lead) is a pricing model where the agency charges you a set fee per lead they help bring into your business. 

This is a great value model for companies with a strong existing salesforce, who just need a large number of leads to work through.

CPL Pros: 

• You’re only paying for value, i.e. you can directly correlate results with how much they cost you. 
• It’s easy to see work out an ROI by comparing the overall costs to the value the leads provide you.

CPL Cons: 

• Potential goal misalignment. The agency is incentivised to give you as many leads as possible with no consideration of lead quality.
• Leads aren’t sales, and having a lot of leads is no guarantee of having a lot of sales. 
• It can get expensive quickly if you don’t maintain a good lead conversion rate. 

CPA/CPS Pricing Model

CPA (Cost Per Acquisition) and CPS (Cost Per Sale) are pricing models where the agency charges you a set fee per new client or sale they directly help bring in. 

This is an emerging model, with great potential because it represents the best possible goal alignment between agency and business.

You’re both invested in driving up the only metric that really matters: sales. 

However, it’s not for everyone. There are a few potential issues, like losing out on volume.

CPA/CPS Pros: 

• Best possible goal alignment. The agency is directly incentivised to help you get more sales.
• You set the price upfront and it’s consistent, regardless of the sale’s value. This can net you good margins if you set the price properly. 
• Almost zero risks. For every sale you make, on average you should earn more than you pay the agency. 

CPA/CPS Cons: 

• There’s the potential to over-pay for some sales. If the value of a sale they bring in is less than the CPA, you lose out on that particular sale. 
• Agencies sometimes limit target markets to what is most profitable for them, even if the margin for a broader target market would be perfectly acceptable to you. This means you sometimes lose out on sales volume.
• You lose out on cost savings made from efficiencies. As the campaigns run and the agency’s CPA goes down, yours stays the same. 

Should I Use a Small or Large Agency?

This varies case by case.

If you can’t afford to hire a large agency since you’re just starting, the answer is simple.

If you have a running business, it can be a little trickier.

Generally speaking, a large agency will be able to provide you with a wider variety of services and will put out higher quality work than smaller agencies.

The downside to a large agency is that you may not be their top priority.

They probably have hundreds of other clients to consider, so you may not get the same level of individual attention.

Smaller agencies can offer competitive levels of service, but typically because they specialise in one aspect or platform of digital marketing.

You’ll also be a higher priority for them since their success is more closely linked to yours.

Overall, it depends on your budget and whether you need high-quality service on one focused area of marketing or multiple diverse ones. 

Conclusion

We hope that clarified the rough cost of hiring a digital marketing agency in South Africa and the most common pricing models they used.

Most of the time, a retainer-based model is going to be the simplest to manage for a start simply because of the ease of determining an ROI.

If you’re an e-commerce business though, there’s some great potential value in exploring CPA models to drive up your sales.

Whatever you choose, it’s important to make sure you find an agency that meets your businesses needs in a way that provides you with a great return on investment. 

This article was brought to you by Syte.

We’re e-commerce digital marketing specialists obsessed with driving up your bottom line. 

We offer both retainers based and CPA pricing models, so contact us with the below form if you’re interested in seeing what we can do for you.