Welcome to the archives for NewsTalk, an IBJ blog published from November 2007 through December 2010.

Bye-bye, billable hour?

May 15, 2009
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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