The Evolution of Agency Billing: Are Hourly Rates Dead?

a budget spredsheet showcasing PR agency fee structures that clients pay

Parry Headrick made a name for himself as a LinkedIn Top Voice with his transparent, passionate posts about the public relations industry. Headrick, Founder and President of Crackle PR, delivers that same transparency offline when it comes to his clients

Headrick penned a post in the last quarter of 2023 declaring the hourly billing model dead. 

“If you’re a PR agency billing clients *hourly* you’re gonna have a bad time very soon 😬

No joke.

Here’s why:

When AI can do in seconds the work it previously took junior employees hours or days to accomplish …

clients are going to start calling bullsh*t on huge hourly fees. 🙄”

Headrick brings up a point that may cause some in the industry to pause. Current agency pricing structures include everything from monthly retainers to hourly contracts or product pricing, otherwise known as a “flat rate.” PRNEWS discussed recent agency trends with Headrick as well as PR Council President Kim Sample and Ron Loch, Chief Operating Officer of G&S Business Communications, to see how agency fee structures are evolving and if digital tools such as artificial intelligence are moving fast enough to play a role. 

Current Agency Fee Structures

Traditional billing structures for agencies take two forms: hourly and retainer. While hourly rates tend to be favored by clients, especially those just starting out with an agency, it’s beginning to be questioned due to advances in technology and freelance options. Some clients start realizing they’re paying heavy fees for work that can be done in seconds instead of hours.

Retainers also include a build-in of hours, charged at a single rate, but hours that go unused can carry into the next month. In Loch's experience, retainers tend to be favored by specific industries, many of which are b2b, including manufacturing, agriculture, and home and building products. Sample says smaller agencies also tend to gravitate towards a retainer structure because it’s easier to sell the buy-in. The industries featured from the smaller agencies include travel, hospitality and fashion. 

Flat rates or product pricing have emerged for specific client needs as well. This can include anything from messaging strategy sessions, media training or analytics monitoring and interpretation. It’s easily packaged with a clear beginning, middle and end. These flat rates can be sold on a monthly subscription basis as well, or within tiers. 

Sample says flat rates work much differently than retainers. “It’s what the client will pay for [the] work goes into it. Some are good at sticking to a defined scope of work.”

Why Headrick’s Structure Evolved

Headrick defines Crackle as a value-based agency, meaning clients pay them for the thousands of hours his team members have spent learning the craft of PR. He says clients appreciate the model. 

“We work on a full-scope, flat-fee retainer, so we’ll never have to call a client mid-month to say “unfortunately, you’ve run out of hours this month. Would you like to pay more for us to keep going?” That’s a recipe for mistrust and misaligned priorities.”

The full-scope fee structure is only for public relations services, which includes services like basic media training and crisis communications. More intensive programs are priced separately. 

Headrick believes larger agencies who continue hourly billing platforms are heading down a dangerous path with advances in technology.

“The hourly billing model is absolutely doomed in the era of AI,” he says. “Some of the world’s largest agencies are whistling past the graveyard—hoping their clients don’t catch on.”

Is AI Making a Difference?

This all leads to the question of the moment—is AI really making a difference already when it comes to time and output? 

Sample says it’s still too soon to tell. 

“AI is not really close to creating a lot of time and cost savings yet,” she says. “More agencies are spending time on experimentation and learning than getting the right outputs. There are efficiencies to be had, [but as far as] CFOs asking where cost savings are…it’s way too soon.”

She also notes the recent documented shift in agencies from more tactical experimentation to strategic implementation, which is also adding to an agency’s budget.

“It requires heavy investment in the platforms themselves and staff time (training and experimentation still, plus populating the large language models and linking platforms to create a proprietary offering),” Sample says. “Given all of that and the fact that human ingenuity, communications expertise and cultural relevance must be added to AI outputs, this will continue to be a cost center versus cost savings.”

However, Loch says, it’s also providing job creation, much like the escalation of social media experts. 

“You need to know how to do the queries [correctly] to get the info that’s valuable for a client," he says, "and how many people are now on staff for social media for agencies. It will create opportunity.” 

New Billing Structures

Loch says the whole industry is looking at how to move to more value-based pricing, especially with inflation. 

“Typically in long term relationships with clients you don't get yearly increases in rates,” Loch says. “But as we know, in the last few years, labor costs have increased exponentially. It’s in the interest of clients to see these rates be competitive because they want their team to stick around, they want their agency to be able to compensate the team, and be very successful. If the rate structure is not keeping up with that, then it's more difficult for agencies to remain competitive within labor.”

Sample says the topic of value pricing continues to be very important in the PR agency world and is a win-win for clients and agencies.

“For this to truly take hold, the industry has to get smarter and more comfortable with conversation around the value we create,” she says. "That’s a shift, because our industry typically talks too much about tactics and outputs, not business strategies and outcomes.”

So how does value pricing actually work? How does one put an estimate on a bill of work? The price is based on the value of the completed assignment instead of negotiating the number of hours that will be required.

Sample gave this example: Instead of charging 240 hours at $125 per hour to do a social media influencer campaign, for $30k, [the agency] will increase brand awareness by 5 percent amongst your target on Instagram.

Agencies are also looking at priority pricing, such as rush pricing and crisis pricing. If a deadline is moved up, that must come with a cost. During a crisis, a client may be billed at a higher hourly rate because a team has to be pulled from its daily work and drop everything to focus on another client. 

Value-based pricing can benefit both sides of the industry, according to these experts. Headrick's post offers a useful summary: “Outputs don’t matter. Outcomes do.”

Nicole Schuman is senior editor for PRNEWS. Follow her @buffalogal.