Agencies often struggle with one key question for their business: how should we price our services? Should you charge clients for the exact time spent on a project, quote a fixed fee upfront, or rely on retainer agreements for consistent cash flow? Each pricing model has its own pros and cons, and the right choice can directly impact your agency's profitability and financial stability. But the key concern is that the pricing should reflect the value of your services.
The question of pricing affects your view on the nature of creative work itself. On the one hand, it may seem that the concept of billable hours is antithetical to creativity. On the other, quoting a fixed fee for a project constrains the scope of the project which might require more flexibility. And lastly, retainers establish long-term client relationships for more routinary work, whereas your agency might look to build a portfolio which showcases a variety of skills and projects.
Choosing the right pricing model for your agency is also essential in order to address problems affecting your business like scope creep, unpredictable cash flow, or clients questioning the value of your work. In this article, you'll discover the advantages and drawbacks of billable hours, project-based pricing, and retainers—plus how tracking your time and project profitability can guide you to the best solution for your agency, ensuring optimal performance and financial health.
Billable Hours
Billable hours are one of the most common pricing models for agencies. In this approach, you track the exact time spent on a project and charge the client based on an hourly rate. Each task, meeting, or revision adds up, and the client pays for the total number of hours worked.
The main appeal of this model is its transparency—clients can see exactly what they're paying for. For agencies, billable hours offer flexibility, reflecting the often unpredictable scope of creative projects. This ensures compensation for additional hours put in, guaranteeing you get paid for every minute spent on a project, even if it takes longer than expected.
However, the principal drawback of charging billable hours is that it doesn’t encompass the full scope of a project. Non Billable tasks, such as strategy and planning, are equally necessary but directly undercut your bottom line. Therefore, when calculating your billing rate, it's essential to factor in the time spent on non billable tasks so that it adequately covers the total cost of the project.
For agencies using the billable-hour pricing model, their KPI will be the utilization rate—the percentage of hours that are billable over total hours. Benchmark figures in the creative industry vary:
60-65% Billable: Typical for agencies that balance creative work with a significant amount of internal or business development work.
70-80% Billable: Considered ideal for maximizing profitability, though this often means less time spent on non-billable activities like professional development, internal strategy, or marketing.
Below 60%: Agencies in this range may face profitability challenges unless they charge premium rates or have a high volume of projects.
On average, employees in agencies run at 65% utilization, making it a precarious pricing model for creatives. However, strategies like prioritizing project tasks, improving time management, and automating administrative duties can increase billable time. In cases where software solutions are adopted, utilization rates can reach 75%.
While setting targets for billable time can improve efficiency, it can also lead to burnout and premature staffing cuts during slow seasons. Additionally, billable hours can be a scalability trap, as the only way to increase annual revenue is to increase overall headcount.
Without clear boundaries, this model can lead to scope creep—where projects drag on and you work more hours than you’re paid for. This makes budgeting unpredictable for both you and the client, potentially leading to cash flow issues or billing disputes. Trust, a crucial factor in customer retention, can be eroded by billing disputes, making this a significant con for the billable-hour method.
Project Based Pricing
Project-based pricing (PBP) offers a streamlined approach where both the client and service provider agree on a fixed fee for a project with a clearly defined scope of work and deliverables. Project-based agencies are typically brought in for a single job, like a hired gun or specialist team. This model aligns the interests of both parties, providing agencies with predictable budgets and timelines, and clients with upfront cost certainty, particularly in the case of bigger projects where budgeting is of greater concern.
Drawbacks:
Excessive client revisions. Clients appreciate the upfront transparency of PBP—it's simple, predictable, and they know exactly what they're paying for. However, creative projects are often iterative, with client feedback leading to revisions and improvements that can alter the project scope and potentially cause delays. Therefore, strong negotiation skills are required to manage client expectations and ensure the agreed-upon scope remains realistic.
Inaccurate project estimates. Project-based pricing requires accurate cost estimation to avoid undercharging or overpricing. By using time-management tools and benchmarking similar projects, agencies can better assess the value of their expertise and identify potential cost-saving measures. However, if the project scope expands or unexpected challenges arise, there is a risk of undercharging and going over budget. To mitigate these risks, agencies should thoroughly define the project scope, build in a contingency budget, and track employee hours to ensure profitability.
