Agencies Must Package Solutions to Escape Billable Hour Commoditization

In a rapidly evolving agency landscape, where AI is fundamentally reshaping how work is delivered and valued, Brian Kessman, Founder and Principal Consultant at Lodestar Agency Consulting, argues that the traditional agency model is no longer sustainable. This conversation reveals the hidden consequences of clinging to an hours-based value system, particularly as AI automates execution and procurement becomes more sophisticated. Agencies that fail to adapt risk becoming commoditized, giving away strategic value, and limiting their own scalability. Agency owners, strategists, and account managers should read this to understand how to proactively redesign their value models, moving from selling time to packaging and selling distinct solutions and outcomes, thereby creating lasting competitive advantage. This offers a roadmap to navigate the AI-driven future, ensuring profitability and relevance by focusing on unique expertise and quantifiable client impact.

The Unseen Costs of the Billable Hour: Why Agencies Must Evolve

The agency world is at a crossroads, and the familiar landscape of billable hours is becoming increasingly unstable. Brian Kessman, a seasoned consultant in agency commercial models, lays bare the pressures driving this transformation: the relentless march of AI, evolving client expectations, and the inherent limitations of a revenue model tied directly to headcount. The core issue, as Kessman explains, is that the traditional agency model, often characterized by "busy by design," prioritizes maximizing utilization and selling more hours. This approach, while seemingly productive, creates a ceiling on growth and leaves agencies vulnerable to commoditization.

The advent of AI has only amplified these pressures. While some agencies are using AI to simply speed up existing processes, a more profound shift is occurring: AI is beginning to automate the very execution that many agencies have historically sold. This forces a critical re-evaluation of what agencies truly offer. Are they selling execution, or are they selling strategic problem-solving and quantifiable outcomes? Kessman highlights that agencies often find themselves in one of four categories: "busy by design" (traditional, hours-based), "scaling with strain" (adopting fixed fees without changing the underlying model), "expertly undervalued" (strong positioning but still pricing by the hour), and "distinctly scalable" (those who have successfully redesigned their value model). The future, he suggests, belongs to the latter.

"The way that you can price effectively is by making sure all of those other pieces are in place proposition product and people so that you can't just price differently without changing the model or changing what you're selling if you're just pricing billable hours differently then you're going to have the same results procurement smarter than that."

This quote underscores a fundamental truth: simply tweaking hourly rates or offering a fixed fee without altering the core proposition, productization, and people strategy is a recipe for continued struggle. Procurement, Kessman notes, is increasingly sophisticated and will push back against superficial changes. The real opportunity lies in shifting the narrative from effort and hours to solutions and outcomes. This requires a deep understanding of the specific problems an agency solves for its clients and how to package that expertise into repeatable, scalable offerings.

From Capabilities to Consequences: Packaging Expertise for a New Era

The most significant insight emerging from Kessman's analysis is the concept of "value blindness"--the tendency for agencies to give away valuable strategic work without realizing it. This often occurs during client onboarding or initial discovery phases, where activities like stakeholder interviews, competitive analysis, and story mining are treated as internal necessities rather than as valuable, packageable offerings. Kessman argues that these activities, often perceived as simply "how we do business," hold significant intrinsic value for the client and can be reframed as distinct, monetizable solutions.

Consider the example of a PR group that performs extensive stakeholder interviews and competitive analysis during onboarding. Traditionally, this work is done to inform the execution phase without being explicitly priced or delivered as a standalone strategic asset. Kessman advocates for attaching a value proposition to every client-facing activity and deliverable. This process of surfacing and naming these value-laden activities is the first step toward creating "productized solutions." These aren't just service menus; they are distinct offerings designed to solve specific client problems, sparking conversations about outcomes and impact rather than hours.

"We need to look at all of our strategic value that's being given away and start to package that and price that as the individual offerings and then we snap them together however we need to solve a larger problem but we need to name that value and not sell it in the same way as execution by the hour but rather by a monetizable product."

This shift from selling capabilities to selling productized solutions is where delayed payoffs create a significant competitive advantage. Agencies that invest the time to map their value, define these offerings, and train their teams to sell them will build a more resilient and scalable business. This is not a quick fix; it requires a deliberate redesign of the entire commercial system, encompassing proposition, product, people, and price. The "distinctly scalable" agencies, like the example of Bond mentioned, have leveraged AI not just for efficiency but to build proprietary operating systems and productized offerings that allow them to punch above their weight, operating like much larger firms. This strategic investment in packaging expertise, while requiring upfront effort and a shift in mindset, creates a moat that is difficult for competitors focused solely on execution to breach.

Navigating the Transition: Actionable Steps for Agency Transformation

The transition to a value-based model requires a structured approach, acknowledging that it's a significant change management effort. It's not merely about adjusting pricing; it's about fundamentally redesigning how an agency defines, packages, delivers, and prices its expertise. The journey involves a deep dive into proposition refinement, product development, people enablement, and pricing strategy.

• Immediate Actions (Within 3-6 Months):

  • Conduct a Value Audit: Map every client-facing activity and deliverable. For each, identify the specific problem it solves and its inherent value to the client. This combats "value blindness."
  • Define 1-2 Productized Solutions: Based on your value audit, package 1-2 high-value activities into distinct, repeatable offerings. Name them clearly and articulate the specific outcome they deliver.
  • Develop Client Conversation Guides: Equip your client-facing teams (especially account managers) with talking points, FAQs, and objection-handling materials focused on value and outcomes, not hours.
  • Begin Tracking Time on New Offerings: For at least six months, continue tracking time spent on your new productized solutions. This establishes a baseline for profitability and informs future pricing. This is a necessary discomfort for future clarity.

• Medium-Term Investments (6-18 Months):

  • Refine Value Proposition: Sharpen your agency's unique positioning. Clearly articulate the specific problems you solve and the quantifiable value you deliver, moving beyond generic service descriptions.
  • Expand Productized Offerings: Systematically develop more productized solutions, creating an ecosystem of offerings that can be bundled to address larger client challenges.
  • Align Team Incentives: Ensure performance metrics and incentives for your team, particularly account managers, are tied to outcomes, profitability of offerings, and client satisfaction, not just billable hours or utilization. This requires patience and a willingness to confront existing measurement systems.
  • Pilot Value-Aligned Fixed Fees: Begin offering value-aligned fixed fees for your productized solutions. This may involve co-defining value with clients or estimating value based on your expertise and proof points.

• Longer-Term Strategic Investments (18+ Months):

  • Integrate AI Strategically: Leverage AI not just for efficiency but to enhance proprietary offerings and build unique operating systems that differentiate your agency.
  • Develop Performance-Based Pricing Models: Where appropriate, explore models that directly link agency compensation to client-driven outcomes and long-term strategic gains.
  • Establish an Internal Value Council: Formalize a cross-functional team dedicated to continuously refining the agency's value proposition, product development, and commercial models. This sustained focus is key to long-term adaptation.

The path to a redesigned value model is not without its challenges. It requires a willingness to confront ingrained habits, embrace discomfort, and invest in strategic thinking over immediate execution. However, as Kessman emphasizes, proactive adaptation is crucial. Agencies that delay this transformation risk being outmaneuvered by competitors and left behind as AI continues to reshape the industry. The reward for this effort is not just improved margins, but true scalability, enduring relevance, and a defensible competitive advantage built on genuine value.