Don’t Pay for Hours. Invest in Value
Updated: Nov 23, 2021
Marketing agencies can be an invaluable resource to bring expertise and experience to your organization to help level up how you communicate your brand. In this age of rapidly accelerating change and sophistication in technology and platforms, it’s important to stay current to make sure you’re not falling behind and disconnecting from those you’re trying to reach.
Yet you might spend thousands of dollars every month on an agency retainer to handle your website, your social channels, your email campaigns, all of the above and more.
If you do work with an agency, do you know how much return you’re getting on that investment? Or is it just checking a box?
Sometimes, there’s a disconnect between how much you invest in an agency and the value you see from the work they do. Or you were promised a certain price for a month’s services, and then the invoice is higher without any explanation.
It doesn’t have to be that way, though. There’s a new agency model that is rooted in the value the services provide rather than the amount of time it takes. It’s transparent, it’s sensitive to clients, and it’s built on efficiency.
If “Inefficiency is the Enemy of Success,” Then Transparency is its Ally.
First things first: the traditional agency model is broken.
The Marketing Agency Blueprint by Paul Roetzer, founder and CEO of PR 20/20, outlines the ways the traditional billable hours model is fundamentally flawed and inefficient.
In this model, more senior team members at the agency have a higher hourly rate than someone who’s earlier in their career. And the cost to the agency for a specific service is determined by two things: the team member’s hourly rate and their efficiency. While it might take one person five hours to complete the task, it might take another person ten hours – or it might take someone five hours one week and, due to a number of circumstances, ten hours the following week. We’re all humans and not machines, after all. And the client shouldn’t be penalized for that unpredictable and inefficient formula.
Marketing has also changed significantly throughout since the billable hours model was introduced. The change velocity continues to accelerate innovation – whether that’s new social media platforms, new digital algorithms, new types of content, new advertising opportunities – and clients expect their agency to stay on top of that innovation in order to ensure that the client is getting the most return for their investment.
Roetzer explained how this acceleration causes problems within the billable hours model:
“Clients are willing to pay a premium for experience and knowledge they do not have, but the unfortunate reality is that young professionals, who have grown up in a digital world, may be more qualified to provide consulting and services in high-demand areas such as social media, SEO, and mobile. It is almost a reverse of how the industry has traditionally worked. Clients would pay for inefficiencies of junior account executives while they learned the craft and gained experiences, but the labor and hourly rates were cheap. Now clients pay for the inefficiencies of senior executives to learn the digital game, but their hourly rates are not coming down.”
Many agencies are unsure how to navigate this inversion of the billable hours model, which has been the standard for the industry for decades. Yet, because the inversion causes the agency to be more inefficient and bill more hours, there’s actually a financial incentive for them to continue with the old model.
While this can be an appealing short-term solution, Roetzer showed how it can lead to a lack of transparency that can undermine the agency-client relationship:
“There is a certain mystery to billable hours and agency services. Clients are not always sure exactly what they are getting or what it costs. This works for agencies because billable hours are an imperfect mix of art and science, and as long as the agency produces results, clients are happy.
However, there are those times when things do not go so smoothly. Maybe the client anticipated a return on investment sooner, does not feel like the account is getting enough attention, or is just too demanding and unrealistic. There is also the possibility that the agency may have slightly over promised to win the business and just cannot deliver to the expectation levels that were set.
All of a sudden, invoices are being scrutinized a little more closely. The client’s chief financial officer (CFO) takes a keen interest in the growing monthly expense, and now the chief marketing officer (CMO) has to explain the value of the agency to his executive team. The problem is that he has no idea. After four months of $10,000 per month, he has invoices full of activities but nothing tangible to share with his bosses to justify the relationship. The mysterious nature of billable hours is not that much fun for either party at this point.”
Relationships are built on trust and transparency, and it’s difficult to achieve both of those things. It’s difficult not because of the people involved or any bad intentions but because they are using an inefficient and outdated model.