Retainers
Retainers are work-for-hire agreements that stipulate a payment today for the promise of time allocated to your projects in the future. This model is popular with agencies that provide continuous work, like marketing, branding, or web management. It ensures that your team is compensated regularly, regardless of the specific number of hours worked in a given month. The stability of reliable cash flow reduces the month-to-month anxiety that can come with project-based pricing or billable hours.
Retainers offer agencies a way to secure consistent, predictable revenue by charging clients a fixed monthly fee for ongoing services. Ideally, retainers should be based on experience with custom projects and long term clients, making it easier to identify delivery trends. Equally for clients, retainers bring peace of mind since they know they’ll receive a set amount of work each month without surprise invoices.
Drawbacks:
Client Concentration Risk: Overreliance on big clients can lead to significant financial instability if a client reduces their spending or terminates the agreement. Diversifying your client base is essential to mitigate this risk.
Scope Creep: Clients may expect additional services beyond the agreed-upon scope, potentially leading to increased workload and decreased profitability. Clear communication and well-defined contracts are crucial to prevent scope creep.
Time Management Challenges: Balancing team workload and ensuring that billable hours are utilized effectively can be difficult. A robust time tracking system is essential for monitoring hours and identifying areas for improvement.
Sales Challenges: Acquiring new clients on a retainer model can be more challenging due to the higher upfront commitment required. Effective sales strategies and value propositions are necessary to overcome this hurdle.
Comparing Billable Hours, Project-Based Pricing, and Retainers
When deciding which pricing model works best for your agency, it’s essential to weigh the pros and cons of each approach. Below is a quick comparison of billable hours, project-based pricing, and retainers to help you understand which model fits your agency’s needs and services.
Time-tracking and figuring out pricing
Good time-management is an essential part of successful project delivery. In all three pricing models, a time-tracking solution will be necessary for your business. However, in each case, logging hours has a different function:
For billable hours, time is proportional to revenue.
For project-based fees, time is key for calculating the budget.
For retainers, the time invested is determined by the retainer fee.
Finding a time-tracking solution
Time-tracking reveals a lot about your agency’s performance in terms of profitability and operational efficiency. As a time-tracking software, TimeNavi serves all three pricing models since it doesn’t represent an overhaul of your workflow. Rather the opposite, TimeNavi tracks time based on the scheduling system you already use - your work calendar. By automatically pulling data from your team's calendars - whether Google or Outlook, TimeNavi helps you track every minute spent on each client and project—without the need for manual timesheets. This level of visibility allows you to ensure accurate billing, to calculate realistic budgets and to optimize retainers.
For agencies using billable hours, TimeNavi ensures that no time goes untracked, so you can bill clients accurately and avoid scope creep. If you're working with project-based pricing, you can monitor whether you're staying within the estimated time or at risk of going over budget. And for retainers, it helps you evaluate whether the monthly fee matches the actual time invested, ensuring you're not over-delivering.
Ultimately, accurate time tracking provides you with the insights needed to adjust your pricing strategies on the fly and maximize profitability, no matter which model you choose.
Conclusion: Making the Best Choice for Your Agency
Choosing the right pricing model is only part of the equation, knowing exactly how your team’s time is spent is crucial to ensuring profitability. Whether you opt for billable hours, project-based pricing, or retainers, there’s no one-size-fits-all solution. Each model has its own strengths and challenges, and the best choice for your agency depends on your specific services, client relationships, and financial goals.
And to this end, it’s important to understand how you define your agency’s position in the market. Are you a hired gun, offering specialized skills on a project-by-project basis? Or do you provide comprehensive professional services, building long-term relationships with clients? These strategic decisions will influence your workflow operations and pricing strategy, ensuring that your agency is well-positioned for success.
For flexibility and transparency, billable hours can work well, especially for projects with an evolving scope. If simplicity and predictability are more important to your clients, project-based pricing offers clear terms upfront. And for agencies looking for financial stability, retainers can help you secure consistent revenue and build long-term client relationships.
Finally, with the right pricing strategy and the right tools, your agency can stay profitable, organized, and in control of its cash flow. Tools like TimeNavi allow you to keep an eye on project costs and employee efficiency, helping you make better-informed decisions that maximize profit and reduce financial surprises.
