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Chip Griffin is the founder and the Small Agency Growth Alliance where he helps PR & marketing agencies grow and thrive. He brings more than two decades of experience as an agency executive and entrepreneur. He shares the wisdom of his success and lessons of his failures. Follow him on Twitter at @ChipGriffin.

Gini Dietrich is the founder and CEO of Arment Dietrich, an integrated marketing communications firm. She is the author of Spin Sucks, the lead blogger at Spin Sucks, and the host of Spin Sucks the podcast. She also is co-author of Marketing in the Round and co-host of Inside PR. Follow her on Twitter at @GiniDietrich.

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Let’s talk about trading time for money

A popular topic for many agency gurus is the idea that you should stop trading time for money.

Yet that’s exactly what agencies do.

What they really mean is that you shouldn’t charge by the hour. While there are good arguments against hourly billing, it’s not something that you should reject out of hand.

In this episode of the Agency Leadership Podcast, Chip Griffin and Gini Dietrich review why hourly billing often doesn’t work, but also when you should consider using it.

Key takeaways

Chip Griffin: “It is not true that you cannot run a profitable agency business if you trade time for money, or if you bill by the hour.”

Gini Dietrich: “It’s risky. I understand that. But you have to be able to say, this is what it costs. And we can’t go lower than that.”

Chip Griffin: “If they won’t pay the price that you need to make in order to be able to deliver the quality goods and services that you’re providing, go find a different market. Ferrari doesn’t say, we’re only gonna to sell to these customers who can’t afford us. They go and find the customers who can afford them.”

Gini Dietrich: “You just have to have the confidence to be able to say, this is what I’m worth, and this is what it costs. The only way you’re going to make more money based on the work that you do is to increase your hourly rate.”

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And we’re going to charge you by the hour to listen to today’s episode right after this.

Ah…hourly billing, trading time for money.

Also known as how to get people really agitated by talking about those issues and not condemning them outright.

Gini Dietrich: I’m really, really hoping that you have your little temper tantrum in your seat like you did before we started recording, because I feel like everyone needs to see that. So I am – my job today is to antagonize you enough that that happens.

And if you’re listening, and you don’t see it, you should go to YouTube and look it up. I might even make a GIF out of it or a meme because it will be amazing.

Chip Griffin: Well, you know, we’ll, we’ll see if you can push my buttons enough to get me there. I certainly was there in the pre-show, but usually I try to get some of that out of my system before we hit the record button so that I can be a little bit more professional, adult, presentable, et cetera, live or recorded…whatever this is.

Gini Dietrich: Ok. Challenge accepted.

Chip Griffin: Great. Looking forward to that. So this comes about because I had the audacity to publish my thought on LinkedIn, which is a thought I’ve shared on this show before, which is that those people who condemn trading time for money in general, and more specifically billable hours are nuts. It is, it is not true that you cannot run a profitable business, a profitable agency business even, if you trade time for money, or if you bill by the hour. Now, to be clear since this was not clear to everybody, I am not saying you must charge by the hour, should always charge by the hour. I’m simply saying you shouldn’t reject it out of hand. And for that, I’ve had some folks question my viewpoint and argue with me. And I should say, I further threw some kerosene on the fire here by pointing out that lawyers do just fine at making lots of money by trading time for money and billing by the hour. So perhaps if we think that that is a fundamental business model is broken, we should probably let all those rich lawyers know that they’re doing it wrong.

Gini Dietrich: They are definitely doing it wrong. Um, I think that the difference and the challenge with our industry versus, an attorney is they’re not afraid to say I’m $2,000 an hour. Whereas most of us won’t ever who couldn’t even dream of charging that let alone say I’m $2,000 an hour because everybody, everybody is fearful that the prospect or the client’s gonna be like, oh, Nope. Okay. Onto the next. Which just isn’t true.

Chip Griffin: But, but that is because either you don’t have the confidence to do it. In which case you probably don’t have the confidence to bake it into your proper non by the hour pricing either because no matter what, whether you are explicitly charging by the hour or not. First of all, you are trading time for money.

