Value vs. Time based accounting - How do we charge for innovation?

There is nothing necessarily wrong with charging for time, or even shooting for a fixed fee or even fixed fee "plus" approach. However, in this ever-changing, advertising technology landscape, the concept of being able to charge enough for our innovation and creative ideas can be lost in the shuffle.

When we talk about collaborating or being a partner with our clients, what we can bring to the table as value (and perceived value) is extremely important.

If we charge $150,000 for a website that brings in an increase in business for the client by $15 million dollars, the client got an unbelievable deal. What seemed like a pretty good sum at the beginning, doesn't seem like a lot of compensation for such a big improvement. It was a great win for the client from a financial perspective, but a loss for the perceived value of the agency. Sure, the agency may get an award or two out achieving such results, but the agency lost out. How will the client perceive the agency in the future? Did innovation happen at some point in this process that caused the large jump in revenue? And if so, what perception does the client have of that innovation?

I think sometimes it even goes back to the way we frame what we do. Even our creative briefs sometimes focus more on the what than on the why. Our clients (and us) often focus on doing the newest thing, rather than discussing the why we should be doing it. So we often lose focus on the real ask by focusing on tasks. 

Did this $150,000 project create a new way of closing a sale that didn't exist before, for the client, the category or the technology? Was it more efficient? Did it empower users with a new way of purchasing?  What was the disruption that occurred? This answer to the questions is the value that was brought to the table. 

As we embrace innovation in how we work (through rapid prototyping, agile & lean PM, our embracing of new technologies and embracing cultures and processes that allow innovation to flourish) we need to be mindful that innovation is something more valuable than just a budget of hours. 

When we use to talk about bringing value to the table, it was in the form of the "big idea." Now when we talk about value, we talk about business changing ideas, that are reductive, fluid, disruptive, expansive (and yes, creative). This is the true value that we can bring to the table. 

Agencies can provide value and innovation to a client in several ways. Innovation can happen at the product, process, marketing and organizational level. Be mindful of the way you present your work, how you frame your projects with a client, and how you present strategy & planning. Each step in this process enables you to support for charging the true value of your work. Be innovative in your approach to contracts and don't short change the value of your ideas for the sake of meeting a budget. 

Many of today's agencies are living the concept of charging for ideas instead of time. They are taking risks for the potential of greater rewards. They have a sense of DIY, and place value in the statement "we make stuff." The also collaborate with their employees, and share ownership of initiatives and unique projects.


Now back to the old skool of agency billing; the next few articles below feature some simple formulas (sans EV/EBITDA & PE) for figuring out how much to charge people for your services.