End of billable time
As AI takes on more business processes, more companies will have to rethink their approach to charge charging. The reality is that many traditional time-based pricing strategies have become obsolete. And it's not difficult to see why. If AI can dramatically reduce the time it takes to complete a project, how do you justify billing on a timely basis?
Billable times associated with law firms have typically been a pricing model of choice for companies in a variety of sectors, including marketing and advertising agencies, consulting companies, IT consultants, architects, accountants and more. Questions are raised about the ethics of claims at the hourly rate, but that is the increase in the presence of AI in so many tasks done by companies that are forcing rethinking. Just recently, S4 Capital announced that it would move to output-based pricing due to the impact of AI.
Billable time call times
Changing the pricing model to assign value or output to a service poses a major challenge for many businesses. ScopeBetter is a pricing platform designed to help you migrate from a time-based billing model based on output and deliverables.
“We've seen you get a lot of money,” said Tracy Shirtcliffe, founder and CEO. “In the past seven years we have convincing and moved a considerable number of smart working businesses. Some have 'get it', but many have not needed a move. Over the past 12 months, this has changed.
Measure the impact, not the effort
Small and medium-sized businesses see AI as an opportunity to level the arena and jump large organizations. However, many believe it's not just a transition from time-based pricing to value-based pricing. It is about shifting focus from the perspective of the concept of values in the AI era. This will stop the effort measurement and promote impact measurements at a time when many process-based tasks will be faster and cheaper instead.
Coach Brick runs an outcome-based pricing strategy, showing clients that they are more interested in the outcome than the time it takes for the business to achieve it. Founder Amale Ghalbouni said: “You need to have a deeper understanding of scoping, clearer communication, and a deeper understanding of client success. This can be uncomfortable for those who are looking for quick spending if they are working for their clients and want to stay relevant.”
Value-based pricing strategies
Measuring impact is key to the success of a value-based billing model, and Ghalbouni approaches it by spending time with clients in discovery mode by understanding the desired outcomes and output, what their reality is, and what the gaps look like. “It often gives clients insight into their business that they didn't know,” she says. “It also reduces the transaction in the relationship and ensures that we are committed to achieving the desired impact.”
Ghalbouni's clients are far from resisting change and are strong supporters. “Clients sometimes struggle with hourly or daily fees because it's difficult to manage their budgets and often means that outcomes are so defined,” she says. “Value-based pricing gives you confidence to get the results you need regardless of how much work or time you spend on a project. While adjustments were needed to get the margins right in the first place, after a few projects, it made price and performance predictions easier.”
Next frontier
Some believe that time-based billing can misorganize incentives and reward inefficiencies against shocks. Therefore, we took the shift-by-design approach five years ago, which is why we have a structure that can solve problems more quickly and provide a sharper and more effective solution. Founded 12 years ago, the marketing and creative agency consulting company serves a diverse range of clients, including intermediate stock brands such as Benjamin Moore, Tropicana Brand Group and Publix.
Partner and CFO Richard Tan said: “Our unique creative data system, StoryDart, allows us to assess the entire category within a short time by leveraging various forms of machine learning and AI to dismantle storytelling opportunities.
Establishing a new set of billing parameters presents many challenges. Clients should believe that the results they receive are worth the money they are spending and the prices are fair. Nevertheless, pricing models have evolved, and Tan argues that the historical time-based model is decreasing in relation to it. He adds: “Result-based pricing is the next frontier, and agents are ready to work on it and accept it. My advice to other companies is to do business in the future by focusing on quality output and results rather than time.”
Blend Price Strategy
Others are not ready to entrust billable time to history and believe they still have a place for business. Continuous improvement projects have blending models that allow you to use either value-based pricing or time-based pricing based on your logical pricing strategy.
CEO Kiran Kachela said: “Value-based pricing is a model of project preferences with well-defined goals and measurable deliverables, guiding clients with transparent cost-benefit analysis to clearly understand the potential for investment advances and direct them to solutions-focused, output-type outcomes.
Disadvantages of value-based pricing
However, she asserts that the day-trip model still has its place, especially due to the many unknown variables and variables, the evolving scope, and the high risk that can be burned into a project. “If things are too risky or vague, value-based pricing simply doesn't work because they require an excessive risk premium. “In the end, it's about finding a blending approach that weighs its sweet spot, a solution that focuses on output with inherent risk. Choose a model that provides the largest ROI for the client.”
Valuable counter-claimable
According to Shirtcliff, the argument that value billing is better for both business and customers than billing hourly is compelling. “Professional services businesses find overall attractive by commercializing what they do and billing for their products and results,” she says. “We can increase revenue without increasing staff needs proportionally, breaking the traditional hourly billing linear model.”
There is also the opportunity to reduce operating expenses and the administrative burden of tracking, adjusting and defence of billable times that could potentially consume 20% of business operating expenses. “In a time-based model, valuable talent is often the cost center,” she adds. “A commercialized model allows for multiple solutions to scale impacts, generating higher revenues rather than labor costs.”
AI Power Pricing Strategy
Will setting service pricing parameters become even more difficult as AI continues to evolve and play a bigger role in working practices and pricing strategies? Shirtcliff believes that teams will develop to have outputs selected and presented to clients based on a set of AI-powered products, or scenarios the client needs to resolve. She adds: “I believe over time, when AI agents ask these scenarios and team questions, they ask them what the business produces the best and most appropriate product they offer.”
