The End of the Billable Hour? Tim Williams

Excellent interview with my VeraSage colleague Tim Williams on the 20%: The Marketing Procurement podcast, hosted by Leah Power and Blair Enns .

Tim Williams predicts the death of the billable hour within ten years among marketing agencies. I hope he's right.

I would just add this nuance: if they still keep timesheets they have not changed their business model, just their revenue and perhaps their pricing model. However, the reason firms keep timesheets is to check their pricing, let's be honest. It's the ghost of cost-plus pricing and cost accounting that is still prevalent among firms.

For a business model to change, you must also change your measurements (KPIs, dashboards, etc.), and even your accounting statements, such as with subscription.

When firms say to me, "We do subscription, our customers pay us monthly," I simply ask them what their ending ARR is. Not one has been able to answer this question. Another acid test question is: "Do your customers know they subscribe to your firm, and can cancel at any time?" Again, the answer is usually no. Then you are not on a subscription model.

They also discuss my latest book, Time's Up! , co-authored with Paul Dunn , on the subscription business model for professional firms. Just to clarify, I do not believe this model will work for every agency, or indeed, every professional firm. Just as concierge doctors and direct primary care doctors will not be the dominant business model for general physicians. But who knows about the future, especially with Amazon purchasing One Medical ?

The subscription model will be for those truly innovative firms––that first 15% to 20% that understand that the leap is more important than the look––that have come to the realization that the professional's value is not in selling inputs, outputs, or even outcomes. It is in the privileged position of being able to guide customer transformations, serially. When a firm guides transformations, the customer is the product. The services are simply a means to an end. This is a new revenue and pricing model, and the subscription business model is very well suited to this philosophy.

It's also the ultimate nail in the timesheet coffin since there is simply no reason to measure time in this model. There is not one subscription KPI that requires time tracking from knowledge workers. It's a superfluous data point.

Profits are derived from risk, so naturally this model will scare many firms away, just as many firms still bill by the hour and avoid value pricing. The customer is the ultimate judge of value, and I believe the trend is clearly in favor of subscription since it offers convenience, peace of mind, a frictionless customer experience, surfaces simplicity, and most importantly––it does not waste the customer's time.