A New Year’s resolution for agencies:  Start billing for what you really sell

January 4, 2012 | Author: Tim Williams

In groups of agency professionals around the world I have often asked the question, “What do clients really buy from your agency?” Their answers usually include things like “Solutions to marketing problems,” “Insights and innovation,” “Expertise,” and “Successful marketplace outcomes.”  Not a single person has ever said “Time.”  Because deep down inside we all understand that clients don’t really buy our time.  Time is just a means to an end, not the end in itself.

So here’s a game-changing resolution for your firm to begin the New Year: commit to bill for what clients really buy.  Instead of billing for time, bill in other creative ways that are tied to the value you create rather than the costs you incur.

For inspiration, consider the consequences of continuing down the path of the increasingly discredited hourly rate system.  Over the years, my colleagues and I have developed the following list:

1. The hourly rate focuses on efforts, inputs, hours, costs, activities, rather than outputs, results, and marketplace value.  It assumes the client is buying an activity rather than an outcome.
2. The hourly rate misaligns the interests of agencies and clients.  Clients want their agencies to spend less time, whereas the firm makes more money by spending more time.
3. The hourly rate places all of the risk on the client.  This is why most clients don’t really view agencies as true “partners.”  The nature of partnership is shared risk.
4. The hourly rate fosters a production mentality instead of spirit of invention and entrepreneurial problem solving.
5. The hourly rate encourages hoarding “estimated time” and produces a disincentive for people to delegate work and responsibilities.
6. The hourly rate creates a system in which as the agency gets more effective and efficient on a client’s business, it actually earns less money instead of more.
7. The hourly rate works against making more progressive use of technology to get work done faster.
8. The hourly rate commoditizes the firm’s intellectual capital and expertise, as if an hour from one person or firm is as valuable as any other.
9. The hourly rate places an artificial ceiling on a firm’s income, since there are only so many hours in a day. This amounts to a self-imposed limit on agency profitability.
10. The hourly rate creates a large bureaucracy centered around collecting, policing, reporting, analyzing, transferring, and managing time.  There are much better uses of the firm’s time and resources.
11. The hourly rate diminishes quality of life for associates of the firm. No one became a professional to bill the most hours, but rather to achieve something important.
12. The hourly rate looks in the wrong place for value.  Value is created out in the marketplace, not inside the four walls of the firm.  For pricing cues, agency should look outside, not inside the organization.
13. The hourly rate is based on the cost to the agency rather than value to client.  Clients don’t buy your costs.
14. The hourly rate discourages collaboration and integration, because account managers are constantly worried about going “over estimate” on an assignment.
15. The hourly rate puts the emphasis on efficiency instead of effectiveness.  No client hires an agency just to be efficient.

Ultimately, the main problem with hourly billing is that it keeps agency professionals trapped in the illusion that what they sell is time.  Clients don’t buy the time of the people working on their business any more than you buy the time of the mechanics who work on your car. As buyers of services, what we’re buying is a successful outcome – the solution to a problem. 

So consider making this the year that your agency really does move to a new level of success by changing your paradigm about what you really sell and what clients really buy.  If you do, you’ll join the growing ranks of innovative firms who are realizing greater profits and professional satisfaction by burying the billable hour.

Time to kill the digital department

December 13, 2011 | Author: Tim Williams

Is there really an agency leader alive who doesn’t know that it’s time to disband the idea of a “digital department?” 

Back in the days of Mad Men, agencies had a “television department,” because TV was a new technology that the print/outdoor/radio-centric agency executive of the 1950’s didn’t really understand.  So agencies were staffed with “television specialists” whose job it was to understand and recommend the new medium.

Over time, it became clear that a “television department” was no longer needed.  Television became mainstream and assumed its place as the most “mass” of all mass media.

In 2011, the internet officially became the world’s largest advertising medium.  It already was the planet’s leading communications medium.  To have the most popular medium on earth “departmentalized” doesn’t make a lot of sense.  We killed the “television department” when TV became part of the culture; it’s time to kill the “digital department.”

Not separate, but equal

Of course an equally important reason we need to de-departmentalize digital is so that it will no longer be viewed as something “special” or “different” within the agency.  This only serves to give the “non-digital” types an excuse to postpone their immersion into digital marketing and continue to lean on the “interactive group” to come and speak intelligently about digital at client meetings.

I actually believe the digital cognoscenti in agencies perpetuated for many years the notion that digital is indeed a separate, mysterious thing that only certain types of people can understand.  True, some aspects of digital are indeed complex (programming, coding, software development) but some aspects of television production are complex as well (producing animation, lighting sets, running edit bays, etc.)  The point is that every medium has its areas that are the domain of specialist experts.  Digital is no different.

Disbanding the digital department isn’t difficult.  There’s already a natural home for most of the functions that exist in a typical interactive group:

See how easy that was?