Marketing Procurement

Charging for ideas: Man hours vs machine hours

What are you paying for?

“AI will change the conversation about the value of creativity this year; of that, I have no doubt. But the vital opportunity it gives you is to reassess the billing model you have with your agencies.”

Maybe 2024 will be the year in which the cost plus vs output-based argument finally reaches a crescendo. Maybe. For years, agencies and brands have haggled over hourly rates. I never quite got it as when your agency is billing hours, it’s actually better business for them to take longer, and work later. The system rewards inefficiency, it doesn’t really work for the quality of the work of the value you receive for the fee.

Output-based always seemed to make more sense to me. It flipped the risk to the agency. And the smart ones made ideas the currency. Ideas have a tangible value. And they are what your marketing teams want (and love) after all.

That matters. You see for instance, if you sell wine, you’re going to love wine and will love talking about wine. And your business will have wine flowing through its veins. And it will feel great. Almost as good as drinking the wine itself. Almost. 

If you sell ideas, you will love ideas. And if you love them, you will cherish them, and nurture them, and know everything about them – the conversation in your business will center around them, and the thing you love above all else will be ideas. The focus comes back to the commodity your marketing colleagues want.

If you sell hours, and your business is about delivering hours. All you will talk about and look at and think about is hours. In the big boardrooms you will hear conversations about recoverability and utilization and billability. But hardly ever about creativity. Perversely the drive to deliver value does not start with numbers. 

Ask ChatGPT. Actually don’t. But make no mistake it’s going to have a view and put an augmented cat amongst the pigeons.  There has been a huge conversation ongoing about how AI will affect pricing. Well, there is also a conversation to be had about how AI will affect value. 

AI, and the speed at which things are done, means charging for hours as a form of measurement is, put quite simply, dead in the water. If AI means agencies can make things more quickly, then you will already be asking yourself, ‘what are you actually paying for?’ Machine hours or man hours? It fundamentally challenges the viability of the business model. And even if agencies are upfront with this you still need to question what is the quality you are getting in these hours? Is it actually better creative? Or is it just faster delivery? Brings us back to ideas again doesn’t it?

For marketeers, while budget is critical, it will come down to the quality of the idea. Regardless of whether that idea comes from a human or a machine, quality is dependent upon training. That training can be one creative’s lifetime of drinking in culture, life experiences, human interaction and developing EQ. Or the sum total of human knowledge from the internet. Which has more value? And how do you arrive at an hourly rate for the LLM? Does that involve the $Billion invested by the tech business or the £0 by the ad agency. 

Another consideration should be that if your agency is using off-the-shelf free mass commercial AI (and sharing your data with all and sundry), the value is perhaps down to the skill of the prompt engineer (we have one). But if they’re using a bespoke fine-tuned LLM (Large Language Models) that has been very specifically developed using lavishly sourced data to be the best in its class at a certain task (we’ve building one of those as well) – shouldn’t the price be higher to reflect the competitive edge that specialized augmented thinking can give your brands?

AI will change the conversation about the value of creativity this year; of that, I have no doubt. But the vital opportunity it gives you is to reassess the billing model you have with your agencies. If they’re not using AI for your advantage, I’d want to know why. If they are using AI, then while you are in the conversation about the rate change, you can use it to move them to an ideas over hours model. Hopefully, they won’t start to hallucinate. 

About the author

Jon Williams is Founder and CEO of The Liberty Guild