Agencies often struggle with one key question for their business: how should we price our services? Should you charge clients for the exact time spent on a project, quote a fixed fee upfront, or rely on retainer agreements for consistent cash flow? Each pricing model has its own pros and cons, and the right choice can directly impact your agency's profitability and financial stability. But the key concern is that the pricing should reflect the value of your services.
The question of pricing affects your view on the nature of creative work itself. On the one hand, it may seem that the concept of billable hours is antithetical to creativity. On the other, quoting a fixed fee for a project constrains the scope of the project which might require more flexibility. And lastly, retainers establish long-term client relationships for more routinary work, whereas your agency might look to build a portfolio which showcases a variety of skills and projects.
Choosing the right pricing model for your agency is also essential in order to address problems affecting your business like scope creep, unpredictable cash flow, or clients questioning the value of your work. In this article, you'll discover the advantages and drawbacks of billable hours, project-based pricing, and retainers—plus how tracking your time and project profitability can guide you to the best solution for your agency, ensuring optimal performance and financial health.
Billable Hours
Billable hours are one of the most common pricing models for agencies. In this approach, you track the exact time spent on a project and charge the client based on an hourly rate. Each task, meeting, or revision adds up, and the client pays for the total number of hours worked.
The main appeal of this model is its transparency—clients can see exactly what they're paying for. For agencies, billable hours offer flexibility, reflecting the often unpredictable scope of creative projects. This ensures compensation for additional hours put in, guaranteeing you get paid for every minute spent on a project, even if it takes longer than expected.
However, the principal drawback of charging billable hours is that it doesn’t encompass the full scope of a project. Non Billable tasks, such as strategy and planning, are equally necessary but directly undercut your bottom line. Therefore, when calculating your billing rate, it's essential to factor in the time spent on non billable tasks so that it adequately covers the total cost of the project.
For agencies using the billable-hour pricing model, their KPI will be the utilization rate—the percentage of hours that are billable over total hours. Benchmark figures in the creative industry vary:
60-65% Billable: Typical for agencies that balance creative work with a significant amount of internal or business development work.
70-80% Billable: Considered ideal for maximizing profitability, though this often means less time spent on non-billable activities like professional development, internal strategy, or marketing.
Below 60%: Agencies in this range may face profitability challenges unless they charge premium rates or have a high volume of projects.
On average, employees in agencies run at 65% utilization, making it a precarious pricing model for creatives. However, strategies like prioritizing project tasks, improving time management, and automating administrative duties can increase billable time. In cases where software solutions are adopted, utilization rates can reach 75%.
While setting targets for billable time can improve efficiency, it can also lead to burnout and premature staffing cuts during slow seasons. Additionally, billable hours can be a scalability trap, as the only way to increase annual revenue is to increase overall headcount.
Without clear boundaries, this model can lead to scope creep—where projects drag on and you work more hours than you’re paid for. This makes budgeting unpredictable for both you and the client, potentially leading to cash flow issues or billing disputes. Trust, a crucial factor in customer retention, can be eroded by billing disputes, making this a significant con for the billable-hour method.
Project Based Pricing
Project-based pricing (PBP) offers a streamlined approach where both the client and service provider agree on a fixed fee for a project with a clearly defined scope of work and deliverables. Project-based agencies are typically brought in for a single job, like a hired gun or specialist team. This model aligns the interests of both parties, providing agencies with predictable budgets and timelines, and clients with upfront cost certainty, particularly in the case of bigger projects where budgeting is of greater concern.
Drawbacks:
Excessive client revisions. Clients appreciate the upfront transparency of PBP—it's simple, predictable, and they know exactly what they're paying for. However, creative projects are often iterative, with client feedback leading to revisions and improvements that can alter the project scope and potentially cause delays. Therefore, strong negotiation skills are required to manage client expectations and ensure the agreed-upon scope remains realistic.
Inaccurate project estimates. Project-based pricing requires accurate cost estimation to avoid undercharging or overpricing. By using time-management tools and benchmarking similar projects, agencies can better assess the value of their expertise and identify potential cost-saving measures. However, if the project scope expands or unexpected challenges arise, there is a risk of undercharging and going over budget. To mitigate these risks, agencies should thoroughly define the project scope, build in a contingency budget, and track employee hours to ensure profitability.
