Artificial intelligence (AI) is changing marketers and the agencies they work with. As improvements in data collection, processing and analysis make targeting faster, easier, cheaper and more effective, generative AI is becoming increasingly useful for writing, creating images and editing. Together, these elements change how your teams spend their time, how they work, and how much time they need to spend with each client. That’s a good thing, right? But maybe not if you charge by the hour.
The traditional agency pricing model is hopelessly outdated and AI is forcing a long overdue change.
Why hourly pricing must disappear
Marketing agencies almost always charge by the hour. And it kind of worked. But when your billable hours are reduced by AI but you still face the same overhead costs, you find yourself in a conundrum. You can’t just charge your clients less, especially if your results continue to improve. Actually, MIT estimates that generative AI can improve the performance of a highly skilled worker by 40%. But also, in an age where transparency is almost paramount, you can’t lie about how much time you spend on each task. So what is the solution ? It may just be a matter of changing the way you charge for your work. And that means focusing on deliverables or results.
Deliverable-Based Pricing in Marketing
Marketing isn’t the only industry that may need to consider the impact of AI on pricing. Simon Kucher estimates that at least 20% of all professional services firms will fundamentally change their revenue model over the next 3-5 years because hourly pricing no longer makes sense. Professionals no longer charge for their time, but for deliverables, and it’s a model that can easily be applied to marketing. Shift the focus from what you put into a project to what you were able to produce for the client. Because ultimately no one cares how many hours you put into a project, for the client the focus is – and always has been – on results.
How to put a price on the work you deliver
Time is an easy thing to quantify when billing. So moving towards deliverables can be difficult to get used to. This means that when a new client asks you to propose an advertising campaign or rebranding, you need to stop thinking about how long the project will take and which team members it will involve, and instead focus on what what the project will involve and what you can deliver. Vision, mission, values, name, logo, slogan – a fully managed, comprehensive and multifaceted rebranding exercise with a dedicated advertising campaign focused on a carefully researched target audience that will change the way the brand is perceived by everyone – partners, customers and competitors. And then you have to put a price on it.
Your prior experience will provide you with endless reference points for assigning value to your work, from ad clicks and sales conversions to brand awareness and campaign ROI. This can provide a flexible framework for deliverable-based pricing. But it takes time and research to manage this transition. Configuration, pricing, and quoting (CPQ) software can support this, but the important thing is to take stock of what you were able to deliver and what it cost you. From there you can calculate the compensation.
There is always a backlash against change. It’s usually annoying and unwanted. But time-based pricing is dead. It means nothing to anyone and cannot adequately describe what your business can do for your customers. Pricing based on deliverables is possible. And at the time when 35% of companies don’t have the power to raise their prices significantly, that’s saying something.
AI is not yet ubiquitous, but it will be soon. It changes the way everyone works. This affects all sectors. And for many, that doesn’t just mean processes, but also prices. Any marketing agency that doesn’t recognize this will quickly be left behind.
Tracey Shirtcliff is founder and CEO of pricing platform SCOPE Better.
