Billable Hours and the Flat Earth

For years after mariners sailed beyond the horizon without plunging to their deaths, the question of the Earth’s shape was hotly debated.  Reality be damned; we’ve survived perfectly well on this giant table – who needs a Big Blue Marble, anyway?

It feels like the marketing communications industry is in the midst of a similar debate.

In one camp, we have the Purveyors of Basic Math.  An assignment is considered; the number of hours estimated are multiplied by either the various hourly rates of the team members to be involved or blended into a single rate that makes the math even easier for the prospective client.  In theory, it makes for an apples-to-apples comparison between agencies.  Clients can determine how well they like an approach within the context of the estimated amount and cost of the labor involved.

In the other camp, we have, well, lots of other camps. But one rising unifying principle seems to be compensation based on value, either perceived or derived. So, we’ll call this camp the League of Extraordinary Admen.

The League looks at an assignment, determines level of effort and solution’s potential value.  The solution is then priced and provided to the client, along with a Statement of Work that clearly defines deliverables, timelines and performance criteria.  Clients can then determine if the solution offered is worth the price quoted.  Hourly rates aren’t required in the quote; all the client needs to do is decide what they’re willing to pay for the solution.  If the quote is $100,000 and the agency can deliver the solution in an hour, then the hourly rate is $100,000; if it takes 100,000 hours, the hourly rate is $1.00.  It’s up to the League to make sure achieved hourly rates are delivering the best margins.

To-may-to, to-mah-to, you say?  In both scenarios, hours are being calculated and multiplied by the hourly rates of the team members involved.  The only difference is client transparency, right?  Actually, there are a couple of subtle but important differences.

The first difference is internal.  If you’re billing hours, you’re incentivized to use all available hours to complete your task.  If your productivity is determined based on your billability and there’s no backlog, you have no incentive to deliver your greatness as expeditiously as possible.  You’re also necessarily concerned about bringing others into the mix, because billable hours are perceived as a zero-sum game (an hour for you is an hour I don’t get anymore).  In an increasingly interdependent, multi-channel world, we should be rewarded for connecting minds, not worrying about putting ourselves in hours-deficit situations.

In a project-oriented world, efficiency and collaboration are rewarded.  Get the best ideas delivered quickly and everyone profits.  I’m not suggesting cutting corners; I’m saying that incentives should be tied to ecstatic clients and solid margins, not racking up billable hours.

The second difference is external.  The sourcing pendulum has swung away from strategic partnerships between marketers and agencies; we’re suddenly being referred to as suppliers and spending more time with procurement spreadsheets than helping clients enhance their businesses.  We’re being beaten up by number-crunchers who have little to no interest in winning the hearts and minds of an increasingly distracted marketplace; their compensation comes from helping companies manage the expense line, not enhancing the top or bottom lines.

If we’re going to survive, we can’t just compete on hourly rates and nuts-and-bolts efficiency.  We absolutely have to deliver more with – and for – less until we can prove to our real clients that what we do is worth more than Basic Math.  Customers are won with Extraordinary Admen.  Our best shot is to incentivize our teams to drop jaws and deliver results that are truly valued by business owners.  The next generation of Mad Men will be led by talent that shares in the profits that result from creating passionate customers for clients while maximizing the margins derived from value-based pricing.  We are only worth what we believe we’re worth – and the results we’re capable of delivering.


One thought on “Billable Hours and the Flat Earth

  1. Great post, Dave! As someone who has spent the majority of their professional life trying to create engaging, take action marketing concepts—it’s never felt right having a ticking clock in the room!

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