Gini Dietrich: Absolutely you are.

Chip Griffin: That is the Agency business model. If you are not trading time for money, you’re not in the agency business. You may have some other product line that you are offering or some other service that you’re offering. But if you are an agency, by definition, what you are doing is trading time for money. That means that there is an imputed hourly billable rate that underlies whatever pricing that you give, whether you want to call it fixed fee pricing, project pricing, retainer pricing, value pricing, value pricing, my personal favorite. And if anybody can define value pricing accurately, uh, God, more power to you.

Gini Dietrich: I don’t even know where to go with this. Okay. Yes. And 100, like 100%. We that’s what we do. We’re trading time for money, for sure. It sounds a little naughty.

Chip Griffin: So all those gurus out there who have these videos saying stop trading time for money. What they’re really telling you is get out of the agency business.

Gini Dietrich: Yeah, I mean, I do think there’s value in saying there are other methods to making money. I mean, we make a crap ton of money on our quote unquote products for Spin Sucks and that’s not trading time for money. I had to use time to create and build and do all that. But now it’s become passive. So there is that, but just like everybody else, I went through the processes of valuing my work and saying, well, wait a second.

Like, I have an expertise that they need. And if I – and we’ve talked about this, if I went to work for a company or a larger agency, what would they pay me in an annual service salary? And what would the benefits be and what would the bonus pool be? And, you know, because of the work that we do, there’s probably some equity involved in it.

What does that package look like? And then I said to myself, and I think we talked about this on last week’s episode, but I said to myself, okay, If that’s what the package looks like, how do I get myself to that level? And one way to do that is to charge more money per hour, because I am still, even though I have lots of products and I have a team and all this other stuff, I’m still trading my own time for money as well.

And because I’m also running a business and doing new business, business development, all this other stuff, I can’t bill 40 hours. So now I have to increase it because I can only bill 20 hours a week or whatever it happens to be. And so I get, I’ve gotten myself to that level to say, this is how much money I have to make.

These are how many hours I can bill and figure out what that hourly rate is. And it’s not small.

Chip Griffin: No, and it shouldn’t be, I mean, if you’re actually creating value for your clients, your hourly rate, whether it’s express or implied, shouldn’t be low. And if you can’t get yourself over that hurdle, you’re going to have a very difficult time making money with your agency. And, and you – you know, while you are the amount of time that you personally as the agency owner can bill is limited. I mean, I have one, someone commented that there’s a ceiling. We’ll sure there is, there’s a ceiling per individual. So what you start doing is you add more members to your team, whether those are contractors or independent consultants or employees or whatever, and you’re basically arbitraging their time.

You are charging more for their hour than they’re charging you. And so you can grow that way. And you’ve done a great job of finding some additional revenue streams for your business. They are not directly agency services, right? They are training, they are education, they are consulting on other things and that’s all fine. And that’s good. And you should be looking for those, but if you want to say that an agency cannot make money by trading time for money. You’re totally missing the point and you don’t understand how these businesses work. And if you, if you find that you’re in a situation where you’re not making the kind of money that you need to look at, you probably need to look at pricing.

You certainly need to look at scoping and you need to look at how you’re shaping your service delivery for clients. And also you probably need to look at how you’re showing the value of the work that you’re doing. Because if a client says your work is only worth a hundred dollars an hour to me, maybe it is only worth a hundred dollars an hour.

Maybe you need to figure out how to offer something different or better, or whatever that gets it to that point where the client is happy to pay three, four, $500 per hour.

Gini Dietrich: I talked to a woman the other day and she said, I’m, I’m only billing $85 an hour. And I don’t think that my market can bear much more than that.

And I was like…

Chip Griffin: Go find a different market then.

Gini Dietrich: But that’s not true. She’s just making that assumption

Chip Griffin: Understood. But, but let’s assume, let’s assume it is true. And let’s assume that you need to make more than that. Go find a different market, right? You don’t, there’s nobody who’s sitting here telling you, you have to service these clients at this price.

