Artificial intelligence (AI) has already been credited with facilitating far-reaching process change in many sectors. It’s already supporting a variety of professional services processes, from data analysis to content creation, saving businesses time, effort, and money. Marketing agencies are no exception, particularly with the growing prowess of generative AI. On the whole, these developments are being viewed in a positive light, allowing for enhanced operational efficiency, but they’re not without their limitations. In marketing agencies, where time/effort-based pricing is standard practice, AI has the potential to negatively impact revenue.
The issue with AI and hourly pricing
The problem with AI and time/effort-based pricing is clear. When you charge for employee’s time and introduce a tool that helps them work more quickly, billable hours will inevitably reduce. Initially, when AI only plays a small role within an agency, you’re probably only looking at minor incremental losses. The difficulty is that the potential applications for AI are increasing steadily, and the likelihood is that even if you don’t deploy AI at all right now, you probably will to a mounting degree in the future. So, if you take the hit now and accept that the benefits of AI outweigh the potential losses it may bring, in the future the chances are that those losses will grow, quickly becoming untenable. Even if the standard of work increases thanks to AI’s input. The question is, what can you do about it?
Move to a new pricing model
Time/effort-based pricing was broadly embraced because it’s simple. Clients can see roughly what they are paying for – the hours put in by designers, writers, project leaders and so on.. It isn’t exactly inspiring, but until recently it has fulfilled its purpose. However, the contemporary client wants more for their money. When competition is high, they need to be enticed into buying your services. In some cases, this will come down to how much you charge, but more often than not, it will come down to how well you sell what you do. Your customers want to be wowed by pitches – in marketing more than any other sector, because if you can’t sell your services, how can you effectively sell theirs? And a deliverables-focused pitch matched with a deliverable-based pricing model can be a great selling point to potential clients.
Understanding deliverable-based pricing
With deliverable-based pricing – also known as asset or outcome-based pricing – the idea is to clearly define each service in a way that makes them as appealing as possible to clients, and then assign each of them a price. The price is totally unrelated to the time that goes into its completion, instead focusing on the value of the outcome. So how it is completed – using manpower or AI – becomes irrelevant. All you have to do is ensure that the work is completed to standard and within the agreed timeframe. Once you have a price for each of your services, you can then use them to create tailored quotes and pitches for all of the work that comes to the agency’s door.
How to adopt deliverable-based pricing
Deliverable-based pricing requires the creation of a framework of individual services. If you know your business well and understand what goes into each of the services you offer, creating this framework may be easier for you than for others. However, tools, such as configure, price and quote (CPQ) software are available to help, and once you have your basic framework, the only other thing that you need to do is to carefully define your outcomes to make them as appealing as possible to would-be clients. You can then use this to tailor your quotes going forward.
AI isn’t yet universal, not all agencies have adopted it, and yet it is still driving change. But it’s not the only reason to move away from time/effort-based pricing. Although it has served its purpose, time/effort-based pricing is no longer fit for purpose. It is limited and reductive. Moving to a deliverable-based pricing framework presents an opportunity to differentiate your brand – and as a marketing agency, brand differentiation is really what you’re all about.
Tracey Shirtcliffis founder and CEO of pricing platform SCOPE Better.
