AI and the phasing out of time-based pricing for marketing agencies

Time/effort-based pricing has dominated in marketing agencies for decades. As the established norm, it's the accepted standard of billing for almost every project type. Agencies have continued to use it because it's easy, but there's an unexpected problem on the near horizon. Artificial intelligence (AI) is changing the way we work, and it holds the potential to fundamentally disrupt not only how agency tasks are performed but how we bill for them. 

The problem of time/effort-based pricing
AI may not yet be ubiquitous within marketing agencies, but with its prowess increasing across a whole range of common business processes – research, data analysis, editing, ideation, copywriting – it's already saving agencies time and effort. While this is an undeniably positive thing, it carries unavoidable implications for pricing. Because if you charge for the time your employees spend on your clients and AI reduces the amount of time that goes into each project, it stands to reason that the time you bill for will also have to be reduced, and that can't help but impact your margins.  

For some agencies, there will be the temptation to pretend that change isn't happening. You may resist the drive to adopt AI – and be left behind by your competitors. You may carry on regardless, use AI and continue to factor in the time that these processes may once have taken – and risk being caught out by your clients. Or, you could just lower your prices, despite the fact that AI is probably improving your customer offering and performance – which would be galling but probably the least risky. Alternatively, you could take steps to change your pricing model.

So, are you going to take the hit, or are you going to do something about it?

Pricing for the AI-era
The chances are, your agency uses time/effort-based pricing because that's what everyone else was doing at the time of launch. You didn't stop to think if an alternative model would be better suited because you were simply doing what was always done. However, although time/effort-based pricing had its benefits, it was never much of a selling point to your customers. Billing for time doesn't ignite the imagination, it doesn't promote what you do, or even remotely sell your services. You are selling your clients so much more than your time. Deliverable-based pricing reflects that.

Deliverable-based pricing – also known as asset or outcome-based pricing – takes each of your services and assigns it a value. So, you're no longer selling your time to your clients, you're selling them a comprehensive service, tailored to their unique set of needs. Which means that the time and effort your team put into their work immediately becomes less important than the quality of the work that you produce, giving your team the liberty to use whatever tools they need – including AI – to get the job done. While your clients have a comprehensive project description to get excited about. The only drawback is that you have to put in groundwork to make the change. 

How to make the switch to deliverables-based pricing?
Changing to a different pricing model can be daunting, but the beauty of deliverable-based pricing is that if you know your business well, you're already halfway there. So, the main requirement is a change of lens. You're no longer looking at each project in terms of the time that might go into it but rather the elements that are required to produce the best results. To do that, you need to create what is essentially a menu of services. You can go broad, simply pricing the headline acts – corporate rebrand, product launch. Or you can itemize every service element, from Instagram campaign to logo creation, allowing for the building of uniquely tailored quotes and pitches for every customer contact. 

Whichever approach suits your business, you begin with the creation of a cost-plus framework. Tools, such as configure, price and quote (CPQ) software, are available to help you do this if you need them. From there, you can form a fully rounded pricing structure that truly reflects the value of what you can do for your clients. 

According to the Simon Kucher Institute, none of the world's business services firms are currently ready for the impact that AI will have on their pricing model. The technological theory has become a working reality far sooner than any of us really imagined, we've not had time to think about the impact of such a huge change. The thing to remember is that although a pricing model change may be an inconvenience and AI may be the catalyst for that change, making the switch to deliverable-based pricing also brings real opportunity to your agency. It's a chance to really sell your services, to differentiate your agency from all of the others, to show your creativity as it really is. The businesses that see this and make the move first will be the ones to benefit most.