If they won’t pay the price that you need to make in order to be able to deliver the quality goods and services that you’re providing, go find a different market. Right? Ferrari, doesn’t say, well, you know, we’re only gonna to sell, you know, to these customers who can’t afford us. They go and find the customers who can afford them. That’s how Ferrari still exists today.

Gini Dietrich: Well, and I also think there’s…. you just said something that I think is interesting. That is the biggest challenge in this. And that is if that’s all, if they have said to you that that’s all they’re going to pay. And for the most part, nobody has said that.

And she even said, well, I’ve never had somebody tell me it’s too much. And I’m like, that means you’re not charging enough. Right. Because if you’ve never had somebody say, oh, whoa, Can – do you have any wiggle room or can we work on that? You’re not charging enough. And I love this story that I tell, I was doing some crisis work during the pandemic. And I remember putting together a proposal for, I mean, it was like 24-7. I remember putting together a proposal. I thought they would be like, no freaking way. Like this is just too much. We can’t, we’re going to have to… And it was, I did a big upfront retainer and then we were going to draw against it.

And when it got to a certain level, they had to replenish it. And they were like, okay. And I said to my husband that night, I was like, dang it. That means I didn’t charge enough. And I mean, I really thought it was way way, way too much money. And they would be like, can we figure out a way to make this work?

And they didn’t even, they didn’t even try. They just said, great. And sent a check. So that tells me that I didn’t charge enough there. And that’s the exact same thing. If you think your market won’t bear it, or you think that you’re charging the right amount of money, you have to test it and you have to keep going up and up and up and up and up until you have a few.

And it’s risky. I understand that. But you have to have, you have to be able to say, this is what it costs. And we can’t go lower than that. And if they balk and you have several of them in a row balk, then maybe it is too high, but for the most part, that doesn’t happen. And then, you know, you have room to continue to go up.

Chip Griffin: Right. I mean, well, first of all, it, I mean, if they balk at that pricing, you know, First of all, a couple of things. If you balk at the pricing, that’s one thing. If you actually go hire someone else for less, that’s really when you have the evidence, right? So you have to be careful because there are plenty of prospects out there who will complain about the price of something, but it may be that they just, they, they decided this wasn’t something they wanted to do at all.

I mean, there’s all sorts of things. The only time you really know for sure that your pricing is too high as if they go get someone to do the same work for less than what you’re charging. That’s when you know that you may have hit at least with that particular client and maybe clients just like them, that you’ve hit the wrong price point.

You, you have gone above their ceiling. And so then you need to evaluate, do I need to find a way to deliver profitably and still fit within those budgets. Or do I need to go and fish somewhere else. Right? Because every time I hear an agency owner complain about RFPs or clients who won’t pay or clients who behave badly or any of these things, nobody is forcing you to do that.

You own the business, you can go choose to go and do serve some other portion of the market, provide some different kind of service, do some other kind of business development. You are not compelled to do these things. So if you don’t like them, change them or go somewhere else.

Gini Dietrich: You know, I, I told this story yesterday in an interview I was doing, but in the early days of my agency, because I had so much food experience, we were working with high-end chefs and celebrity chefs in their restaurants, which was from a personal perspective – amazing. Cause I could walk into a restaurant in New York, in Chicago, in LA., in Napa Valley and be seated immediately and be bestowed, like all sorts of food and wine for free, right? Like really high end restaurants. It was amazing. I will tell you it does not suck. They also don’t pay their bills. So they are happy to give you wine and food until you, your heart is content, but they do not pay their bills.

And I can’t pay a mortgage on food and wine as much as I would like to. So I had to say to myself, okay, while I really enjoy this personally, I can’t employ a team. I can’t make payroll. I can’t, I mean, I can’t even make my own mortgage, let alone, you know, do all this other stuff. So I had to find a new market, which totally sucks personally, but I had to find a new market.

Chip Griffin: Yeah, no, I don’t – I, I mean, I think a lot of folks have been down that road and, and if you are serving an industry that just isn’t working, go find a different option. And, to bring this back to the original point of trading time for money and hourly billing, look, there are plenty of good reasons not to bill by the hour.

