Want to waste everyone’s time? Get billed by the hour.

If you’re still using a ‘rate card’ and / or still being billed by the hour, you’re not alone in wasting time trying reconcile what you thought you should have paid for something, versus what the final bill looks like.

We continue to have marketers calling us for suggestions on alternative fee structures and solutions. And because it appears to be a bit of a recurring theme, I thought I’d share some thoughts on where the chief pain points are – and how to alleviate them.

And it’s not just marketers either. While marketers often describe being billed by the hour is ‘tedious‘, ‘expensive‘, ‘a work of fiction‘, ‘unintelligible‘ or (at best) ‘problematic‘,  agencies often complain billing by the hour leaves positions their work as too ‘cheap‘ or ‘undervalued‘.

Some of the pain-points we come across have become sources of major disagreement between marketers and their agencies, so it’s perhaps helpful to identify these root-cause trouble-makers:

Unpredictable costs 

Unless hours are a capped in advance, the cost for particular services aren’t fixed and can vary from project to project. While marketers often look the rate card to negotiate reasonable hourly rates, the process is flawed because while the hourly rates may look good on paper, they don’t take into account the number of hours required to actually get things done. And so the disagreement begins.

It’s too expensive

The number one complaint we hear from marketers is they believe hourly rates, combined with the number of hours are too expensive. My first question when we hear that is always, “what do you think it should cost…?” Invariably, the answer is “I don’t know – but less.” It’s another source of disagreement when using a rate card as a guide to fees.

Resources

Hourly rates can’t take into account how many resources – or the seniority of resources – it takes tackle particular projects. And the conversations we’ve been hearing are that marketers believe they’re being short-changed on the quality or seniority of resources, while agencies argue there’s not enough money in the budget to staff the way the client would ideally like.

Administration

Billing by the hour seems to be taking up a huge amount of time and effort to administer. In addition to agencies having to keep on top of resources to complete their time sheets week by week, they then have to input all that data to be able to calculate how much to bill. Marketers then have to evaluate invoices – again, often with little knowledge of how much time particular tasks should really take.

Lack of confidence

Because marketers have a tough time understanding how long things should take, who and how many resources should be involved, marketers are naturally wary of agency bills when they land in their inbox. This translates to a lack of confidence – on both sides – that either the invoice isn’t correct, or from the agency perspective, that the client will push back on the cost.

Five root-causes of financial conflict – all stemming from hourly rate methodology.  Sound familiar?

WHAT TO DO ABOUT IT

The solution to most of this angst lies in creating more transparent remuneration models that both marketers and agencies can agree on before work starts.

While you could argue this is called ‘an estimate’, it’s only a band-aid solution because – if you’re like most marketers – you don’t want to be buried under more administrative paperwork while you’re trying to get the real work done.

At a macro-level, here are three golden rules to help marketers proactively eliminate frustrations and disagreement when it comes to agency remuneration:

Align goals and objectives

Marketers and agencies should be aligning priorities with clear definitions of what success looks like, and specifically how your agencies need to contribute to be truly successful.

Define your scope of work

The heart of any remuneration agreement needs to be for marketers to define their annual scopes of work with as much granularity as possible, and agree on a fixed price and agency staffing plan to fulfill that scope of the work. This approach front-loads the negotiation leaving the rest of the year clear to get the work done.

Agree on the resource plan

Defining costs around a scope of work will only get you so far unless you agree on the resource plan to go with those costs. Ask for a granular look at who’ll be working on what, and evaluate and articulate specific seniority requirements to avoid disconnects between expectations on both sides.

So, what’s it to be?  Wasting more time trying to reconcile hours?  Or constructing a better remuneration agreement that creates better value for everyone?

STEPHAN ARGENT

Stephan Argent is Founder and Principal at Listenmore Inc offering confidential advisory to marketers looking for truly independent insight and advice they can’t find anywhere else. Read more like this on our blog Marketing Unscrewed / follow me @StephanArgent

Photo: Craig Sefton
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