The impact of AI on marketing agency pricing

By Tracey Shirtcliff, founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.

If you run a marketing agency, you’re probably already aware of the potential artificial intelligence (AI) may hold for you. It’s coming into all sectors of business, supporting a whole range of professional services, from research to ideation and content creation, saving time, money, and effort. It isn’t yet being used everywhere, but the likelihood is that there will be at least a small place for AI in every ad agency very soon, and it’s going to change the way all agencies operate. For the most part, this has to be seen as a good thing, carrying a tranche of benefits. If you look at it objectively, however, there is one glaring disadvantage – unless you change your pricing model, AI is probably going to reduce your revenue.

The problem with AI and pricing

The vast majority of ad agencies rely upon the time/effort-based pricing model. The charge for each project is based upon the hourly rate of the individuals involved in its completion. What the model has lacked in sophistication, it has more than made up for in simplicity. The problem is that if AI reduces the manpower that goes into your projects, when you’re using the time/effort pricing standard, you will inevitably have to reduce your fees – even if your standard of work remains the same. It not only seems unfair, it undervalues your services, and over time it’s likely to cause financial difficulties for your business. So, what’s the solution? If AI is beneficial to your business but incompatible with your pricing model, it’s probably time to change the way you bill. 

A new pricing model for a new era

If your agency uses time/effort-based pricing, it’s probably because that was the norm when you entered the market. You may not even have considered other options, because hourly pricing was already in use by all of your competitors and you wanted to compete on a plain that your customers were familiar with. Even when you take AI out of the equation, time/effort-based pricing may not be the best solution for marketing agencies. With its focus on time, it certainly doesn’t sell your services or tell your customers what you do. For that, you need to look to deliverable-based pricing. 

Deliverable-based pricing – also known as asset or outcome-based pricing – allocates a value to each of the individual services an agency offers, allowing every pitch or quote to be openly itemized. Which not only brings transparency to a business, but enables the overt promotion of what you do without putting any restraints upon how you achieve your outcomes. Whether you deploy AI and other technologies, or rely entirely on people-power, what matters most is what you deliver to your customers, not how you deliver it. The only drawback is that you have to take steps to make that transition between pricing models.

Adopting deliverable-based pricing

When you adopt deliverable-based pricing, the first step is understanding and assigning value to each of your services. What you deliver to your clients is so much more than your time – it’s the knowledge, skills, and ingenuity of your team, and it’s what your services can do for their businesses. So, of course, you have to factor in time when ascribing value to your services, but you also have to look beyond that, to see the full picture. If you know your business well, and what really goes into each service, you’re in a great position to start. If you’re not, then configure, price and quote (CPQ) software is available to help. However, the primary focus needs to be on the creation of an itemized menu of services that you can offer to your clients, and use as the backbone of your business. Once you’ve done that, you’re ready to stand out from the crowd and offer something different to your customers.

AI is driving the move away from time/effort-based pricing, because with AI, the pricing model is no longer fit for purpose. However, AI is not the only reason why it’s time for an industry-wide pricing change. Time/effort-based pricing doesn’t allow you to maximize marketing potential or provide you with an opportunity to differentiate your brand. As branding specialists, your role is to lead by example. With deliverable-based pricing, you have the opportunity to do that, and to do it before many of your competitors.

Tracey Shirtcliff, founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.

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