GenAI Will Revolutionize Agency Business Models
In the realm of the communications industry, the adoption of advanced technology has long been a slow process. Gut instinct often dominated decision-making for decades. As a result, many agencies have been operating with outdated approaches for years. Most agencies rely on time- and materials-based billing models, which inadvertently encourage a longer work process—since the longer a project takes, the more an agency earns. While this might yield short-term gains, it can compromise long-term success with clients.
Time-based billing also leads to conflicts concerning overservicing. Agencies often find themselves trapped in a cycle of striving to meet unrealistic client expectations. This often results in exceeding hours that can’t be billed for in the first place. In this scenario, junior- to mid-level employees often bear the brunt—overworked and underpaid. This pattern leads to high turnover, diminished work quality, frustrated clients, and numerous other challenges. However, the emergence of generative AI tools offers a potential solution to these issues.
It’s no secret that agencies often generate higher profit margins from junior employees. Consequently, many agencies maintain a structure where about 70% of employees are junior- to mid-level and the remaining 30% are senior employees. However, as junior employees in this model frequently experience burnout, what happens to the base of the pyramid?
Traditionally, it’s filled with more junior staff, perpetuating a vicious cycle. With the integration of GenAI-powered communication technology, agencies could potentially shift to an upside-down triangle model—or a “nabla.” In this new model, fewer less-experienced individuals occupy the bottom of the hierarchy. Enabled by technology, these individuals can work more efficiently. Importantly, this shift doesn’t imply that GenAI will replace junior staff; rather, it will redefine their roles. This could result in fewer junior- to mid-level employees overall, but those who remain would be engaged in more meaningful and productive work.
Transitioning to Value-Based Billing
With the efficiencies unlocked by GenAI, agencies could make a transition to value-based billing. Unlike time-based billing, value-based billing gives clients assurance that they are receiving quality work within a reasonable timeframe, without overpaying. This fosters client confidence and encourages agencies to work smarter and faster since they are compensated based on outcomes, not hours.
The benefits of GenAI extend to agencies, clients, and individual employees alike. Advanced tools have the potential to upskill staff, enabling them to diversify their skill sets early in their careers. However, these transformative changes won’t happen overnight, and the evolution of each agency will be unique. To embark on the journey towards value-based billing, agencies can consider the following steps:
1. Productize Offerings: Create a comprehensive menu of services categorized as basic, medium, and premium offerings, with detailed scopes of work and time commitments.
2. Calculate Costs: Determine the average costs of tasks and services, marking up lower-value tasks at a lower percentage and higher-value tasks at a higher percentage.
3. Engage Procurement: Collaborate with procurement to demonstrate that value-based billing can result in savings for clients by compensating agencies for the value of their work based on the task, not time spent.
As GenAI continues to reshape the landscape of communications, agencies need to keep a vigilant eye on its evolving role. The future is likely to arrive sooner than anticipated, and agencies that adapt their business models with GenAI at the forefront stand to gain a significant competitive advantage. While adopting GenAI should be met with excitement, it should always be connected to an agency’s strategic goals and values, ensuring better outcomes for clients and employees.
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