Co-Dependency and Compensation

Everyone wants to pay for success until success actually happens. I recently had a prospective client tell me "We want to move to outcomes-based compensation... but we need to cap the upside." In other words: "We'll share the risk, but not the reward." This isn't partnership. Welcome to the co-dependent world of agency-client relationships, where transformation is everyone's favourite word and nobody's favourite action.

In the three decades since the demise of the "17.65% commission" model, our industry has evolved slowly through three distinct commercial ages. Now we're supposedly entering the age of Outcomes - true value-based partnerships. Except we're not. We're stuck in an awkward teenage phase where everyone talks about growing up but nobody wants to leave home.

Paying poets by the word. Timesheets are our industry's security blanket - simultaneously comforting and infantilizing. We've built entire systems around the delusion that time equals value. Agencies track hours with the precision of accountants while delivering work that requires the imagination of artists.

This is where most of the industry sits today - pretending they've evolved while too often doing the same thing with better branding. They've mastered the art of making the old model look new: "Fixed price projects" based on estimated hours, "Deliverable-based fees" calculated from hour assumptions, "Value-based packaging" with costs calculated by FTE. It's just time-based billing wearing a better suit.

The future is obvious but terrifying. It's a world where agencies get paid for the value they create, not the time they spend. Where results determine rewards. Where true partnership means sharing both risks and returns.

Let's be clear here - of the two parties, it is the role of the agency to solve this. The crutches have been too convenient for too long. You only have to look at the compression event in recent weeks that the DeepSeek situation highlighted - this same externality is coming to marketing services in a number of forms. The largest is the disintermediation from the platforms. P-Max and Advantage+ are only the beginning, and are effectively still in SMB testing before scaling to enterprise solutions. These and other tools will enable faster client inhousing by the smarter ones.

The DeepSeek moment isn't just a warning - it's a preview of our industry's future. When technology can deliver 90% of the value at 10% of the cost, the old excuses for clinging to time-based models evaporate. Yet still we resist.

Every agency pitch deck promises revolution. Every client RFP demands innovation. Then the contracts come out, and suddenly everyone becomes remarkably conservative. Clients want Netflix pricing with Hollywood control. Agencies want platform economics with craftsman margins.

Some procurement leaders cling to time-based billing because it offers the illusion of control (or perhaps, as in many cases, they have just been transferred from buying cocoa, flour, or PET for the same company and now have to understand what an agency does). It's a mathematical exercise that lets them avoid the scarier, more fundamental question of true value. After all, it's much easier to negotiate a rate card than to determine what transformative marketing is actually worth.

Agencies resist true outcome-based models because they require facing a terrifying reality: unpredictability. In a world of outcomes, revenue becomes harder to forecast. Resource planning turns into educated guesswork. Success might mean paying people significantly more than planned, while failure could mean existential crisis. The current model may be limiting, but at least it's predictable.

Here's where it gets really interesting. Clients say they want agencies to have "skin in the game." What they actually mean is "we want you to take our risk." Agencies say they'll "share the risk." What they mean is "as long as we can control all variables."

But true risk-sharing means exactly that - sharing both the nightmares and the dreams. If an agency's work drives extraordinary results, they should reap extraordinary rewards. If they fail, they should feel real pain. Instead, we create compensation models with more caps and collars than a priest's wardrobe.

We have a new scaled client last year that has adopted a clever model. It has three phases across the contract term, that blend over time. First phase is about a "no dropped balls" transition and scaling up the resources and ways of working, then a phase this year that is mainly about outputs pricing (including our commitments to drive those prices lower through scale and tech adoption effects) and then rebalances towards outcomes-based compensation when we have enough 'water through the pipes' and have built the trust required to make this type of model work. It's smart. And so far we are both happy.

Clients need to accept that great outcomes might mean paying agencies more than they're comfortable with. Control and transformation are mutually exclusive. The cheapest option is only very rarely the most valuable. True partnership means sharing upside without caps. If they can accept this, it will also compel them to be sure of their own impact on business outcomes.

Agencies need to accept that the time-based billing model is not dying, it is dead. Taking real risk means possible real failure and therefore transformation starts at home as you are being disrupted. Investment in outcomes requires new capabilities.

Here's an uncomfortable truth that the industry needs to face: while agencies struggle to maintain 15+% margins selling time, technology platforms routinely achieve 60%+ margins selling outcomes. The difference isn't just in pricing models - it's in fundamental business architecture.

Consider this stark reality: in a typical global agency network, people costs consume 55-65% of net revenue. In a well-run technology platform, that number drops below 10%. This isn't just a difference in degree - it's a difference in kind. Technology platforms have built systems that scale without linear human cost, while agencies still scale almost entirely by adding more humans.

The path forward isn't just about changing pricing models - it's about fundamentally reimagining what an agency is. The future belongs to businesses that can combine the strategic and creative power of agencies with the scalable economics of technology platforms. This means building systems that can deliver marketing value without proportional human cost.

The technology required isn't trivial. It demands investment in real-time performance measurement, predictive analytics, automated optimization systems, and sophisticated value attribution models. This is investment that's almost impossible to make while selling hours - creating a catch-22 that keeps agencies trapped in their current model.

But there's hope in hybrid models. Just as Spotify combines technology platforms with human curation, and Netflix balances algorithms with creative development, agencies can build businesses that blend human creativity with technological scale. The key is understanding where human intervention truly adds value and where technology can create leverage.

It does lower the barriers to entry, and gives an advantage to smaller specialist shops to scale, or ones in the 'goldilocks zone' like Monks to focus on how we apply technology to scale revenue (as opposed to slow the impact of technology on our carried-cost of human capital like larger holdcos must).

The industry doesn't have a pricing problem. It has a courage problem.

Time & Materials isn't a business model - it's a security blanket. Outputs-based pricing isn't progress - it's procrastination. And outcomes-based compensation isn't impossible - it's just terrifying.

The question isn't whether this transformation will happen. The question is whether your agency or brand will help lead it or be dragged along behind it.

Like any intervention, this one starts with admitting we have a problem. The industry's addiction to selling time isn't just unsustainable - it's already obsolete.

Brandflow is written by Justin Billingsley, who has spent his career on all three sides of the industry's table: senior client, global agency leader, technology founder. First published 6 February 2025 in the Brandflow newsletter on LinkedIn.