How should you charge for that tech you've built?

Building proprietary technology has always been on many agencies’ roadmaps, partly because it has the potential to increase the agency’s price tag in an acquisition.

This is mainly true when either:

• The technology has paying customers; hopefully outside of the agency’s client base; and ideally enough paying customers for the agency to bill itself as a SaaS company, rather than an agency, which will usually command a higher multiple than a marketing agency will; or
• The technology gives the agency a clear competitive advantage, making it less likely that clients will churn and/or giving the acquiring agency access to the same technology to use with its own clients. Competitive advantages come in many forms, such as the ability to do work of the same quality for cheaper; or the ability to collect/store/use large(r) amounts of data

(Having proprietary tech that nobody pays for and that doesn’t give you an advantage isn’t going to increase your price tag, for the avoidance of doubt. So if you’re going to build something for this purpose, you’ll need to have a plan.)

There are other good reasons agencies might choose to develop their own technology, including (but not limited to):

• The ability to point to proprietary tools and an R&D roadmap to demonstrate that the agency is forward thinking and can be trusted during a time of great technological disruption (like the one we’re in, which I’m sure you’ve noticed)
• The need for a tool that doesn’t otherwise exist
• The belief that a tool can be built and maintained for cheaper than a tool that the agency is paying a subscription for or that the agency can do a better job than what’s out there already (which is becoming more realistic due to AI)
• The ability to do more work with fewer people through automation (particularly by automating the lower value work)*

This isn’t a post about why you should or shouldn’t invest in proprietary technology: I’ll just say that there should be something proprietary about your agency and, ideally, it’ll be different in a multitude of ways that clients might attach a price tag to.

This is a post about how you might attach a price tag to the technology you’ve built.

I think there’s some nuance, some of which I’ll go into, but here’s a basic decision tree:

Thinking these decisions through

• If you can’t do your work without it (e.g. you use this tool to book work in; or your process requires you to gather essential insights using this tool that you wouldn’t otherwise be able to get), then creating a line item and attaching a price tag is dangerous. When clients need to reduce scope so that their budget can accommodate the work, the tech might be something they ask you to remove (which you can’t, it’s essential) and, even if they don’t ask you to remove it, might feel like a tax to them. Procurement departments will push you on it and, if you hold firm, they’ll still hold it against you when comparing you to the other firms in the process who don’t charge for it in this way. Hopefully your client will appreciate that it makes you (and, therefore, their results) better but, since there are likely to be 5+ of their colleagues weighing in on the decision, you can’t be certain that they’ll all feel that way. If you can’t do your work without it, then don’t attach a price tag to it: it’s the same as pension contributions or the money you pay for your office in that it’s a cost of doing business, or just another overhead
• If you can’t do your work without this tech because there are barriers to entry that the tech overcomes (e.g. real time bidding/media buying), then you will want to pass on the costs. You should determine how the off-the-shelf software is priced (is it a percentage of media spend, for example?) and charge in the same way, or at a fixed fee that the client finds more favourable. Don’t forget that your tech will be compared to the off-the-shelf equivalents and that you’ll need to either be better, faster, cheaper, or some combination of these. You don’t have the brand power of an Adobe or a Google, so you’ll need to make a conscious effort to “sell” the software in. I have worked at agencies where the proprietary tech isn’t better, faster or cheaper and it’s a slog, believe me. You’ll also need to price in the people who maintain the tool; plus ongoing R&D costs, because the likes of Google don’t sit still and leave their products mediocre (a little joke there)
• If the primary function of the software is to reduce your costs then you probably don’t want to tell the client that it exists at all: “those savings you’re making are my savings now” is an attitude many clients (and most procurement departments) have. You certainly can’t charge extra for it
• If the primary function of the software is to make you more efficient in a way that has a direct benefit to the client (assuming that you’re not planning to pass those “cost savings” on, if they are indeed savings after R&D/token costs), then you do want to tell them it exists. Examples would be: fewer rounds of amends are needed because your tech checks brand guidelines/allows faster feedback; approvals are automatically actioned; they get sent more up-to-date data, more frequently, because it’s automated. In either of these cases, you’re probably making your money on the execution of the work and not on the tech itself, so you want to bake the costs into the price options you’re proposing and shouldn’t attempt to attach a price tag to them specifically
• If you’re building tech that can be sold…at a profit…ideally to anyone (not just to clients) and they don’t need your labour and/or expertise to operate it, then you definitely want to charge for it. Separate contracts are best; separate line items are fine (and a good reason to default to line items is when the client would have to make a separate business case for another contract, so you can just crowbar it into this one)
• If your tech has wider applications than your labour/expertise, such as attribution software that will prove your value but also the value of the rest of the marketing mix, you can charge a fee for it and probably want to separate it out in some way. This is a little more nuanced because, perhaps, you bundle some consultancy in with the tech. A Rise at Seven example would be a weekly brand tracker, compiled using a combination of software and smart people, which we sold to some clients (and that some, such as Missguided, continued to buy even after we didn’t renew their services contract and started working with PLT…they kept using it until they collapsed into administration, owing us thousands. Just thought I’d mention that)
• If the tech makes what you do better than what your competitors do, then of course you should be charging a premium
• If your tech replaces something the client is currently paying for and they are able to cancel their contract elsewhere for a saving, then make it a line item in your current contract. Your fees are going to look much more appealing overall. It’s always worth asking the client what’s in their tech stack currently in the qualifying conversation(s)...and don’t remember to gauge how happy they are with it and how essential it is to their operations
• If the client gets a login for it, you can charge for it. This one question probably trumps all the others. If you try to charge a specified amount for something that the client doesn’t get to smell/touch/taste/see/hear, you’re going to get push back; if they use it themselves (even if you use it too), you’re much more likely to get paid for it
• There are always some outliers: enhanced data security can fall under a number of categories: it’s something that some clients will pay a premium for; and that prohibits a small number of clients from buying another solution. We’re also entering into the age of very messy digital sovereignty (like I wrote about on LinkedIn recently): if your proprietary tech means that your clients aren’t at the mercy of a President on the other side of the planet, for example, then you could put it in a line item or charge for it pretty much however you want.

On that subject, I’ll leave you with a call to action: the hardest thing to do is to bake the costs into a day rate. Agencies charging on time and materials-based pricing are struggling and, if you have built some proprietary tech (or even just a proprietary process), you have an opportunity to get off that treadmill ahead of you. Drop me a message if you want to talk about how to wean clients off hourly rates.

* After exiting Rise at Seven in 2022, I had a little over 18 months as a stay at home dad which, for me, has meant I find it easy to compare a “before” and “after” COVID. One of the biggest shifts I’ve seen in the independent agency space is an increased resentment of employees (or, at least, less loyalty towards employees after a perceived lack of loyalty from them). I don’t mean the headcount fallacy, which I’ve written about; I mean daydreaming about having fewer staff, or no staff at all, which is something I reckon about a quarter of all agency owners are experiencing.