Retainers
Retainers are work-for-hire agreements that stipulate a payment today for the promise of time allocated to your projects in the future. This model is popular with agencies that provide continuous work, like marketing, branding, or web management. It ensures that your team is compensated regularly, regardless of the specific number of hours worked in a given month. The stability of reliable cash flow reduces the month-to-month anxiety that can come with project-based pricing or billable hours.
Retainers offer agencies a way to secure consistent, predictable revenue by charging clients a fixed monthly fee for ongoing services. Ideally, retainers should be based on experience with custom projects and long term clients, making it easier to identify delivery trends. Equally for clients, retainers bring peace of mind since they know they’ll receive a set amount of work each month without surprise invoices.
Drawbacks:
Client Concentration Risk: Overreliance on big clients can lead to significant financial instability if a client reduces their spending or terminates the agreement. Diversifying your client base is essential to mitigate this risk.
Scope Creep: Clients may expect additional services beyond the agreed-upon scope, potentially leading to increased workload and decreased profitability. Clear communication and well-defined contracts are crucial to prevent scope creep.
Time Management Challenges: Balancing team workload and ensuring that billable hours are utilized effectively can be difficult. A robust time tracking system is essential for monitoring hours and identifying areas for improvement.
Sales Challenges: Acquiring new clients on a retainer model can be more challenging due to the higher upfront commitment required. Effective sales strategies and value propositions are necessary to overcome this hurdle.
Comparing Billable Hours, Project-Based Pricing, and Retainers
When deciding which pricing model works best for your agency, it’s essential to weigh the pros and cons of each approach. Below is a quick comparison of billable hours, project-based pricing, and retainers to help you understand which model fits your agency’s needs and services.
Time-tracking and figuring out pricing
Good time-management is an essential part of successful project delivery. In all three pricing models, a time-tracking solution will be necessary for your business. However, in each case, logging hours has a different function:
For billable hours, time is proportional to revenue.
For project-based fees, time is key for calculating the budget.
For retainers, the time invested is determined by the retainer fee.
Finding a time-tracking solution
Time-tracking reveals a lot about your agency’s performance in terms of profitability and operational efficiency. As a time-tracking software, TimeNavi serves all three pricing models since it doesn’t represent an overhaul of your workflow. Rather the opposite, TimeNavi tracks time based on the scheduling system you already use - your work calendar. By automatically pulling data from your team's calendars - whether Google or Outlook, TimeNavi helps you track every minute spent on each client and project—without the need for manual timesheets. This level of visibility allows you to ensure accurate billing, to calculate realistic budgets and to optimize retainers.
For agencies using billable hours, TimeNavi ensures that no time goes untracked, so you can bill clients accurately and avoid scope creep. If you're working with project-based pricing, you can monitor whether you're staying within the estimated time or at risk of going over budget. And for retainers, it helps you evaluate whether the monthly fee matches the actual time invested, ensuring you're not over-delivering.
Ultimately, accurate time tracking provides you with the insights needed to adjust your pricing strategies on the fly and maximize profitability, no matter which model you choose.
Conclusion: Making the Best Choice for Your Agency
Choosing the right pricing model is only part of the equation, knowing exactly how your team’s time is spent is crucial to ensuring profitability. Whether you opt for billable hours, project-based pricing, or retainers, there’s no one-size-fits-all solution. Each model has its own strengths and challenges, and the best choice for your agency depends on your specific services, client relationships, and financial goals.
And to this end, it’s important to understand how you define your agency’s position in the market. Are you a hired gun, offering specialized skills on a project-by-project basis? Or do you provide comprehensive professional services, building long-term relationships with clients? These strategic decisions will influence your workflow operations and pricing strategy, ensuring that your agency is well-positioned for success.
For flexibility and transparency, billable hours can work well, especially for projects with an evolving scope. If simplicity and predictability are more important to your clients, project-based pricing offers clear terms upfront. And for agencies looking for financial stability, retainers can help you secure consistent revenue and build long-term client relationships.
Finally, with the right pricing strategy and the right tools, your agency can stay profitable, organized, and in control of its cash flow. Tools like TimeNavi allow you to keep an eye on project costs and employee efficiency, helping you make better-informed decisions that maximize profit and reduce financial surprises.