And I’ve talked about some of those on this show before, I’ve written articles about it, and I’m not generally a proponent that you should always be charging by the hour because it draws attention to things that you might not want to draw a client’s attention to. It creates stupid little debates over, well, why did it take two hours to do that email instead of one hour, just nonsensical stuff.

Those are all good reasons not to do hourly billing, but, but not being able to make good money at it is absolutely not. Because if you are willing to say, this is what my time is worth, this is the value that I’m creating. Then you can be in a position where you can do it very successfully. And again, I go back to my lawyer friends, lawyers do just great doing it this way.

And I’ve had people on my LinkedIn posts push back on that notion too. And I sort of intentionally used lawyers cause I knew that would kind of set some folks off. And it did inevitably because, uh, someone chimed in and said, well, yes, but when was the last time you were happy to pay your lawyer? Well, I mean, I actually, I was happy to pay my lawyer.

I was not happy for the reason that I had to pay my lawyer. Right. I mean, I, I actually hire lawyers that I like to work with generally speaking. Right. I hire ones who I think are able to do their job well. I may not like the fact that I had to hire them because we’re in a litigious society or because we’re, you know, someone else is doing something stupid and I have to address that.

Right. But that doesn’t mean that I am unhappy to pay my lawyer because of them. It’s because of the circumstances. At the same time, there’s nobody, I guarantee you, that’s sitting there saying, oh my God, I am so happy. I get to pay Gini Dietrich, $10,000 a month. I just, I look forward to this check every single month. Who thinks that way?

Nope. Nobody thinks that way. So stop deluding yourself into thinking that people love to pay you. They may love the results you’re getting and they may be satisfied to pay that amount, but they’re not excited about it unless you’re not charging them nearly enough.

Gini Dietrich: Yeah. And even if you’re not charging them nearly enough, they’re still not excited about it.

Chip Griffin: Generally speaking, correct. Yes.

Gini Dietrich: Um, you know, one of my favorite things, not – and I’m being sarcastic in this – is people will say, well, you live in Chicago, it’s a big urban area. And, and you’re Gini Dietrich. You’ve built this brand. That’s bullshit. Listen, I worked at Fleishman Hillard and when I left as a 28 year old quote unquote managing supervisor, they were billing me out at $450 an hour in Kansas City. Now it took me on my own a while to get back to up to that amount, and certainly now more, but it has, it has nothing to do with the fact that I’m in a big urban area because I don’t have a single client in Chicago, not one, not one single client here.

And I have built a brand for sure. But I also value the work that I do. And I know I have an expertise and that has nothing to do with Spin Sucks or the PESO model or anything else. It has everything to do with the fact that I have been doing this job for 20 years, and I know what I’m doing, and that’s just all there is to it.

Chip Griffin: And here’s the thing. There are companies with big budgets just about everywhere, right? I mean, yes. Yes, there are a lot in Chicago. There are companies with big budgets here in New Hampshire, too. We’re a little bit smaller than Chicago, but guess what? That also means they’re generally fewer providers.

So if you want to remain geographically centralized, that’s fine. You can do it, but I’m going to let you in on a little secret here. And I know that you probably haven’t heard of this, but there’s a service called zoom. Zoom allows you to interact kind of like we are right here on this show, looking at each other, hearing each other in real time.

It’s not expensive. It’s pretty cheap. You can have clients wherever you want. You can have them across the road, across town across the country or around the world. It doesn’t matter. Right. So figure out who you serve best. Figure out who can compensate you the best. And by that, I don’t necessarily mean the most because we’ve talked previously about how there are plenty of clients out there who will write really big checks to you that may not be worthwhile to keep around because you may not make good money and they may be a pain in the you know what, but you can find the clients who are happy with the service that you’re providing. I guarantee it. There is plenty of opportunity out there.

Gini Dietrich: 100% and you, I mean, you said it earlier, you just have to have the confidence to be able to say, this is what I’m worth, and this is what it costs. And truly, I mean, I, when you posted this on LinkedIn, my comment was there only so many hours in the day, and that’s true.

