Why AI is driving marketing agencies to abandon time-based pricing

Time- and effort-based pricing has become the norm for marketing agencies. It’s established and easy, so there’s been no real reason to deviate from a practice that has always more or less answered agencies’ needs. As with so many things, AI is shaking up that status quo. Not only is it changing the way we work, t will inevitably disrupt how services are billed, requiring a significant shift across the sector.

AI is still in its infancy, and its remit yet to be fully established, but its impact is already being felt across industries. In marketing agencies, it holds the potential to enhance and expedite a range of common business processes, from research and data analysis to editing, ideation and copywriting. It’s already saving agencies time and effort — and therein lies the problem. If you’re charging for the time and effort that goes into a project and AI is reducing both, you’re going to have to reduce the value of your invoices. That has the potential to affect the profitability of your company as well as the perceived value of the work you produce. So, what’s the solution?

You could ignore AI and continue as you always have — leaving your business to fall behind your competitors. You could use AI but keep billing as if you’re not — weaving dishonesty into the core of your business. You could take the hit and accept that you’re simply going to have to work with lower profits and potentially let a few employees go to accommodate that fiscal reduction. Or you could look at your pricing model and find a smarter way to do things.

The likelihood is that your agency uses time- and effort-based pricing because that was the standard at the time of launch. You may not have explored alternative models because you wanted to align with industry norms and avoid standing out unnecessarily. Time- and effort-based pricing was also relatively fit for purpose at that point, despite its limitations. Now, however, businesses need more from their pricing models — not just something that can withstand the impact of AI on business processes, but also a selling and differentiation tool. Deliverable-based pricing holds that potential.

Deliverable-based pricing — also known as asset-, solution- or outcome-based pricing — enables agencies to create a fully priced menu of services by assigning a value to each element of their offering. This approach moves away from selling time to clients and focuses on creating clear, client-focused pricing frameworks. Agencies can quickly build comprehensive quotes and pitches tailored to each client’s needs, ensuring transparency and trust from the start. This streamlines the pricing process and gives teams the freedom to complete the work in whatever way delivers the best results to the client — including the use of AI — without affecting the bottom line.

How to implement deliverable-based pricing?

Changing the pricing model in any business is intimidating, as it may have a dramatic impact. The benefit of deliverable-based pricing is that if you know your business well, you can use the model to your advantage. By taking a collaborative approach involving all stakeholders in your business, you can shape a menu of services to meet your clients’ needs. For some, that will mean using broad strokes and the pricing of headline services. For others, it will require more detail and the breaking down of every service element. Either way, the idea is to move away from focusing on what has gone into each product and instead looking at what you can do for the client. You may need to call in external pricing professionals to support you through the process, but once you’ve got your basic framework, tools such as configure, price and quote software are available to help you move forward and maximise the potential of your fully rounded pricing structure.

According to the Simon-Kucher Institute, virtually no businesses are prepared for the impact AI will have. The move from theory to practice has happened far more quickly than many of us expected, leaving many businesses unprepared. It’s important to remember, however, that while AI is driving far-reaching change, in some respects, many of those changes are long overdue, and pricing is one of them. By introducing deliverable-based pricing to your agency, you have the opportunity to enhance the value of your services, differentiate your agency and build transparency into your processes. That holds significant potential — particularly for the agencies that move first.

Tracey Shirtcliff is the founder and CEO of SCOPE Better, a pricing platform designed for professional services.

The big take-out: Advertising and marketing agencies need to abandon traditional time and effort-based pricing models in favour of deliverable-based pricing as the impact of AI increases.