On the Hour: Why the traditional hourly billing model is broken

—Creativity and the best ideas have little to do with timesheets, or time of day for that matter. Joanna Track says it’s time for the ad industry to think differently—

While the old adage “time is money” has a time and a place, it’s not necessarily always on the money.

While I agree that an investment of time inherently comes with a cost, I also feel that too many businesses—and agencies in particular—take the concept too far and become beholden to the billable hour, to the detriment of creativity and profitability.

As someone who has operated, and worked for, agencies of varying sizes, I’ve been on both sides when it comes to setting or adhering to time management, and billing clients. And what I’ve seen, time and time again, is that there is almost always an inverse relationship between doing the best work for your client, and focusing on billable hours.

Herein lies the problem. Creativity doesn’t work on a “punch in, punch out” system. Some days it’s clicking, and some days it’s not. A brilliant idea might come to you in the shower, or it may take days of reading, seeking inspiration, and even, dare I say, not working on it at all. Who is supposed to pay for that? The client? I don’t think so.

There’s also the human factor. Until we are all overtaken by AI (which is a story for another day), we each have our own personal style and speed at which we work. If it takes me one hour to accomplish something that would take someone else three hours, who should gain from that efficiency?

In the traditional models I’ve seen, there are many losers in that scenario. The efficient person is penalized for not having enough billable hours (or they fudge their timesheet), and the agency is worried about not making enough money (or they’ve overcharged due to said fudged timesheet).

And then there’s the reverse, yet equally frustrating, scenario. Say you want to bring other members of the team into a project, be it for fresh eyes, as a training moment, or for some added support. The client should not pay for this. Yet, so often, they do. I’ve seen internal status meetings with 10 people where clients have been charged upwards of $2,000 for the team just to get their sh*t together! It’s no wonder brands are skeptical of the value they are getting for their money.

It’s this myopic thinking that leads to beefed-up timesheets, frustrated clients, and an inefficient use of people’s time and skills.

But it doesn’t have to be that way. By shifting to project- and/or retainer-based models, creators can create and clients know what they are paying for, which is the output. It also allows the provider to invest in their client at their discretion. If my team decides to go the extra mile for a client (as they often do), it’s because they know it will help that client’s business. And if it helps their business, it helps ours.

I’ve also seen how this model empowers my team to do their best work. I set an output goal (e.g., a strategy, email copy, etc.) and a deadline. And then I give them autonomy to manage their time and creative process. Climb a mountain or sit on your sofa, it doesn’t matter. Just do your best work and do it by the agreed-upon deadline.

And before the naysayers start naysaying about how this isn’t a productive use of employees, I would say look at your profitability on a macro level and get your eyes (and arse) out of the weeds. Most likely, you are paying this poor soul a fraction of what you are charging the client (another rant for another day). And you are also likely paying them a salary, not an hourly wage.

So if you give this individual their output requirement and a deadline, then let them figure it out. If they want to do more, let them. Not only will they feel more ownership, the end product will be far superior.

Other side effects of doing business this way include higher employee retention, happier clients and better results.

Do I completely disregard how much an employee or contractor costs? Absolutely not. But I focus on the big picture and use Economics 101: Our company generates X monthly or annual revenue, so it needs to cost us less than Y to make our profit. It’s not easy, but it’s simple.

I’ve put my money where my mouth is on this. Maybe it’s about time others did too.

Joanna Track is the founder and co-partner of Good Eggs & Co.