This week I was at the ANAs Financial Management Conference with Caroline and Scott from my team. As always, the ANA deserve a big hand for putting on a superb event. A job well done!
Thinking back to the event…. what happens when you get hundreds of Agency leaders in one place? A LOT of deep, interesting conversation. As a former agency CEO myself, I can assure you of that. We love to chew the fat, every one of us holding strong opinions on the leading topics of the day.
This year, it won’t surprise you to learn that #AI has dominated the chat. And why wouldn’t it! In the last 18 months we’ve seen it explode onto the business agenda. You can’t move an inch without seeing the words Generative AI lit up in bright lights. My inbox gets filled daily with sales messages promising “AI-powered this” and “Intelligent” that.
It’s easy to get swept up in the hype and become carried away with the astronomic projections of efficiency improvements and the time savings that it’s going to bring to businesses. At the Conference, we heard about the latest AI innovations and how they will revolutionise how agencies work, it is impressive – and its just the beginning.
Yet there was an elephant in the room that very few people we’re willing to address. Namely, what’s the impact all of this is going to have on a business’s bottom line? Hint- it’s not all positive.
Most advertising agencies (along with many other professional services businesses) desperately need a wakeup call. Yes, AI will be amazing, it’s going to change the way we do business forever. But if you’re still using old-fashioned Time/Hour based billing, you’re going to be in for a nasty shock. Why? Because how can you justify charging the same amount for a project, when you’ve cut 40% of the billable time out with ‘AI powered’ tools. Your clients simply won’t wear it.
I recently saw research that showed whilst most companies planned on using AI in their businesses, 0% actually had an actual plan for it. (That’s right 0%, the numbers were so small they couldn’t even make 1%.) It’s not surprising therefore that they don’t have a plan for how it will impact their bottom line if there isn’t even a plan for rolling it out in the first place.
We are right now at a significant inflection point in time. Today, is therefore the perfect opportunity for companies to start making fundamental changes to the way they price their work. And, in my view, ‘Deliverable-based pricing’ is the only way to go.
Pricing by roles and hours, is a dead-end option. So much so that for agencies, SCOPE Better created (using traditional AI, complex algorithms and machine learning) a set of over 400 deliverables from, millions of fee proposals. We shared these as a baseline to help move agencies over to outputs and deliverables.
The sector needs to kick its dependency on roles, rates and hours once and for all and start charging for the end result. Why? Because if you charge by output, then it doesn’t matter how long it took to complete a project or what tools you used to get there. It’s the only way to stop AI taking a chunk out of your bottom line.
I’m not going to sugar coat it and say it’ll be a walk in the park. Changing your pricing model is a huge undertaking. Yet with the dawn of the AI Era, you have a golden opportunity. Clients know AI is going to change your businesses model (it’ll probably be impacting theirs at the same time.) The door is therefore already open.
The timing couldn’t be better to seize the opportunity and get ahead of the curve. If you start making these changes now, you’re set to be one of the companies who makes AI a success, genuinely able to get the double win of improved efficiencies and quicker delivery times whilst simultaneously protecting your bottom line.
