Whether you like it or not, your agency sells time to its clients.
You may not be doing it directly. Instead you may package things up into fixed fee retainers or projects.
You might not even be setting prices based on the number of hours that you are providing.
But behind the scenes, you are selling time.
As an owner, it can be confusing because you hear so many gurus telling you to stop using the billable hour and have a value pricing model instead.
And that’s all fine and dandy. As long as you recognize that you are still selling time.
I’ll discuss the implications of this a bit more later in this week’s newsletter, but first let’s get to Jen’s roundup of useful resources.
— Chip Griffin, SAGA Founder
Latest podcasts from SAGA
- Using LinkedIn effectively to grow your agency (Agency Leadership Podcast)
Weekly Roundup
Below are some articles, blog posts, podcasts, and videos that we came across during the past week or so that provide useful perspective and information for PR and marketing agency owners. While we don’t necessarily endorse all of the views expressed in these links, we think they are worth your time.
— Jen Griffin, SAGA Community Manager
Articles & Blog Posts
- When to Let Go of Owner-Led Business Development at a Small Agency (The Sutter Company)
- 5 Questions to Ask During a Communications Post-Mortem (Spin Sucks)
- Struggling to focus? Frustrated with the lack of progress? (Bureau of Digital)
- Account Managers and Strategy (Punctuation)
- Is Client Reporting Hell Week Causing Agency Employee Burnout? (AgencyAnalytics)
- So there’s something you want to create… (Anchor Advisors)
Podcast Episodes
- Charge What You’re Worth: 9 Steps to Create Solutions-Based Pricing (Spin Sucks)
- How to Make Horizontal Positioning Work (2Bobs)
- On the Edge of Ethics (That Solo Life)
- Building a Global Agency Team and Scaling Against the Grain with Alina Vlaic (Smart Agency Masterclass)
Videos
- Ad Agency Business Performance so far in ’24 (RSW/US)
- “How do I establish a new business process that can work in between bouts of chaos?” (The Sutter Company)
- When to sell your agency, exit comms, acqui-hire advice: Agency Q&A with Karl Sakas & Mike Belasco (Sakas and Company)
- Values guide decision making (Agency Management Institute)
AI in Focus
- AI in SEO: Quality vs. Quantity (The Digital Agency Show)
- Transforming White Label Partnerships Through AI Innovation, with Damian Papworth (The Innovative Agency)
- Will AI Kill the Consulting Billable Hours Model? (For Immediate Release)
It’s time to realize your agency is selling time
In my view, the billable hour gets something of a bad rap. There is still very much a place for it in the world of agency engagements, but that’s not what this week’s rant — er, newsletter — is about.
When I look at an agency’s P&L, I can pretty much guarantee you that labor costs are the top expense. That’s the simplest way to realize that labor hours represent the primary product.
Now when I share this view with agency leaders, I get a lot of pushback. The gurus have all told them that they shouldn’t think that way and instead should be talking about outcomes and value with clients.
Often, that is the best approach for setting the right expectations and closing the deal.
But if you want to price things right and generate a reasonable profit, you need to understand the importance of labor time to the transaction.
Successful agencies find a way to package up that time and sell it at a premium.
And that brings us to the reason that a lot of agency owners — and their gurus — are afraid of time-based conversations.
Rather than honestly valuing the actual time spent, they seek to use a sleight of hand to get the client to look somewhere else.
So what’s the practical impact of my way of thinking?
First, you absolutely need to know how many hours (and at what cost) you are investing in specific client projects — otherwise you have no way of knowing if you are doing truly profitable work.
Not tracking time is a bit like a restaurant not knowing their food and beverage costs when they set their menu prices. Or a manufacturer not bothering to calculate the cost of all of the widgets that go into making their final product.
Second, you need to stop devaluing your time.
That’s especially true for owners who are afraid to charge the premium that their expertise and experience deserve.
If you honestly can’t get that premium, then you are not doing the right kind of work and need to delegate it elsewhere.
Third, you need to stop being afraid of efficiency.
One of the biggest complaints I hear about AI and other technology is that if clients know you can do work faster they will expect to pay less.
And why not?
If your employee tells you that they can get their entire workload done in two hours a day, do you tell them to go ahead and take the other six hours off with full pay? I doubt it.
A lot of the things that we do today take less time than it did 30 years ago when I got started in the agency world. Some tasks — like photocopying and faxing — have pretty much disappeared in favor of quicker and easier solutions to communicate.
When we save time in one place, we should find ways to improve our value to our clients with the additional time we have available from our team.
Clients always figure out when you are charging them more for tasks than the time input justifies. It may not be immediate, but it catches up with you.
So stop being afraid of time or simply ignoring it.
Understand the true cost of the time that you are selling and set your prices correctly to generate strong profits.
But more than anything else, remember that no matter how you package it or what kind of bow you put on it to close the deal, you are indeed selling time.