Agencies often struggle with one key question for their business: how should we price our services? Should you charge clients for the exact time spent on a project, quote a fixed fee upfront, or rely on retainer agreements for consistent cash flow? Each pricing model has its own pros and cons, and the right choice can directly impact your agency's profitability and financial stability. But the key concern is that the pricing should reflect the value of your services.
The question of pricing affects your view on the nature of creative work itself. On the one hand, it may seem that the concept of billable hours is antithetical to creativity. On the other, quoting a fixed fee for a project constrains the scope of the project which might require more flexibility. And lastly, retainers establish long-term client relationships for more routinary work, whereas your agency might look to build a portfolio which showcases a variety of skills and projects.
Choosing the right pricing model for your agency is also essential in order to address problems affecting your business like scope creep, unpredictable cash flow, or clients questioning the value of your work. In this article, you'll discover the advantages and drawbacks of billable hours, project-based pricing, and retainers—plus how tracking your time and project profitability can guide you to the best solution for your agency, ensuring optimal performance and financial health.
Billable Hours
Billable hours are one of the most common pricing models for agencies. In this approach, you track the exact time spent on a project and charge the client based on an hourly rate. Each task, meeting, or revision adds up, and the client pays for the total number of hours worked.
The main appeal of this model is its transparency—clients can see exactly what they're paying for. For agencies, billable hours offer flexibility, reflecting the often unpredictable scope of creative projects. This ensures compensation for additional hours put in, guaranteeing you get paid for every minute spent on a project, even if it takes longer than expected.
However, the principal drawback of charging billable hours is that it doesn’t encompass the full scope of a project. Non Billable tasks, such as strategy and planning, are equally necessary but directly undercut your bottom line. Therefore, when calculating your billing rate, it's essential to factor in the time spent on non billable tasks so that it adequately covers the total cost of the project.
For agencies using the billable-hour pricing model, their KPI will be the utilization rate—the percentage of hours that are billable over total hours. Benchmark figures in the creative industry vary:
60-65% Billable: Typical for agencies that balance creative work with a significant amount of internal or business development work.
70-80% Billable: Considered ideal for maximizing profitability, though this often means less time spent on non-billable activities like professional development, internal strategy, or marketing.
Below 60%: Agencies in this range may face profitability challenges unless they charge premium rates or have a high volume of projects.
On average, employees in agencies run at 65% utilization, making it a precarious pricing model for creatives. However, strategies like prioritizing project tasks, improving time management, and automating administrative duties can increase billable time. In cases where software solutions are adopted, utilization rates can reach 75%.
While setting targets for billable time can improve efficiency, it can also lead to burnout and premature staffing cuts during slow seasons. Additionally, billable hours can be a scalability trap, as the only way to increase annual revenue is to increase overall headcount.
Without clear boundaries, this model can lead to scope creep—where projects drag on and you work more hours than you’re paid for. This makes budgeting unpredictable for both you and the client, potentially leading to cash flow issues or billing disputes. Trust, a crucial factor in customer retention, can be eroded by billing disputes, making this a significant con for the billable-hour method.
Project Based Pricing
Project-based pricing (PBP) offers a streamlined approach where both the client and service provider agree on a fixed fee for a project with a clearly defined scope of work and deliverables. Project-based agencies are typically brought in for a single job, like a hired gun or specialist team. This model aligns the interests of both parties, providing agencies with predictable budgets and timelines, and clients with upfront cost certainty, particularly in the case of bigger projects where budgeting is of greater concern.
Drawbacks:
Excessive client revisions. Clients appreciate the upfront transparency of PBP—it's simple, predictable, and they know exactly what they're paying for. However, creative projects are often iterative, with client feedback leading to revisions and improvements that can alter the project scope and potentially cause delays. Therefore, strong negotiation skills are required to manage client expectations and ensure the agreed-upon scope remains realistic.
Inaccurate project estimates. Project-based pricing requires accurate cost estimation to avoid undercharging or overpricing. By using time-management tools and benchmarking similar projects, agencies can better assess the value of their expertise and identify potential cost-saving measures. However, if the project scope expands or unexpected challenges arise, there is a risk of undercharging and going over budget. To mitigate these risks, agencies should thoroughly define the project scope, build in a contingency budget, and track employee hours to ensure profitability.
