Bye-bye, billable hour?

May 15, 2009
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A staple of professional services, the billable hour, is beginning to erode. Law firms increasingly are being asked to shoot a set price for a specific service, and now the movement is spreading to advertising, as Coca-Cola announced it will pay for value rendered.

A local ad executive warns businesses should think twice before opting for fees because theyâ??ll inevitably get lower quality. However, the exec adds, less quality might be best in some circumstances.

Chris Wirthwein, CEO of 5MetaCom, notes advertising firms like his traditionally take on a client with the understanding of â??doing it rightâ?? by rolling ideas around in their minds to find creative angles to sell products.

Under fee arrangements, ad firms will look to standardize services in order to emphasize process management and ultimately find profits through efficiency, not attention-grabbing creativity. Ironically, ad firms would be driven toward their antithesis: turning out widgets. A photographer who might linger for better shots of a product will furiously blast away with a goal of moving on to the next one. Campaigns might not be tested thoroughly with focus groups.

â??The output of the agencies may be inferior in every way, because youâ??ll have to cut out a lot of the consideration that goes into its creation,â?? Wirthwein says.

Still, businesses donâ??t always need a Cadillac. Wirthwein notes that the heavy, clunky early-1980s VCR in his basement works better than the cheaper versions available today. But are the steel, polished chrome and better workmanship in the old machine worth the price to gain a tiny edge on quality? Probably not. In the same way, fee models sometimes are more cost-effective for clients.

Hereâ??s the rub: Wirthwein says layoffs and downsizings have left many businesses with little internal expertise in advertising and marketing. So, ad firms will give clients what they want. If itâ??s fees, thatâ??s what theyâ??ll get â?? even if itâ??s not optimal.

What do you think? Do you favor traditional billable hours or fees? Are fees the model of the future?
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  • Norm -- One other thought...I'm perfectly fine with buyers of ad agency services buying on a fee basis. It's called free enterprise and it's the best system ever devised to foster commerce.

    If the market moves to fees (vs. hourly), then it will be up to us to figure out to work that way. Agencies will need to master process and efficiency. When they do, they will produce good results for clients and be profitable. And clients will get what they want.

    In many ways, I'm excited and bullish on change like this because we've been working on perfecting our processes and systems for 10+ years. Looks like the market is finally coming to us!!

    Will the quality suffer? Maybe...but free enterprise works. Buyers will get what they want -- they should! And I'm all for it.
  • Fee-based pricing is great if you're selling something that is easy to compare, but few things are and few buyers provide sufficient requirement specifications.

    Maybe this will help the way people buy products and services by forcing them to do the User Requirements Specification and Functional Requirements Specification they should have been doing all along.

    I'll still charge by the hour to develop URS/FRS for people! :-)
  • Pay for value rendered sounds like pay for performance. We ask some employees to do this--sales and managers, and owners certainly. Why not ask the same of our suppliers? Besides, don't you think there will be a connection between fees and hours? You can hide it, but the cost that drives the fee will still be based on a projected number of hours. If it was an hourly agreement, and the client did not ask for a projected range of hours, shame on the buyer. Industries change those who figure out first how to adapt and make it work better will end up stronger. This will be fun to watch.
  • Since its beginning in 1985, our agency has never charged hourly fees. We've found that our clients get better, more creative solutions when ideas aren't tied to the clock. With billable hours, if the right idea is created quickly, we cheat ourselves. If it takes us longer to get there, clients are penalized. The fee-based project gives us the freedom to explore solutions while our clients can budget appropriately without getting hit with open-ended billing. And both agency and client achieve fair value for the work.
  • Perspective of an outsider:

    So what does one do when they have ideas (for ads/commercials)?

    I didn't say good ideas [1]. For me, all of my ideas suck until|unless they amount to something.

    IT pays the bills. I prefer to dabble in any number of other disciplines. (It's why I *love* Blue Sky meetings; paying the entrance fee with a very thick skin) [2]

    e.g., I'm working on scripts & series ideas for competitions at Larry Brody's site (TVWriter.com). You can get a feel for to the contests with a pull-down on the home page. I'm contemplating polishing the ads off and enter them in toto for the Spec Scriptacular Completion. It’s intended to be a free-for-all. Bundling them avoids a large per-entry fee for each idea and hopefully shows a streak of how warped my ideas can be. Ads/commercials would be a first for them.

    I have ideas (remember, not necessarily good) for other shows, scripts, series, reality shows, etch. I have no inclination to spend all of my free time (now) doing it. It's an outlet. I like to dabble.

    The odds are against me (TV scripting), simply because there are a lot of starving artists who need their big break. They're willing to eat hot dogs for lunch and weenie broth for supper. But I'm treating it as a serious hobby. And I do have along with other (non-TV) disciplines. Perhaps an IT start-up or two. A new food idea...

    phil

    you can reach me here: flu??erver?igo at gmail dot com

    Replace the question marks with the letter t.
    The other changes are self-evident.
    _____________________

    [1]

    There's an episode of Taxi where a briefcase has been found in the back seat.

    Rev Jim: I'm always finding things in the back of my cab .... umbrellas, magazines, meat.

    Alex: Meat Jim, meat?

    Rev Jim: Not good meat...chewy meat.

    [2]

    Some critics have amused their readers with the wildness of the
    schemes I have occasionally thrown out; and I myself have sometimes
    smiled along with them. But such sparks may kindle the energies of
    other minds more favorably circumstanced for pursuing the enquiries.
    -Charles Babbage

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