Insights
How to price a change order at your marketing agency
Price a change order from the hours it adds, costed at what an hour of your team really costs. Then divide by one minus the project's margin, so the extra work earns what the project earns. Absorb it instead and the margin you quoted quietly shrinks.
Mohammad Azam, Aprecity Consultants · 6 min read
Why the extra request feels too small to price
A client asks for four more ad variants halfway through a project. It sounds like an afternoon, so your account manager says yes to keep things friendly.
Nobody counts the hours, because each request looks small on its own. They only show up at the end, as a margin lower than the one you quoted.
The change order formula
Change order price = extra hours x cost per hour / (1 - project margin)
Cost per hour is what an hour of that person costs you, salary and overhead included. It is not the rate card, which already carries margin.
Dividing by one minus the margin keeps the change as profitable as the project. Adding a percentage on top would leave it earning less.
Absorb it or price it
Run the numbers on an $18,000 project quoted at a 35% margin, with $11,700 of planned delivery cost. The four variants take 14 design hours, 3 account hours and 2 hours of review.
At $70 an hour of cost, the 19 hours cost you $1,330. Priced with the formula, the change order comes to $2,046.
| Line | Absorb it | Price it |
|---|---|---|
| Fee | $18,000 | $20,046 |
| Delivery cost | $13,030 | $13,030 |
| Profit | $4,970 | $7,016 |
| Margin | 27.6% | 35.0% |
These figures describe an invented project chosen to show the arithmetic. They are not a client result.
Absorbing the request cost you $2,046 of profit on one project. Three requests like it a year and the loss reaches $6,138.
How to price the next request
- ( 01 )
Estimate the hours by role
Include the account manager's time and the review round, not just the person making the change.
- ( 02 )
Cost each hour honestly
Use salary, payroll costs and a share of overhead per hour. Never the rate card.
- ( 03 )
Divide by one minus the margin
Use the margin the project was quoted at, so the change earns the same.
- ( 04 )
Agree it before the work starts
Send the price, what changes and any effect on the deadline. Start when the client says yes in writing.
- ( 05 )
Log it against the project
Record every change order and every request you absorb, so the next scope creep audit can see both.
What changes when change orders are routine
Pick a size below which you absorb a request as goodwill, and record it anyway. Price everything above it, every time, so nobody has to decide on the spot.
A clear price agreed in advance is a normal business conversation. A surprise invoice at the end is not, and neither is a team quietly working weekends.
The number to watch is margin at close against margin at quote. When the two match, your change orders are doing their job.