Bye bye hourly billing and how to create a successful collaboration

Bye bye hourly accountingThere are many different types of agencies and thus also a variety of pricing models. Over the last few years, we have dealt intensively with this topic, and 2 core aspects have emerged: Value and Value Creation. These two concepts are the cornerstones of our agency-client relationships and are a common thread running through the way we work. Let's first take a look at the most common pricing models.

Billing per hour / on an hourly basis

This model is the best known and most widespread in the agency world: time-based billing for agency services. The basis here is time recording on the one hand and a fixed hourly rate on the other. These two are ultimately combined and invoiced. The biggest advantage of this approach is clearly its simplicity. Everyone can understand how the price is made up. But that's where the advantages end, from our point of view. In the second column of the comparison, the disadvantages weigh heavily. Let's start with the unpredictability of the time involved. Of course, it is possible to estimate in advance how much time a particular service will take, based on experience.

How much does an agency cost?But how reliable are such estimates? A precision landing is seldom achieved here. This also results in inflexibility. Once a time frame has been agreed upon, there is no room for changes, unless the order is changed. But then the supposed simplicity of this model is already over. The biggest drawback to this pricing model is the focus on the wrong values. Instead of hourly rates and billable time, the focus should be on something completely different: The project, the customer, the solution-oriented and value-creating approach. The time spent has no significance whatsoever with regard to the result and thus the value of the service. What counts is the result. So why charge anything else? In our opinion, hourly billing is the worst possible tool for any creative collaboration.

Package prices or project-based billing

Let's move on to the next pricing model, project-based billing. This model is also quickly explained. You agree on a project scope and a fixed price, and you're ready to go. The important thing here is to agree on the services and not on the applied hours, otherwise you will automatically find yourself back in the hour-based billing. The advantages of this form of billing are its simplicity and the fact that it is no longer based on hours.

Package prices and project-based billingWe have increasingly used this billing model in the past for projects such as logo design and website creation. A potential difficulty here is also the unpredictability of some projects. It can always happen that the desired range of services changes or certain aspects are not sufficiently clarified. Here, you have to talk to each other openly, honestly and transparently - often, supposed problems are solved by an appreciative dialog alone.

Retainer or fixed recurring packages

Retainers are usually fixed service packages defined on a monthly basis for an indefinite cooperation. Classic retainers are used, for example, for website maintenance, SEO or social media support. The scope of the retainer can be defined via hours or the services to be provided / results. Particularly for ongoing processes, these flat rates for services are an effective means for mutually successful cooperation. Mutual transparency is important here, so that goals and the services to be provided are aligned. For both sides, this model offers planning security at various levels such as budget and capacity.

Performance-based or profit-sharing

Performance-based billing is always suitable when performance and result can be directly linked. A good example is an online store. If the monthly store revenue increases as a result of various online marketing activities, this can be allocated quite easily. This model is difficult or even impossible for long-term, complex projects with results that cannot be clearly assigned, such as a rebranding. Here, a different model should be selected if necessary.

We often hear about problems with the success-based pricing model. These always seem to arise when one side uses the idea of success disproportionately and manipulatively to put pressure on the partner. It is obvious that such a cooperation cannot work for a long time. Such cooperation should always be built on a foundation of mutual trust and appreciation, where "success-based" means cooperation that is comfortable for both sides. Implemented correctly, the success-based model thus offers growth opportunities for both sides without focusing too much on the additional performance incentive. We recommend this model for projects such as online stores, online marketing and lead generation.

Value-based billing

In this form, as the name implies, the added value created for the customer comes first. This should always be the goal anyway, but is often hindered by hourly-oriented work. If you get involved with this pricing model, you say goodbye to hourly rates, daily rates, flat rates and the like. What sounds impractical in the first step opens up new ways for better collaboration between brand and agency in the next.

Joint success

This model requires a high degree of communication and mutual appreciation, which is why the resulting project is guided along ideal lines. Such cooperation is perceived by all parties as extremely pleasant and goal-oriented and frees them from unnecessary constraints.

Going new ways

There is no such thing as the "right" price. Just as there is no one right type of company or one right marketing strategy. If a reader was looking forward to a prize at the end of this page, we have to console him with a "sorry". In return, we would like to share the following with you:

For many people, entering into a collaboration with a service provider that does not involve time recording initially arouses uncertainty. Yet billing on an hourly basis is the model with the greatest planning uncertainty, since the result is completely open. Who knows whether the brilliant idea for the next big logo will be put down on paper in 10 minutes, 2 hours or 3 weeks? As an agency, we recommend a long-term reorientation towards better values such as value creation, appreciation and mutual trust. Then it will also work with the "advertising".

Frequently asked questions

Topic Billing, Pricing, Cost Models

What are hybrid contracts?

A hybrid contract is a mixture of different pricing models. For example, a fixed basic lump sum with variable additional services can be agreed. This mixed form is used, for example, if there is initially too much planning uncertainty for a fixed retainer.

Why is the question of price justified and even important?

Every company wants to know what costs and risks it is taking to improve its own situation. Weighing up these components is an essential part of the decision-making process. As an agency, we are not only concerned with the creative aspect of our work, but also intensively with the (economic) benefits for our clients. Since the value of agency services sometimes only emerges in the uncertain future, pricing is an important process in which we are happy to support you.

Agency & customer becomes a we.

Creating great things can only be done together!