Woolley Ideas: Time Well Spent? Why Advertising Must Break Free of Hourly Billing

My lawyer uses six-minute increments, and my accountant uses fifteen. Billable hours are the bane of adland. But in a world in which agency resources are billed by the hour, they are a necessary evil. Yes, AI is coming to the rescue with platforms that will complete your timesheets based on your calendar and activities. But the question remains: Is this the best way to value your agency’s product?

Now, agencies offer their clients a range of services and capabilities, but at the core of these services is the creation and execution of creative ideas, platforms, territories or executions, depending on your nomenclature. Many other services either support this core product or are adjacent to this core service. And yes, some of these are labour-based services such as administration, management, and executional supervision, which are adept at being charged on an hourly fee basis.

But creativity is not a widget. The application of creating ideas that deliver results and ultimately can lead to growth is the championing call of the advertising industry. Great ideas are often like lightning in a bottle. Powerful but hard to easily commoditise. But of course, the fee model for these services and the value it infers are closely linked.

Last century, the agency fee model was based on the media commission system. Media and creative were packaged with a commission and service fee, paying the agency for the services delivered. The thinking was that the bigger the client spent, the more work for the agency and the larger the fee.

With the end of the media accreditation, the agencies moved to the hourly rate model, either as a retainer or a project fee, with the hours and rates used to calculate the overall agency fee. This was rarely linked to the product delivered, but was instead about securing a defined number of agency people for an amount of time.

This is a great model if you are paying for people to attend meetings such as the weekly WIP. The hours and the people are clearly defined and accountable. But let’s apply this to the very core reason a marketer has an agency—the development of the creative idea that will potentially multiply the value of the media investment and deliver multiple returns on investment in the short, medium, and long term.

How long does it take to crack a big, brand-defining creative idea?

After all, if you are paying by the hour, you would want it to be as fast as possible. But if you are charging by the hour, you naturally want to take as much time as possible. This is the great dichotomy between the buyer and the seller.

There are a couple of things to watch out for buyers of creative ideas. The first is that often, the first idea can be the most obvious. This means that while intuitively, the first idea may seem right, it will not usually be the one that will surprise or delight the audience. But it takes a lot more effort to generate the second, third, fourth, and ultimately the best idea than the first one.

Second, the quality of the output depends on the quality of the inputs. This is not just the quality of the brief, which is essential, but also the quality of the inputs into the mind of the creator. The famous story about Picasso doing a quick sketch on the napkin at the request of an admirer and then wanting to charge a million francs. Not for the five minutes it took to draw, but the 40 years it took to draw it in five minutes.

And finally, when you think of the amount invested in delivering that idea to the audience, isn’t it a false economy to want to scrimp on the cost of that idea? Especially if it’s a great one that could radically shift the needle for your business.

Luckily, a growing group of agencies and clients are moving to a value-based pricing model for this work. Rather than hourly rates, the agency and client agree on a price for the outputs or deliverables.

The next trend will be when marketers are able to clearly evaluate the value creative ideas provide to marketing activity. Currently, the use of marketing mix modeling (MMM) or econometric modeling is focused on channel choices and media investment, but there is a chance that one day, the actual idea running in those channels will be evaluated, too.

Until then, the hourly rate is doing everyone, both buyer and supplier, a disservice. However, a value-based pricing model is a step in the right direction.