Why Ditch Time-Tracking

INTRODUCTION - wix partners Agencies: Ditch the Billable Hour to Stay Relevant Clients like paying your agency by the hour about as much you like doing your timesheet. Pricing under the bill-by-hour model is highly variable. The same project can cost $1,000 one month and $2,000 the next, depending on factors that are entirely outside of the client’s control. For clients, digging into these factors when the monthly bill comes through is equally frustrating. It can take hours of the client’s time every month just to validate the agency’s line items before passing it along to accounting. In The Marketing Agency Blueprint, PR behemoth Paul Roetzer turned a spotlight on the billable hour and exposed all of its flaws. The billable hour is self-serving and, therefore, unsustainable, he concluded. Almost a decade has passed since Roetzer first wrote those words, but little has changed. Marketing agencies all over the world continue to charge for their services by the hour. If you’re an agency that prides itself on client service, you need to acknowledge that the billable hour is self-serving. Hours worked doesn’t equate to value-added. When a project takes longer than expected, the scale tips toward the agency. Digital transformation has also upended the marketing industry and agencies know they have to prove new value to clients in a disruptive environment. Revamping their pricing model is a simple and effective way to impress clients and win more work. 1 Clients have no control over or visibility into costs. The inconsistencies of the billable hour model is a major pain point for clients. Let’s say your agency is drafting a social media plan for a client on an account with two account executives—one junior and one senior—and an agency partner. The senior account executive has four more years of experience than her junior colleague and tends to play the role of manager. Her billable rate is $200 per hour. The junior account executive bills at $150 per hour. The partner bills at $400 per hour. JUNIOR ACCOUNT EXECUTIVE: $150/HOUR SENIOR ACCOUNT EXECUTIVE: $200/HOUR PARTNER: $400/HOUR Two scenarios could play out, which Roetzer lays out in The Marketing Agency Blueprint. SCENARIO 1 In the first, the senior account executive has time to take on the social media plan and completes the project in four hours. The partner who oversees the client relationship spends half an hour reviewing her work, and then the plan is ready for the client. In total, the social media plan costs the client an even $1,000. ($200 x 4) + ($400 x 0.5) $1,000 SCENARIO 2 In the second scenario, the junior account executive takes on the social media plan but relies heavily on feedback from his superiors. This is the first social media plan he has ever tackled, so the first iteration takes him six hours to complete. He submits his draft to the senior account executive, and she spends two hours reviewing and suggesting edits. Now it’s back to the junior account executive for a second iteration. He spends two hours fixing his work and then passes it to the partner on the account for final review. This time, the partner has more substantial edits and spends a full hour reviewing. The total project cost amounts to $2,000—double what it was in scenario one. ($150 x 6) + ($200 x 2) + ($150 x 2) + ($400 x 1) $2,000 It’s no wonder clients have no idea how much anything costs upfront—or that agencies can’t tell them. Is a social media plan $1,000 or $2,000? It just depends! Clients might receive a bill for scenario one in January and scenario two in February. But they have no way to contest the second bill. No one ever agreed to a price for a social media plan; the agreement was only for time spent. If the agency says this is how the project shook out, the client just has to believe and accept it. 2 Agencies are rewarded for inefficiencies The billable hour is easy to distrust because the more hours an agency spends on a task, the more they get paid. The result: Agencies have no incentive to streamline inefficient processes. We saw that clearly in the example above. The digital age has exacerbated this issue because the constant flow of information makes it difficult for employees to focus on one task at a time. As great as “deep work” sounds, client service and new business often take precedence. Employees jump around from task to task as emails flood their inboxes, often working in five-minute increments. Not only is this an inherently inefficient way of working, but it drives up total costs for clients; agencies round time spent up to the nearest 15 minutes, so three separate five-minute tasks throughout the week don’t add up to 15 minutes— they equate to 45. And because of these interruptions, agency employees spend more time completing larger projects, again driving up the price of the client’s bill. 3 Clients have had enough of hefty bills and subpar work An astounding 85% of clients have already fired their agencies and replaced them with in-house teams or sought out freelancers, according to Decision Marketing. Almost three-fifths of those brands have seen ROI increase from the switch. Agencies need to act quickly in order to reverse this trend. Clients are frustrated with the billable hour and the inflated pricing it often creates. And we’re talking about brands with big budgets. Unilever saved approximately 30% on agency fees after moving much of its advertising work in-house in 2017, according to Adweek. “Our 17 U-Studios in 12 countries are creating content for brand teams faster and around 30% cheaper than external agencies,” a representative from Unilever said. Honda is another large brand that severed ties with agencies. Attune to the self-serving pricing model, digital content and social media section manager Nick Bennett explained why he thought the big agency model was on the verge of crumbling: “For too long, agencies have got away with murder. They outlined what’s successful based on metrics that work for them but don’t necessarily constitute what’s happening in the real world.” Bennett also pointed to the benefits of working directly with freelancers when in-house talent isn’t sufficient to meet your goals. “You buy specialists for when you need them, and then that way, you maintain more control and don’t have to pay the large overheads,” he said. Working with freelancers is indeed much less expensive than working with agencies. Plus, you actually know who is going to do the work when you hire freelance talent. You won’t run into a scenario where the senior account executive pushes down work to the junior account executive, inflating the price. 4 The value-based pricing model is a competitive advantage Every time you go into a sales pitch, you’re trying to prove what sets you apart from the competition. Here’s an easy way to do that: Price your work according to value added, not hours worked. You’ll be setting yourself apart from your competitors from the get-go. At a high level, that means creating a menu of prices that are based on clear deliverables. A social media plan costs X. A website redesign with one copy revision and one design revision costs X. Does this sound scary? It should. As Roetzer reminds us in The Marketing Agency Blueprint, “Success requires an uncommon tolerance for risk and a desire to embrace the unknown.” The billable hour may be all you’ve ever known, but if you truly want to be in that disruptor category, you need to part ways with your timesheets. wix partners Simpl System LLC

INTRODUCTION - wix partners Agencies: Ditch the Billable Hour to Stay Relevant Clients like paying your agency by the hour about as much...