Retainers
Retainers are work-for-hire agreements that stipulate a payment today for the promise of time allocated to your projects in the future. This model is popular with agencies that provide continuous work, like marketing, branding, or web management. It ensures that your team is compensated regularly, regardless of the specific number of hours worked in a given month. The stability of reliable cash flow reduces the month-to-month anxiety that can come with project-based pricing or billable hours.
Retainers offer agencies a way to secure consistent, predictable revenue by charging clients a fixed monthly fee for ongoing services. Ideally, retainers should be based on experience with custom projects and long term clients, making it easier to identify delivery trends. Equally for clients, retainers bring peace of mind since they know they’ll receive a set amount of work each month without surprise invoices.
Drawbacks:
Client Concentration Risk: Overreliance on big clients can lead to significant financial instability if a client reduces their spending or terminates the agreement. Diversifying your client base is essential to mitigate this risk.
Scope Creep: Clients may expect additional services beyond the agreed-upon scope, potentially leading to increased workload and decreased profitability. Clear communication and well-defined contracts are crucial to prevent scope creep.
Time Management Challenges: Balancing team workload and ensuring that billable hours are utilized effectively can be difficult. A robust time tracking system is essential for monitoring hours and identifying areas for improvement.
Sales Challenges: Acquiring new clients on a retainer model can be more challenging due to the higher upfront commitment required. Effective sales strategies and value propositions are necessary to overcome this hurdle.
Comparing Billable Hours, Project-Based Pricing, and Retainers
When deciding which pricing model works best for your agency, it’s essential to weigh the pros and cons of each approach. Below is a quick comparison of billable hours, project-based pricing, and retainers to help you understand which model fits your agency’s needs and services.
Time-tracking and figuring out pricing
Good time-management is an essential part of successful project delivery. In all three pricing models, a time-tracking solution will be necessary for your business. However, in each case, logging hours has a different function:
For billable hours, time is proportional to revenue.
For project-based fees, time is key for calculating the budget.
For retainers, the time invested is determined by the retainer fee.
Finding a time-tracking solution
Time-tracking reveals a lot about your agency’s performance in terms of profitability and operational efficiency. As a time-tracking software, TimeNavi serves all three pricing models since it doesn’t represent an overhaul of your workflow. Rather the opposite, TimeNavi tracks time based on the scheduling system you already use - your work calendar. By automatically pulling data from your team's calendars - whether Google or Outlook, TimeNavi helps you track every minute spent on each client and project—without the need for manual timesheets. This level of visibility allows you to ensure accurate billing, to calculate realistic budgets and to optimize retainers.
For agencies using billable hours, TimeNavi ensures that no time goes untracked, so you can bill clients accurately and avoid scope creep. If you're working with project-based pricing, you can monitor whether you're staying within the estimated time or at risk of going over budget. And for retainers, it helps you evaluate whether the monthly fee matches the actual time invested, ensuring you're not over-delivering.
Ultimately, accurate time tracking provides you with the insights needed to adjust your pricing strategies on the fly and maximize profitability, no matter which model you choose.
Conclusion: Making the Best Choice for Your Agency
Choosing the right pricing model is only part of the equation, knowing exactly how your team’s time is spent is crucial to ensuring profitability. Whether you opt for billable hours, project-based pricing, or retainers, there’s no one-size-fits-all solution. Each model has its own strengths and challenges, and the best choice for your agency depends on your specific services, client relationships, and financial goals.
And to this end, it’s important to understand how you define your agency’s position in the market. Are you a hired gun, offering specialized skills on a project-by-project basis? Or do you provide comprehensive professional services, building long-term relationships with clients? These strategic decisions will influence your workflow operations and pricing strategy, ensuring that your agency is well-positioned for success.
For flexibility and transparency, billable hours can work well, especially for projects with an evolving scope. If simplicity and predictability are more important to your clients, project-based pricing offers clear terms upfront. And for agencies looking for financial stability, retainers can help you secure consistent revenue and build long-term client relationships.
Finally, with the right pricing strategy and the right tools, your agency can stay profitable, organized, and in control of its cash flow. Tools like TimeNavi allow you to keep an eye on project costs and employee efficiency, helping you make better-informed decisions that maximize profit and reduce financial surprises.
