Are ad agencies ready to embrace an hourly-based billing model?

With agency commissions reducing to as low as 0.25-0.50%, advertising agencies have started embracing the hourly billing model along with models like retainer, performance and project-based. 

Many industry players strongly believe that this model offers flexibility, particularly for short-term projects or specific deliverables and both agencies and clients benefit from the adaptable nature of hourly billing, allowing for greater control and transparency throughout engagements.

Prasad Shejale

Prasad Shejale, Founder of LS Digital, mentioned that they have incorporated an hourly-based billing model due to the preference of some international clients who now pay based on the hours worked.

"We have also implemented this approach with some Indian clients and many of them are comfortable with it. I believe it's the right way to go because charging based on knowledge per person is fair. It's a beneficial model for agencies," added Shejale.

"We charge purposefully to provide quality talent and optimise results, rather than simply doing what's easiest for the brand. This approach has no drawbacks and is essential for progress,” he commented.

Shradha Agarwal

Shradha Agarwal, Co-founder and CEO, Grapes, told BestMediaInfo.com that in scenarios where there are well-defined projects with clear deliverables or when clients prefer a pay-as-you-go approach, project-based or hourly billing may be more suitable, catering to diverse needs and scopes.

Meenakshi Menon

Meenakshi Menon, Founder, GenSxty Tribe, seconded, “Hourly rates make sense if one is calling on specialised skill sets that are not part of the standard agency team and offering.”

It’s not that ad agencies now only want to work only on an hourly basis. They now are finding the right balance between retainer, project and hourly-based remuneration models.

Mayur Gole

Mayur Gole, Co-founder, Verve Media LLP, said, "At Verve Media, we have found success in a balanced approach: 70% retainer, 20% project-based and 10% hourly. This mix aligns with our diverse client needs and project types."

Furthermore, he mentioned, “Hourly billing offers flexibility, transparency and predictability but can lead to challenges like perceived overcharging or limited scopes due to budget constraints. Our focus is on value-based models and hybrid approaches that prioritise client goals and incentivise results. This approach not only builds trust but also demonstrates the tangible impact of our creative services.”

While ad agencies are embracing hourly billing models, the retainer fees model still reigns the remuneration models among ad agencies.

Rohan Mehta

Rohan Mehta, CEO, FCB Kinnect and FCB/SIX India, said, “A core value we instil in our kinnectors is that they must ‘own the brand’. Becoming brand custodians does not happen over a short-term engagement. We strive to be value-adding partners and not vendors. So, for us retainers help build these deep relationships with the clients.”   

Similarly, Agarwal highlighted that retainers are often preferred due to the stability, predictability and long-term commitment they offer, providing a stable monthly income and facilitating effective resource planning. They even help in nurturing existing client relationships, allowing a deeper understanding of their business goals and delivering strategic, continuous support.

Agarwal believes that while it's a fitting choice for projects with erratic workloads, fluctuating objectives, or repetitive creative work, for creative agencies, hourly billing might be a good option, depending on the project dynamics and client preferences.

“For creative work, which requires a blend of skills, experience and inspiration, it can be challenging to measure bills in terms of hours alone. Therefore, striking a balance between both hourly billing and other models, such as project-based or retainer billing, can be beneficial here,” she said.

Menon believes that hourly remuneration is the last thing agencies should do because it’s very difficult to time your thinking on a brand. “Unlike a lawyer or a consultant, the creative team at the agency is meant to immerse themselves in the brand, understanding the consumer and being able to harvest insights. It is not a simple advisory role where you react and recuse,” she said.

Menon emphasised that agencies should work on retainers based on work scoping and business complexity.

“The hourly model may deliver a lower cost to the client but that’s money wasted in my view. You need to have an agency that is thinking on your behalf even when there is no brief on the table. That’s when real magic takes place,” she said.

Jagdish Acharya

However, Cut The Crap’s founder Jagdish Acharya told BestMediaInfo.com that they charge clients on the basis of value addition, not on the number of hours or the number of people deployed by the agency. “The deliverables are what should concern a client too unless the work is low on value and high on volume. In the same vein,  hourly billing can work for a content agency, not a creative agency.”

He explained that in contrast to the industry practice of retainer fee, they prefer the limited-period assignment to the annual retainer model for agency compensation.

"For a retainer account, we need to be convinced that the workload is spread out evenly through the year, and not skewed towards one big campaign. Most brands today can afford one big campaign a year, not more. In such cases most of the work is done by the agency, in say, 3-4 months while it stands to receive only a fraction of the fee as it is normalised across 12 months of a year in a retainer arrangement," Acharya said.

"On the other hand, assignments are priced for deliverables in a limited period of time. The agency has to work on a different ethos to work with good talent and produce great work in such cases," he added.

Amidst shifting industry norms, top leaders favour a model where they are compensated for their expertise rather than just the channels they use. As a result, understanding the scenarios where hourly billing models are advantageous for agencies becomes increasingly crucial.

Info@BestMediaInfo.com