Why ad agencies, public relations firms and marketing firms should abandon hourly billing (and why you should refuse to pay hourly rates)

While ad agencies, public relations firms and marketing consultants tell you that you must hire them so they can show you how to stay on the cutting edge, most of them are still using hourly billing formulas that were old, tired and outdated in the 1980s. The old way of charging clients for time works against both the agency and the client.

The entrepreneurial website “Small Business Delivered” has this to say about why marketing firms need to stop charging by the hour and why you — the client — should refuse to pay outrageous hourly rates. Here is what they say:

When’s the last time you walked into your dentist’s or accountant’s office and said, “I want to buy some hours”? I’d bet some pretty good money that it was never. Instead, you ask to have a painful tooth checked or your taxes done.

That’s because people don’t buy hours…they buy solutions. Hours are an expense…solutions are an investment. And you always want to be talking about the investment.

In fact, hourly rates are rarely in your client’s best interest-or yours. For you, hourly rates…

• Double the trouble. Giving estimates with hourly rates means the prospect can take issue with both the rate itself and the number of hours you estimate. So now they have two fronts to try to needle you about when they want a lower price.
• Cause sticker shock at invoice time. Folks who don’t do the type of work you do or who don’t bother to track how much time they spend on similar tasks are often shocked at the number of hours it takes.
• Instantly brand you. Prospects want a fast and easy decision. If your hourly rate is much lower than the competition’s, you must be an amateur. If it’s higher, then you’re the “expensive” option.

Remember, the prospect doesn’t know it’ll take the competitor twice as long to do the work or that you automatically include something that they don’t. And since quality of work is so subjective, they may not even bother trying to judge it … because it’s much easier to judge based on price.

• Penalize you for experience. It’s ironic-the more you work with a client, the faster and better you’ll naturally get at their projects … but since you’re paid by the hour, you end up making less. Maybe I’m crazy, but that kind of math just doesn’t add up.
• Involve tracking every smidgen of time. Every phone call you take while you’re in the middle of something else. Every email you write. Heck, even the time you spent brainstorming on the way to the grocery store…are you having fun yet?!
• Mean renegotiating. If you’re going to keep paying the bills, hourly rates eventually have to rise. But telling clients you’re raising them is about as much fun as a root canal. And if they’re a particularly big client, you may end up having to justify the increase, negotiate your new rate, sign a new contract and so on. Every year or two.

Read the entire story (and get even MORE reasons you shouldn’t pay hourly rates) here. Good reading for both practicing marketing, advertising and public relations pros and the clients they serve.