Agencies often struggle with one key question for their business: how should we price our services? Should you charge clients for the exact time spent on a project, quote a fixed fee upfront, or rely on retainer agreements for consistent cash flow? Each pricing model has its own pros and cons, and the right choice can directly impact your agency's profitability and financial stability. But the key concern is that the pricing should reflect the value of your services.
The question of pricing affects your view on the nature of creative work itself. On the one hand, it may seem that the concept of billable hours is antithetical to creativity. On the other, quoting a fixed fee for a project constrains the scope of the project which might require more flexibility. And lastly, retainers establish long-term client relationships for more routinary work, whereas your agency might look to build a portfolio which showcases a variety of skills and projects.
Choosing the right pricing model for your agency is also essential in order to address problems affecting your business like scope creep, unpredictable cash flow, or clients questioning the value of your work. In this article, you'll discover the advantages and drawbacks of billable hours, project-based pricing, and retainers—plus how tracking your time and project profitability can guide you to the best solution for your agency, ensuring optimal performance and financial health.
Billable Hours
Billable hours are one of the most common pricing models for agencies. In this approach, you track the exact time spent on a project and charge the client based on an hourly rate. Each task, meeting, or revision adds up, and the client pays for the total number of hours worked.
The main appeal of this model is its transparency—clients can see exactly what they're paying for. For agencies, billable hours offer flexibility, reflecting the often unpredictable scope of creative projects. This ensures compensation for additional hours put in, guaranteeing you get paid for every minute spent on a project, even if it takes longer than expected.
However, the principal drawback of charging billable hours is that it doesn’t encompass the full scope of a project. Non Billable tasks, such as strategy and planning, are equally necessary but directly undercut your bottom line. Therefore, when calculating your billing rate, it's essential to factor in the time spent on non billable tasks so that it adequately covers the total cost of the project.
For agencies using the billable-hour pricing model, their KPI will be the utilization rate—the percentage of hours that are billable over total hours. Benchmark figures in the creative industry vary:
60-65% Billable: Typical for agencies that balance creative work with a significant amount of internal or business development work.
70-80% Billable: Considered ideal for maximizing profitability, though this often means less time spent on non-billable activities like professional development, internal strategy, or marketing.
Below 60%: Agencies in this range may face profitability challenges unless they charge premium rates or have a high volume of projects.
On average, employees in agencies run at 65% utilization, making it a precarious pricing model for creatives. However, strategies like prioritizing project tasks, improving time management, and automating administrative duties can increase billable time. In cases where software solutions are adopted, utilization rates can reach 75%.
While setting targets for billable time can improve efficiency, it can also lead to burnout and premature staffing cuts during slow seasons. Additionally, billable hours can be a scalability trap, as the only way to increase annual revenue is to increase overall headcount.
Without clear boundaries, this model can lead to scope creep—where projects drag on and you work more hours than you’re paid for. This makes budgeting unpredictable for both you and the client, potentially leading to cash flow issues or billing disputes. Trust, a crucial factor in customer retention, can be eroded by billing disputes, making this a significant con for the billable-hour method.
Project Based Pricing
Project-based pricing (PBP) offers a streamlined approach where both the client and service provider agree on a fixed fee for a project with a clearly defined scope of work and deliverables. Project-based agencies are typically brought in for a single job, like a hired gun or specialist team. This model aligns the interests of both parties, providing agencies with predictable budgets and timelines, and clients with upfront cost certainty, particularly in the case of bigger projects where budgeting is of greater concern.
Drawbacks:
Excessive client revisions. Clients appreciate the upfront transparency of PBP—it's simple, predictable, and they know exactly what they're paying for. However, creative projects are often iterative, with client feedback leading to revisions and improvements that can alter the project scope and potentially cause delays. Therefore, strong negotiation skills are required to manage client expectations and ensure the agreed-upon scope remains realistic.
Inaccurate project estimates. Project-based pricing requires accurate cost estimation to avoid undercharging or overpricing. By using time-management tools and benchmarking similar projects, agencies can better assess the value of their expertise and identify potential cost-saving measures. However, if the project scope expands or unexpected challenges arise, there is a risk of undercharging and going over budget. To mitigate these risks, agencies should thoroughly define the project scope, build in a contingency budget, and track employee hours to ensure profitability.