Creativity Doesn’t Happen on a Consistent Timetable.
Quality is what distinguishes the leaders from the pack – whether that’s in hiring, manufacturing a product, developing software, or providing marketing services. And audiences reward brands that take a risk and produce ambitious and creative content that helps distinguish it from other content competing for their attention.
Ask any artist, novelist, filmmaker, or entrepreneur how many hours it will take them to finish a painting, publish a novel, finish a documentary, or launch a business, and they’ll probably be hard-pressed to come up with a number. “A lot” is probably what you’ll hear most often.
We know from experience that the creative process can take a long time. There’s no straight line between coming up with a great idea for a creative project and finishing it. It takes time to brainstorm and flesh out a concept – even longer with more people involved. Drafts need to be edited and revised, then edited and revised again, and again.
Yet anyone who has gone through this iterative process knows that it’s essential to getting the most creative and highest quality finished product as possible. No one ever wants to show their first draft to the world, and any ambitious and creative piece certainly came a long way from what it looked like initially – it was better.
Through a billable hours model, there’s a disincentive to go through that time-consuming and step-by-step process, because it can be difficult to accurately estimate how long it’ll take. Research shows that we have a built-in planning fallacy where we “underestimate the time it will take to complete a future task, despite knowledge that previous tasks have generally taken longer than planned.” And the final product falls short of that level of quality and creativity that really engages an audience and drives value back to the brand.
If a brand is looking to take advantage of the opportunity content marketing provides, it needs to do more than check a box; it needs to create content that is relevant, engaging, and that highlights the brand’s personality and messages. Customized content then needs to be strategically shared through a fully integrated digital campaign in order to maximize the return on investment.
Ambedo Audio’s Point Pricing Model
Agencies can provide tremendous value to a brand if they put quality, creativity, and transparency at the forefront of their work.
At Ambedo Audio, we work with our clients to bring the power of high-quality, creative, and strategic podcasts to brands – no matter the size, industry, or audience – and help them leverage it for maximum value.
We’re able to do that because of our point pricing model inspired by what Roetzer developed for PR 20/20:
“I took the approach that if you can define the scope, which is possible with nearly every marketing agency service, then you can standardize the service and assign a set price. Although some services, such as website projects and marketing plans, are more complex than others, the vast majority of agency services can be standardized by clearly defining the scope of what is to be done.
The guiding principle was that set prices had to be value based, meaning they were to be determined based on perceived and actual value rather than the number of billable hours something takes to complete. So if a trifold brochure was priced at $2,500, then it did not matter if it took 15 or 35 hours to produce, the client would pay $2,500. The burden was on the agency to build systems and processes, and put the right talent in place, to profitably deliver at the set price.”
Producing a creative and high-quality podcast is a complex process, as is putting together and executing a fully-integrated digital campaign. But we’ve been able to break it down into each of the component steps and assign each a point amount that corresponds to the value it generates for the brand throughout the entire 18-month fully integrated digital campaign.
The services in italics are included in our Premium Production & Promotion package in addition to those included in the Basic package.
This point pricing system weighs the different individual services in the campaign according to their value and assures the client won’t overpay for those services or for any service that supports the main value drivers, namely the momentum campaign and the podcast series itself. At the same time, the point system allows us to produce the most creative and highest quality work possible.
A sliding price-per-point scale allows for flexible and affordable packages to accommodate clients of all sizes. The price-per-point is multiplied by the total number of points in the client’s package and divided by twelve. This, then, is the monthly retainer amount that remains consistent throughout the campaign.
At Ambedo Audio, we are committed to being as transparent as possible with our clients about the work we’ll be doing month-to-month, how that plays into the creative strategy we develop with them upfront, how we’re performing and ways that we’re looking to tweak our approach to maximize results, and the value they get for their investment.
We believe you shouldn’t pay for hours; you should invest in value.
Originally published on Ambedo Audio's blog on April 20, 2020.