Do you charge your clients for the software tools you use?
I’m sure you want to use the very best tools available to execute and analyze your client’s campaigns. But the costs can quickly rise as your agency grows.
Charging your clients in part or entirely for software tools can increase your margins and reduce the financial risk in your business.
But it’s not as easy as adding the cost to the line sheet. There are numerous considerations about the client’s expectations, your team’s capabilities, and many other implications of doing so.
This article will look at how you can charge clients for 3rd party software, whether you should, and some additional talking points to consider.
How Do You Charge Clients for 3rd Party Software?
In general, there are three ways to charge clients for 3rd party software:
- Build the cost into your value proposition. In this case, the client isn’t paying for the software, but instead, you’re listing it as additional value included in your fees.
- Itemize software costs in your invoices. In this scenario, you are still paying for the software, but the cost is disseminated amongst your clients.
- Have your clients sign up for the software tools themselves and provide access. Here you are removing any financial commitment from the situation, and the client is paying for the required software entirely.
Each of these approaches is valid in its own right – it all depends on your clients and their preferences. Most agencies will stick to one policy for consistency.
4 Reasons to Charge Clients for Software
Depending on the approach you take to using and charging for software with clients, there are several positive outcomes for your agency. Let’s take a look at four of them.
1. Economies of scale. The agency toolset can be plentiful. You’ll need various SaaS tools for design, management, planning, communication, and reporting to execute client campaigns. Using the same software tools across your entire portfolio can create economies of scale and reduce the per-client software costs. For example, ShortStack has an Agency Plan that enables you to set up separate company profiles and manage everything from one place. This makes everything simpler, and the cost of the Agency Plan is significantly less than paying for one plan per client. You’ll find this is consistent with most SaaS marketing tools.
ShortStack’s Agency Plan
2. Trust-building and expertise. If you position your agency effectively during the sales conversation, you’ll be viewed as an expert – that’s why they are hiring you. One component of that expertise is your experience using software tools and which ones get the best results. Consolidating your toolset across all clients and recommending which tools they should use is another string to your bow when building credibility.
3. Increased fees. If you go down the path of including software as part of your retainer package, you can increase your fees rather than charging the exact cost back to the client. For example, let’s say you use an agency-grade SEO tool like ahrefs. A tool like this starts at $99 a month if the client were to purchase it themselves – that’s $99 of value right there. Extend that out across 4 or 5 other software tools, and all of a sudden, you’ve earned the right to increase your fees by $500+ a month. Of course, your per-client cost for these tools is far less if you have an agency plan.
ahrefs’ Pricing Plans
4. Team development, learning, and optimization. The long-term benefits of using the same tools with all your clients are immeasurable. If an account manager has to use a disparate set of tools with different clients, they are on a constant learning curve and stuck in understanding the tech rather than extracting its benefits. Alternatively, your team could become specialists in a small set of software tools. The more they use the same tools, the better results they’ll get for clients, and the easier it will be to replicate success.
As you can see, there is a compelling case for refining your agency toolset and charging clients for software. However, as with every business decision, there are caveats to consider.
3 Important Things to Consider Before Charging Your Clients for Software
Charging clients for software is a no-brainer, right? Not quite.
Here are some things you should consider before going down this path:
1. You may complicate the sale. Explaining an additional cost to a client can be a tricky conversation. They’re paying for your services and are expecting specific results, so why should they pay more? Before charging clients for software, you need to be prepared to push back and arm yourself with valid explanations for doing so. If you’re not prepared to have this conversation, you may instead choose to build the cost into your service fee.
2. The risk associated with multi-seat plans. Some software tools restrict user numbers with tiered plans. The problem with this is it adds some financial risk to your agency. For example, let’s take the AgencyAnalytics pricing model. Its plans are tiered for 5, 15, or 50+ client campaigns. Perhaps your client portfolio fluctuates between 15 to 20 clients. In this scenario, as soon as you go beyond 15 clients, you’re locked into a much higher monthly cost with a lot of unused capacity. On a per-client basis, your costs rise and margins decrease. While multi-seat agency plans can provide cost savings in some situations, per-seat plans are easier to plan for when charging clients.
3. Limiting your growth. If you vigorously enforce your chosen toolset by only working with clients who adopt your software choice, it can limit your agency’s growth. As I said previously, using one set of tools is the best way to optimize campaigns across clients and develop team members into specialists. However, there’s a trade-off. Some clients will already have tools they use and are comfortable with. Are you willing to decrease productivity and effectiveness to close more deals? That’s a decision you’ll need to make internally.
As with any business decision, do your due diligence before charging clients for software. The above considerations are just a starting point; each agency will have its processes and priorities to take into account.
Passing on software costs to clients can be a smart way to reinforce your expertise, increase margins, and focus your team’s effort.
But it’s a decision that comes with several implications. Are you prepared to discuss additional costs during the sales process? Do your tools of choice provide appropriate plans for scaling with clients? Will a narrow SaaS toolset limit your growth aspirations?
Take all of this into consideration when locking down a policy and choose the best approach for your agency.