If you go to 5 firms asking for a bid on search engine marketing, or a PPC campaign, or a new web site, you’ll probably get 5 very different responses. How do you know which one’s right (if any)?

Clients always tell me “It’s so complicated! I don’t know enough about internet marketing to know what works!” Truth is, it’s only as complex as you make it. And you don’t have to know internet marketing – you have to understand your business.

Here are five steps to pricing internet marketing:

1. What’s it worth?
First, what’s it worth to you? If you sell candy online and net $1/customer, and you want to hire someone to get you a million new customers in the next year, you’d better be ready to spend a sizable fraction of that.

• If you want to do the minimum, and see if you can squeak by, understanding that you may have to do it again soon, then budget 10% of the possible return.
• If you want to do a solid job, leaving some stuff out for later, but build a solid foundation, budget 20%.
• If you want to do it all, now, and shoot for the moon, budget at least 30%.

Now write down what it’s worth to you. For the example I’m using, let’s say I want a solid job, so I’m budgeting 20% of $1,000,000, or $200,000 for this year.

2. What’s the competition?
How much work will it be to succeed?

• If you’re trying to get the #1 spot on Google for ‘cars’, guess what? There are 374 million competitors. Mark that down as hard.
• If you’re trying to unseat an established brand with great creative and a full campaign, mark that down as hard.
• If, on the other hand, you need an online brochure, mark yourself down as easy (not you – your web project).
• If you need it done right now, mark yourself down as hard.
• If you want the #1 spot on Google for a phrase that only has 30,000 competitors, mark it down as easy.

Now write down how hard or easy your project is. Don’t worry about being scientific – just write down your gut instinct. The agencies you talk to will correct you if you’re off, trust me.

Hard = 2 points

Easy = .5 point

I want the top spot for ‘candy’. 93 million competitors. Ouch. I’ll put down 2 as my difficulty score.

3. How complex is the project?
How many things will your agency or contractor have to pull together?

• If there’s only one thing, like ‘SEO’ or ‘design a logo’, or ‘write the HTML’, your project is a .5.
• If there’s both design and programming, or SEO and PPC, your project is a 1.
• If it’s the whole enchilada – full internet marketing, including SEO, PPC, design, social marketing, etc. – your project is a 2.

Now write down that number.

Using my example again, I just want SEO. So this is a .5.

4. What can you afford to spend?
You have a budget. Oh, c’mon, you know you do. What’s the most you’d be OK spending on this project?

Write it down.

I’ll say I’ve got $5,000/month, or $60,000/year, to spend on marketing.

5. Calculate Your Total and Compare
Time to do some multiplication:

Value x competition x complexity = total

$200k x 2 x .5 = $200,000

Augh! My total budget is only $60,000. I’m going to have to adjust my expectations a bit. Maybe I should focus on a longer phrase, like ‘gourmet chocolate candy’. Only 1.5 million competitors, which these days has to be considered not ‘hard’, at least. Then my calculation is:

$200k x 1 x .5 = $100,000

That’s closer to what I can handle. I can probably work with the agencies I talk to and see how we can make it easier, if at all, and lower the cost

6. Do a gut check.
Look around. What do reliable sources say pricing should be? Those sources do exist:

Last month, SEOMoz published this great blog piece about internet marketing pricing:

So, going with my estimate, I said $100k for one year. Here, a monthly retainer for mid range SEO is $7500, or $90,000. Pretty close.

Don’t Be Lazy
This little formula is one I’ve worked out over 10 years. But don’t just slap some numbers together, present it to an agency and say ‘this is what I will pay’. When potential clients bring me a project, part of what I do is review it and let them know whether their price expectations are reasonable.

If you can’t trust whoever you’re working with to give you that kind of assessment, then go elsewhere. In the end, you may pay more, and it takes some work, but it’ll be worth more, too.