Retainers
Retainers are work-for-hire agreements that stipulate a payment today for the promise of time allocated to your projects in the future. This model is popular with agencies that provide continuous work, like marketing, branding, or web management. It ensures that your team is compensated regularly, regardless of the specific number of hours worked in a given month. The stability of reliable cash flow reduces the month-to-month anxiety that can come with project-based pricing or billable hours.
Retainers offer agencies a way to secure consistent, predictable revenue by charging clients a fixed monthly fee for ongoing services. Ideally, retainers should be based on experience with custom projects and long term clients, making it easier to identify delivery trends. Equally for clients, retainers bring peace of mind since they know they’ll receive a set amount of work each month without surprise invoices.
Drawbacks:
Client Concentration Risk: Overreliance on big clients can lead to significant financial instability if a client reduces their spending or terminates the agreement. Diversifying your client base is essential to mitigate this risk.
Scope Creep: Clients may expect additional services beyond the agreed-upon scope, potentially leading to increased workload and decreased profitability. Clear communication and well-defined contracts are crucial to prevent scope creep.
Time Management Challenges: Balancing team workload and ensuring that billable hours are utilized effectively can be difficult. A robust time tracking system is essential for monitoring hours and identifying areas for improvement.
Sales Challenges: Acquiring new clients on a retainer model can be more challenging due to the higher upfront commitment required. Effective sales strategies and value propositions are necessary to overcome this hurdle.
Comparing Billable Hours, Project-Based Pricing, and Retainers
When deciding which pricing model works best for your agency, it’s essential to weigh the pros and cons of each approach. Below is a quick comparison of billable hours, project-based pricing, and retainers to help you understand which model fits your agency’s needs and services.
Time-tracking and figuring out pricing
Good time-management is an essential part of successful project delivery. In all three pricing models, a time-tracking solution will be necessary for your business. However, in each case, logging hours has a different function:
For billable hours, time is proportional to revenue.
For project-based fees, time is key for calculating the budget.
For retainers, the time invested is determined by the retainer fee.
Finding a time-tracking solution
Time-tracking reveals a lot about your agency’s performance in terms of profitability and operational efficiency. As a time-tracking software, TimeNavi serves all three pricing models since it doesn’t represent an overhaul of your workflow. Rather the opposite, TimeNavi tracks time based on the scheduling system you already use - your work calendar. By automatically pulling data from your team's calendars - whether Google or Outlook, TimeNavi helps you track every minute spent on each client and project—without the need for manual timesheets. This level of visibility allows you to ensure accurate billing, to calculate realistic budgets and to optimize retainers.
For agencies using billable hours, TimeNavi ensures that no time goes untracked, so you can bill clients accurately and avoid scope creep. If you're working with project-based pricing, you can monitor whether you're staying within the estimated time or at risk of going over budget. And for retainers, it helps you evaluate whether the monthly fee matches the actual time invested, ensuring you're not over-delivering.
Ultimately, accurate time tracking provides you with the insights needed to adjust your pricing strategies on the fly and maximize profitability, no matter which model you choose.
Conclusion: Making the Best Choice for Your Agency
Choosing the right pricing model is only part of the equation, knowing exactly how your team’s time is spent is crucial to ensuring profitability. Whether you opt for billable hours, project-based pricing, or retainers, there’s no one-size-fits-all solution. Each model has its own strengths and challenges, and the best choice for your agency depends on your specific services, client relationships, and financial goals.
And to this end, it’s important to understand how you define your agency’s position in the market. Are you a hired gun, offering specialized skills on a project-by-project basis? Or do you provide comprehensive professional services, building long-term relationships with clients? These strategic decisions will influence your workflow operations and pricing strategy, ensuring that your agency is well-positioned for success.
For flexibility and transparency, billable hours can work well, especially for projects with an evolving scope. If simplicity and predictability are more important to your clients, project-based pricing offers clear terms upfront. And for agencies looking for financial stability, retainers can help you secure consistent revenue and build long-term client relationships.
Finally, with the right pricing strategy and the right tools, your agency can stay profitable, organized, and in control of its cash flow. Tools like TimeNavi allow you to keep an eye on project costs and employee efficiency, helping you make better-informed decisions that maximize profit and reduce financial surprises.
