The Meter is Running
I recently had three separate discussions over chargeable fees; a client, a prospective client and a colleague. We discovered that the industry we operate in hasn’t quite evolved in the manner of tracking progress in creative projects. Intended progress shouldn’t be measured by day rate or manhours. Why? Because you can’t measure the value of innovation or creativity in hourly units.
Did you know that billable hours were first popularised by the American Bar Association to boost its member’s salaries?
It thus begs the question: Why are so many 21st century creative folks and strategists still measuring creativity, innovation and work delivery after lawyers in America from the 1950s?
Billing projects by the hour saps morale. It’s bad for the agency, because it either forces habits like time-stuffing and doesn’t necessarily reflect the value they add. Just as bad, it makes teams rush when they need time and space to develop ideas.
It’s bad for the client too. Instead of thinking about outcomes, we focus on output. How many hours did that take? Could we rush the next sprint? Can we hasten the turnaround time? Why haven’t we made more progress?
Old habits die hard
Many moons ago, billing by time made perfect sense. It helped businesses earn more and receive bonuses for extra time spent on client work.
This pricing model doesn’t fit anymore. There are four big reasons for this:
As technology speeds up, we spend less time on processes. However, this shouldn’t mean the value of our service goes down.
And subsequent to the above, it doesn’t mean that an agency has a lower cost and / or charge lower because less time on process doesn’t equate to less contact hours. The need to connect with the client for clarity of brief, delivery of direction, creative expressions and messaging remains paramount.
People work at different speeds depending on skill and the complexity of messaging the creatives. More experienced people shouldn’t be punished for working faster or urged to take longer.
Most importantly, the value of our work should be based on the value of outcome delivered.
Avoid the race to the bottom
Some 9 years ago, Ron Johnson while helming JC Penney made one of the single largest strategic retail marketing mistakes in the history of retail in America. “Pricing is actually pretty simple. Customers will not pay literally a penny more than the true value of the product,” said Ron Johnson at that time.
If everyone competes on price, seemingly ‘cheap’ service providers can offer a more attractive prospect. Imagine an individual staying with his mom or operating out of a wifi-enabled café compared to a full-suite company that must pay lease and utilities? This is a false economy.
You wouldn’t want to measure the value of your brand’s core proposition in something as basic as hours. The original Swoosh cost USD 35 and brought enormous long-term value for Nike.
Thinking in a linear ‘X amount of time should produce Y result’ is unhelpful. That’s why we also shouldn’t measure in days.
For example, we should look at asset value rather than output in the revenue management industry. If investors aren’t focusing on output but ROI, then the rest of us should follow suit.