We cannot duplicate time. We can not create more hours. The only way you’re going to make more money based on the work that you do is to increase your hourly rate.

Chip Griffin: Right. And guess what, even, even these gurus who belittle trading time for money and say, well, you should do value pricing instead. That’s still trading time for money.

It’s still trading time for money. Yes. The only difference is you are not providing a time sheet to the client. That is the only, but you’re still trading time for money, unless you’re, unless you’re selling a guide to the client and saying, good luck do it yourself. Good luck with that by the way.

Gini Dietrich: But again, that’s not an agency.

Chip Griffin: That’s not an agency. Exactly. I mean, think about what the word agency even means. It just it’s. It is. It’s one of those things that irritates me because it’s so silly and it causes people to go scurrying off in directions that don’t make sense. And it makes you think that you don’t even need to consider what your hourly rate is.

And you absolutely need to, again, you need to have that imputed hourly rate that you’re using at least internally, as you’re doing your pricing, you can track your profitability and all those kinds of things. And if you don’t know what that is, you’re in trouble. You should also have an hourly rate that if someone says to you, you know, what’s your hourly rate.

You can say, we don’t generally do an hourly rate, but if we did, it would be this. And usually that should be substantially more than what it would typically work out to be. Right. Because that way you don’t look like you’re being evasive and you don’t look like you’re saying, you know, well, you know, I really try to size up my clients and scalp them for as much as they’re worth, which is fundamentally the pricing philosophy that a lot of folks are promoting. And it doesn’t make sense. And sometimes if you can’t get the client to pay those exorbitant fees, you end up working for a lot less than you should anyway. So I can say that I’m divorcing time from money and still be underpaid under profitable, all those kinds of things. So, so simply waving the magic wand saying I don’t trade time for money. I don’t bill by the hour. God bless you. Good luck running a business.

Gini Dietrich: Here’s the question that I will leave you and all listeners with. Would you rather have five, $2,000 a month clients or one $10,000 a month client.

Chip Griffin: I’ve got an easy answer on that one, but I’ll be curious what listeners have to say. Maybe, maybe they can drop us a note.

Gini Dietrich: Or on your LinkedIn post.

Chip Griffin: Or on my LinkedIn post. Or in the Spin Sucks community or the SAGA community or blah blah blah all of these different places. So, yeah, so I’m not sure I reached quite the level that I did in preshow.

Gini Dietrich: Not quite, you were getting close there. You were pounding your fist, but I didn’t get the full on temper tantrum.

Chip Griffin: Yeah. Well, I just it’s, it’s hard for me to do that in public. I dunno. Maybe, maybe one day I’ll I’ll get there.

Gini Dietrich: I should, I should record this on my own. The pre-show on my own, just so I can make the memes.

Chip Griffin: Nope. But just start using some common sense folks. Don’t buy into these, you know, get rich quick, simple formulas.

We’re going to blow up the whole agency client model and solve the whole. All of the ills of the business world, the universe, et cetera, et cetera. It’s just, it’s not there. You’ve got to make sound rational decisions for what makes sense for you and your business. You need to be comfortable and confidentin charging your clients for the value that you’re creating.

If you’re not creating enough value to actually charge the price that you need to charge, figure out what you need to change. What you’re seeking, the services you’re delivering, something, and stop complaining about billable hours. That’s not the answer.

Gini Dietrich: It is not the answer. It is unfortunately the business we’re in.

Chip Griffin: Indeed. Not unfortunate. It – look, I mean, agency, world’s a great place and I, and I’m okay with that. Right. You just, but if you don’t like it, get out, go do something different. Particularly if you were listening to this and like, most of you, you’re an agency owner or a leader. Nobody is forcing you to do this.

Gini Dietrich: Yeah. That’s fair. Very fair.

Chip Griffin: There’s no law that says Gini Dietrich has to be an agency owner. Nope. Not that I’m aware of, at least.

Gini Dietrich: No, there’s not.

Chip Griffin: But maybe I’ll have to go pay my lawyer by the hour to go find out for sure. If that’s the case. On that note, we will draw this episode of the agency leadership podcast to a close. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And it depends.

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