Most agencies walk into compensation discussions armed with a defense of their costs (spreadsheets populated with people and estimated hours) but have spent virtually no time or energy comprehending the value they’re about to create for their clients. It’s little wonder that the senior executives at most agencies are easy prey for the tactics of professional buyers in compensation and contract negotiations …

Let’s imagine that tomorrow you begin your business day confronted with a startling announcement in the business press: governments around the world have suddenly banned the use of hourly billing. Can you and your colleagues continue to run a successful business — like the agencies in the pre-timesheet era prior to the 1980s — or would your firm have to close its doors …

Can the same kind of "feature fatigue" made famous by over-engineered electronic devices apply just as well to a professional services firm? Absolutely, and it produces largely the same effects …

If this headline describes how you’re feeling about “value-based pricing,” this article was written especially for you. In the countless conversations our firm has had with agency executives about their revenue models, many have expressed this sentiment. But for those of us who teach value-led pricing, the most distressing comment we hear from agency professionals is, “Well, this all sounds good in theory, but …”

Do the executives on the front lines of your firm have a clear, unequivocal understanding of the principles that guide your commercial decisions? The progressive agencies that have a genuine understanding of the value they create have the confidence to follow specific rules of engagement during the process of setting and discussing remuneration …

Your firm has just done its very best work preparing a recommended marketing program and the response from procurement is “This is the most expensive proposal we have ever seen.” The problem, of course, is that your prospective client is telling the other agencies in the review the exact same thing …

After years of fervent discussion about the inadequacies of the time and materials approach to agency compensation, the industry is coming face to face with the fact that time-based billing is a useless concept when applied to problems that can be solved in nanoseconds by machine learning. …

It’s clear that agencies can benefit substantially from changing their revenue model. And on the client side, smart marketers realize that a healthy agency ecosystem is good for the entire industry. The money spent by brands on marketing will have a much stronger impact in the marketplace if their agency partners are staffed with bright, innovative people — well-paid professionals who are capable of creating exponential value for their clients …

Do the executives on the front lines of your firm have a clear, unequivocal understanding of the principles that guide your commercial decisions? By proclaiming your commitment to modern pricing methodologies, you are putting a stake in the ground that not only creates healthier margins but strongly differentiates you from the countless other firms caught in the commercial gridlock caused by hourly billing …

When you purchase a new car, you’re buying a professionally assembled product, not a list of components. It would be senseless to attempt to deconstruct the entire cost of a car in order to judge its value. Why, then, do agencies persist in selling components instead of finished products? Or worse yet, selling the hours required to build the components?

Persistent predictions of the imminent death of the advertising agency business have caused many industry executives to stop taking these prophecies seriously. No doubt our industry needs faster adoption of new digital technologies. But the real culprit is a decades-long trend of agencies doing more and more work for less and less money. To say that the current iteration of advertising agency business is on its deathbed is no exaggeration.

When it comes to pricing, knowing how to count is not nearly as important as knowing what counts in the mind of the buyer. Pricing is a judgment, not a calculation, and it must be done by people who can assess the value created, not compute the costs incurred …

In the agency business, your clients don’t buy ingredients, they buy increased market share, improved brand reputation, or a seamless customer service experience. Professional proficiency in core areas is the foundation of what you sell, but your clients are paying for a finished product, not an assemblage of qualifications …

Hourly billing produces a soul-crushing culture. But it’s in your power to change it. If you lead or manage a professional services firm, you can redirect the internal narrative away from “be efficient” to “be effective.” The result among your fellow professionals is nothing short of transformational …

Next time your client tells you the objective of a campaign is “sales,” politely insist that you engage the agency client-team in a more thorough exploration of what constitutes success. This will help transform a transaction-based relationship into one guided by a shared commitment to achieve clear marketplace results …

Have you finally buried the billable hour? If you’ve joined the pricing revolution, your firm is enjoying the benefits of a modern revenue model that generates profits in ways that have nothing to do with hours logged on timesheets. But your operations and finance teams may still be insisting that time tracking is required to effectively manage internal resources …

There will come a time (sooner than we think) that the billable hour will completely disappear from the world of professional services. If you’re currently employed by a firm in the marketing services business, this is likely to happen within your lifetime. Here’s how to proclaim the change to your associates, your prospects, and your clients …

It's true that the hourly rate still dominates the compensation structures of the most professional services firms around the globe. But the seeds of its dismantling are being sown, in some unexpected ways from unexpected sources. Many of us who study the topic believe it's now just a matter of time until the hourly rate is properly laid to rest in the graveyard of bad business ideas …

Is marketing a profession? This is actually an important question for people the businesses like advertising agencies. Many practitioners feel that because they have devoted their careers to this discipline, they are “professionals” in the sense that they know their jobs well and take their work seriously.

If discussions about agency compensation seem like a circular conversation, it’s because most firms are debating the wrong thing. Clients will always try to steer the discourse to focus on cost. Your job is to present and defend the value you’re creating for your client’s business.