This article is posted online at SEOmoz: http://www.seomoz.org/blog/seo-pricing-costs-what-should-you-charge-how-much-should-you-pay
I thought it was an interesting compilation of pricing models from both sides- clients and SEO firms.
I wanted to explore the world of SEO pricing models from both sides of the issue, so let’s dive right in. First off, we’ll take a look at how SEO companies commonly price their services, then look at how businesses and organizations should expect to pay for SEO.

The 7 Most Popular SEO Pricing Models
The simplest way to price a project is to charge by the hour. Rates in SEO vary with the lowest, entry level folks around $40-50, mid-tier consultants around $100-$200 and high-demand firms & people from $300-500. SEOmoz is obviously actively trying to limit our clients by going way outside the norm and charging $1000 / hour.

Project-Based Consulting
Many SEOs will use the business model common to web development agencies and charge a flat fee (often in several chunks over the course of a project). The total price is based on an estimate of time, effort and personel involved in the project. At SEOmoz we often charge in this fashion for a site review + keyword research + consulting time or for an on-site SEO training series.

Contract Services
Plenty of SEOs offer dozens of individual services, such as Debra Mastaler’s directory submission service, Eric Ward’s link building & publicity campaigns or Jessie Strichiola’s SEO assessment services. These offerings present a single price for a set amount of work, though I have little doubt that many of them are customized and have modified pricing based on the factors discussed in the next section.

Standard Profit Sharing
Some limited number of SEO providers offer profit sharing based compensation. These frequently include a relatively small down payment to begin work and then a percentage of revenues (usually before non-essential expenses) from sales through the website. This can be a good option for SEOs who have great confidence in their abilities and are ready to assume a significant share of risk. We at SEOmoz have tried this in the past with mixed results – one big problem is that you’ll need to ensure that the business operations, outside of the website, are running on all cylinders, which really doesn’t fit well with the job of SEO.

Modified Profit Sharing
As above, but modified profit sharing typically includes a clause that gives the SEO firm a cut prior to any expenses and may even set minimums of payment. Other modifications could make the deal similar to a Pay-Per-Action (PPA) or Pay-Per-Lead, the latter of which can be a better way to limit risk. Both SEOs and those seeking their services should be wary of any kind of profit-sharing deal. It’s akin to a real business partnership in many ways and shouldn’t be treated with any less weight.

Monthly Retainer
A few good SEO firms I know use a basic monthly retainer with a standard workload package (or several options). My friends up in Quebec modify this system so that during development, marketing & ongoing maintenance, different prices are charged as part of the retainer. This can be a very good model for companies seeking to retain clients over a long period of time, but it can also be abused by those who claim (hopefully falsely) that the site will “lose its rankings” if the customer cancels.

Pay for Rankings
This is one of the more interesting strategies that SEOs employ. The idea being that you pay one price for reaching, say, page 2 of a particular result, another price for position 10, 9, 8 and so on, usually with particular bonuses for #1-3 rankings. It really only makes sense for companies seeking to rank for a particular set of terms/phrases that they know converts quite highly. I suspect that searches like DUI Attorney Orange County might fit well into this system.

Pay for Traffic
As with pay-per-ranking, a traffic payment system treats SEO very much like PPC. I like this model in some respects, because it does measure the SEO’s work, but it can get messy as the quality of traffic isn’t measured here (of course, this usually only counts search engine traffic, but still…).
With those covered, let’s dive into the prices themselves. If you’re in the market for SEO services, there’s a lot of factors that can affect what you should expect to pay, not to mention the great number of formats an SEO contract might take (as noted above). The following can all affect the price you might pay for organic optimization consulting or hands-on services:
The 7 Most Popular SEO Pricing Models

Hourly Consulting

Size & Complexity of Website
Size of Brand/Organization
Difficulty of Project / Competitiveness of Rankings
Personality Issues (if you’re a very controlling personality, expect a generally higher price)
Reputation, Notability & Demand for the SEO Firm

The prices themselves are all across the board, but here’s my take on the general ranges:

You might see the incredibly wide discrepancy of prices above and think, if you’re a potential client, that the prices on the high end are evil, greedy SEOs gouging customers foolish enough to fall for their machinations. Likewise, if you’re an SEO, you might look and think that some of the folks on the low end or mid range are insane to offer such valuable, time-consuming services for so little.

And thus, balance is achieved.

Are there prices way outside these norms? Absolutely. There’s ludicrous claims like this one (found on a paid search ad for SEO software):

And more reasonable claims from services like Aaron Wall’s SEO Book (which costs $79):

Generally speaking, however, if it sounds too good to be true, it almost certainly is (as folks like Internet Advancement continue to prove). SEO is a challenging practice that requires both technical proficiency and a great understanding of marketing on the Internet. The fact that very smart people at very big brands make decisions to pay $500-$1,000 an hour to spend time talking to the best and brightest (and, yes, most notable) from the field of search marketing is one of many great pieces of evidence of the value of SEO.

If you’d like more, let me suggest that you start here

Please do add your thoughts below on pricing – in fact, I’d love to hear this same topic taken on by some other folks in the industry, and though I rarely “ping,” I’d be very appreciative if folks like Andrew Goodman, Lisa Barone (not entirely sure if this is something she can cover), Andy Beal, Rae Hoffman, Eric Enge, Greg Boser, Jill Whalen, and Donna Fontenot (along with every other SEO with a blog and an opinion) think about how to price, how to charge and where the boundaries lie.

UPDATE: Added in some mention of the models discussed in the comments – thanks gang!