After a development process decades in the making, artificial intelligence (AI) has traversed the boundary between science fiction and technological fact, and it is now being applied to an array of processes by both businesses and consumers.
For agencies, this means the ability to work faster and smarter while achieving greater accuracy and customer service in a host of areas, from research and data analysis to copywriting and image creation to name a few.
It’s game-changing in an unreservedly positive way. However, it’s not without its complications, and one such difficulty is pricing. As things stand, most agencies rely on time and/or effort-based pricing, but AI is going to disrupt that.
The problem of AI and hourly pricing
Time and/or effort-based pricing has become the prevalent pricing model for agencies because, on the face of it, it’s the most straightforward to implement.
Once you know how many hours a project has consumed and the people who provided them – copywriter, designer, project manager – it’s simple to put a price on it as billable hours.
The problem is that when you use time/effort-based pricing and start deploying AI – as 67 per cent of Middle Eastern and African businesses are planning to do within the next five years – the time routinely put into core elements of your work will fall, and this will have a direct impact on your income.
So, do you pass the savings on to your customers and devalue your work in the process? Do you avoid AI, and fall behind your competitors? Or do you change your pricing model to complement the new way of working?
Considering deliverable-based pricing
On the surface, time and/or effort-based pricing seems the perfect fit for agencies, but what benefit does it bring beyond simplicity? It doesn’t ‘sell’ your services.
It doesn’t differentiate you from your competitors. In fact, more than anything else, it generalises and obfuscates your services, while ensuring that your business remains indistinct from your competitors. Deliverable-based pricing, on the other hand, can offer more.
Deliverable-based pricing – also known as asset or outcome-based pricing – moves the emphasis away from the time that goes into a project, and instead concentrates on the specific elements that the project can deliver.
So, rather than pitching for the time of your various team members, you can offer clearly defined named services – exhaustive market research, ideation, brand book creation, social media takeover – whatever it is that will fulfil your client’s needs, and you can package it up in the most appealing and understandable terms possible.
This avoids the AI problem because when you’re selling services rather than time, it doesn’t really matter how the work gets done, as long as it does.
It also allows you to present your services in the most innovative and engaging manner to capture your client’s attention and build company growth. Before you can reap the benefits, however, you have to put in the effort to implement your pricing model change.
Adopting the right structure
Your pricing model is a central part of your business, and the prospect of changing it can be daunting, but it may be easier than you think.
The premise behind deliverable-based pricing is the creation of a cost-plus framework, so once you’ve worked out what goes into the completion of each of your services – people, skills, time, tools, other resources – it’s relatively easy to assign them a value.
If you hit any hurdles, there are tools, such as configure, price and quote (CPQ) software, available to support you. Once you’ve worked out a value for each service, you then have a menu from which you can generate detailed quotes and pitches that will position your services in a way unlike many of your competitors. Because while the services may be the same, your framing can be totally unique.
Annual spending on AI in the Middle East, Türkiye, and Africa is set to reach $7.2 billion by 2026, and yet, according to the Simon Kucher Institute, zero per cent of firms have a plan for AI’s impact on their revenue model.
There are a whole range of reasons for this, but the primary one must be that the surge in AI applications and adoption has happened far more quickly than anyone predicted, so we find ourselves racing to stay ahead before we have the infrastructure to support the changes. However, there is still time.
AI uptake is increasing, but the technology is not yet ubiquitous. Now is the time to put your infrastructure in place to allow seamless AI adoption without impacting your revenue or disrupting your business.
You have the time to carefully craft your pricing structure and onboard the relevant tech, without customer or industry pressure, allowing you to create the perfect framework to maximise your business’ potential. Or you could wait and see, hoping that change becomes unnecessary… Until it isn’t.
It’s your agency, and the choice is also yours, but AI is coming, and it’s bringing wholesale change. Will your agency be ready?
By Tracey Shirtcliff, Founder and CEO of SCOPE Better
