When I was running my agency, we were given a piece of advice that sounded reasonable and was definitely well-intentioned.
Price on value, not on hours.
I nodded along, because on the face of it, it’s right. Nobody wants to be the agency selling blog posts by the hour whilst the client quietly works out they could hire someone in-house for less. Value is where the good work and the good margins live. I believed it then and I believe it now. Not to mention the knock on effects of being held to a fixed number of hours each month by a client who sees this as what they’re paying for – not your real value.
The problem is that “price on value, not hours” carries a quiet second message. It implies that hours don’t matter. That timesheets are either:
- An old-world habit you’re supposed to grow out of.
- Something that’s not needed at all.
The implication is that if you’re still tracking time, you haven’t quite understood the new game – even more so with AI which is another strand of this debate.
And that bit is wrong.
Just because you price something based on value doesn’t mean that it’s going to be more profitable for you.
The advice that sends you looking in the wrong place
Here’s what actually happened. We moved our thinking towards value. Good. But in doing that, we stopped interrogating time as closely as we should have. I suddenly found myself not worrying about time as much and not thinking about the profitability of each account.
I looked at the pricing. At the positioning. At whether we’d sold the value well enough.
Again, on the face of it, there is nothing wrong with this.
What I should have been looking at was right in front of me. Some accounts were quietly eating hours that no value conversation was ever going to fix, because the issue wasn’t how we’d priced them. It was how much of our team’s time they consumed against what we were bringing in.
I couldn’t see that clearly, because the prevailing wisdom had told me counting hours was the thing sophisticated agencies had moved past.
Let me be blunt about the lesson. Pricing on value doesn’t free you from tracking time. It changes what you do with the data. But you still need the data in the first place.
The false choice nobody names
The whole debate is built on a binary that doesn’t exist.
It gets set up as time-tracking *or* value-pricing. As if choosing one means abandoning the other. As if a timesheet and a value-based proposal can’t live in the same building.
They’re not opposites. They’re two different jobs.
Value is the pricing decision. It’s what you charge the client and why, the outcome you’re worth to them, the number on the proposal.
Time is the measurement discipline underneath it. It’s how you know whether the thing you sold on value actually made you any money.
You need both. Drop the second because a conference told you it was old-fashioned and you’ve got a lovely value-based price and no idea whether the account behind it is profitable. That’s not sophistication. That’s guessing with better branding.
What tracking time is actually for (and it isn’t the invoice)
I think the confusion comes from what people assume time-tracking is for. They hear “timesheet” and picture billing the client by the hour. So when they move away from hourly billing, they bin the timesheet along with it or at the very least, still track time but don’t keep as close an eye on it as before.
But internal time tracking has almost nothing to do with what’s on the client’s invoice – unless you explicitly bill by the hour of course which we’ll come back to shortly. But many agencies don’t – they charge a retainer for a set of services.
At the very least, you need two things from your time tracking data.
Firstly, the cost of that time going in. What are you actually paying for the hours going into this account? A retainer isn’t a number, it’s several people at different costs wearing one number. A senior strategist’s hour and a junior’s hour are not the same cost and an account that leans on your most expensive people is a very different proposition to one that doesn’t, even at the same fee.
Secondly, your effective rate coming out. Take what you’re charging, divide it by the hours you’re really putting in, and you get the rate you’re effectively earning on that account. Even if you never say that number out loud. Even if the client only ever sees a value-based fee with no hours attached to it. You are always, implicitly, earning an hourly rate. The only question is whether you know what it is.
Essentially, the agency business model involves buying people’s time (your team) at one rate and then selling that time to a client at a higher rate. That’s pretty much it. I hate to say it in these terms, but your people are your product. You need to understand the cost of your product against what you’re selling it for.
When you can see those two numbers, the profitability picture stops being a mystery. You can spot the account that looks healthy on the top line and is quietly in the red on delivery. You can see which relationships are worth protecting and which have crept past the point of being worth it.
Why the change to value-based pricing is so seductive
I understand why “ditch the hours” catches on. Changing your pricing model feels like decisive, strategic action. It’s visible. It’s on-trend. It gives you something to say at the next event and something to announce to your team.
Working out your true cost to deliver is the opposite of that. It’s unglamorous. It’s a spreadsheet nobody wants to build and a set of numbers that might be a bit embarrassing when you finally see them.
So the model change becomes the more satisfying problem to solve. Not the real one. The comfortable one.
And you can spend a genuinely long time redesigning your pricing whilst the actual leak, an account whose delivery cost you never measured, goes on leaking underneath the new model exactly as it did under the old one.
When the consensus is right
I don’t want to swing too far the other way, because there’s a version of the advice that’s completely correct.
If you’re billing purely by the hour and it’s capping what you can earn, so that getting faster or better literally means getting paid less, that’s a real problem and value-based thinking is the fix. If your hourly model is teaching clients to haggle over your rate instead of your results, move. There are genuine situations where the pricing model itself is the thing holding you back and changing it is exactly right.
The point isn’t “never change your model.” Sometimes you should.
The point is don’t change it instead of doing the work underneath. A new pricing model laid over an unmeasured delivery cost is just a fresh coat of paint on the same problem.
Where I’ve landed
The advice that I received to price on value wasn’t wrong, but it was hard to apply in reality, and I underestimated that. Harder still, it quietly pointed me away from the numbers that would actually have told me which accounts were making money. I spent time on the pricing conversation because it was the more interesting one, whilst the cost-to-deliver work sat there undone for longer than it should have. It was dull, and it was the job I kept finding a reason not to do.
The pricing debate is a comfortable place to put your energy, because it feels like strategy. Meanwhile the boring question sits there unanswered. Do you actually know what your work costs to deliver and what you’re really earning on each account?
If you don’t, no pricing model is going to save you. You’ll just be making the same mistakes at a different price.
So track the time. Not for the client’s invoice. For your own eyes. It’s the least strategic-sounding advice you’ll get this year and it might be the most useful.