By: Lindsay Rittenhouse
The tool that shops are now racing to adopt promises to drastically cut down on the time it takes to work on a campaign, as well as the number of people needed to do the job (whether executives like to admit it or not). That upends the two items agencies have historically used to price their services: billable hours and costs per head.
For years, advocates of revamping the traditional payment model have been pleading for the industry to adopt more modern forms of compensation, such as pricing based on performance or value.
A growing cohort of independent agencies has already been successful in shifting compensation. But some people in the industry say AI will force all agencies to finally wake up to new payment methods.
“AI is like a giant wave and everybody’s in the water,” said Howard Moggs, Uncommon founder and chief growth officer at Team Uncommon. “There’s a bunch of people looking at it going, ‘Oh no, I don’t know what to do,’ and if they don’t move, they’re going to get hit by this wave. Meanwhile, there’s a load of people grabbing surfboards who are going to jump on it and go, ‘I’m going to use this to propel me to the front of the pack.’”
“You’ve got to look at it holistically and not just ‘how is this going to change my pricing model?’ but my operational model … where is the value?” he added.
The change is urgent, some people interviewed said, as AI is revolutionizing the advertising business. At the Cannes Lions International Festival of Creativity, it seemed as if every agency has already radically shifted their operating model, given how many were repositioning themselves as AI-powered tech firms.
Some agencies do seem ahead of the pack in figuring out how to operate and price their services in a new AI-driven world, or at least they’re testing and learning. Others may not know where to begin. For those shops, below is a guide on how to get started evaluating how to price your services now backed by AI, based on conversations with consultants and agency executives who have already made strides in this area.
Product pricing
As agencies rush to build out their new AI tech stack, they need to be thinking of creating a new “pricing stack,” said Tim Williams, founding partner of Ignition Consulting Group, which helps agencies turn their expertise into scalable growth.
Williams said one approach is to price the proprietary AI tools they’re creating.
“This is where agencies develop their own proprietary products with AI operating in the background and they price the product, not the people or the team or the hours,” he said.
Another is pricing based on developing AI-as-a-Service (AIaaS, like SaaS) solutions.
“It’s the idea that the agency licenses an AI-powered platform that the client subscribes to,” Williams said.
Williams pointed to data and insights agency Known, one of Ad Age’s 2025 Agency A-List winners, and its subscription service for Skeptic AI – which has been trained on data from 1.8 million micro-campaigns.
“Until this year, the platform was solely used by Known’s creative, media, research and strategy teams,” Known President Ross Martin said. “In 2025, Skeptic became directly available to clients, who can license as a subscription or as a managed service supported by Known specialists.”
Williams said agencies have to start reimagining their services as “products and solution sets” but typically, executives start to “freak out” when they have to overhaul the traditional compensation model. He added that the typical agency leader’s thinking is, “If we don’t have time tracking and we don’t do time sheets, how do we know how our people are spending their time?”
There are tools such as Scope Better that help companies, including ad agencies, price their services as products, according to Williams. He said his firm always advises shops to set up what he calls a “value council,” comprised of senior executives who can tackle issues such as the creation of “products and programs that represent things clients can’t easily do for themselves,” which can be priced at a premium.
“Most agencies still operate on the model ‘big machine, small brain’ at a time when we need to present ourselves as ‘big brain, small machine,’” Williams said. “Client organizations can already employ a wide array of software tools to create and run their own ‘machine.’ The mission of agencies is to direct the time saved by AI into becoming a better, stronger ‘brain.’”
‘Talent and machine’
S4 Capital’s Monks was an early adopter of AI – the agency has proprietary AI tools such as Monks Flow. During Cannes, its executives gave clients walkthroughs of its new AI capabilities, particularly around how AI agents can streamline their operations.
Monks has tried several different pricing models, according to Wesley ter Haar, its co-founder, chief revenue officer and chief AI officer. He said the one that’s been the most successful is pricing based on a package of “talent and machine,” versus the traditional “time and material.”
It’s similar to a subscription fee, ter Haar said, noting that it’s a fixed cost based on packaged rates of people plus the AI capabilities. For example, one client is using Monks Flow for email marketing and that marketer gets “infinite emails” created for it, overseen by a handful of “really good, smart people,” he said, for a fixed price. He said Monks provides similar offerings for social and content creation.
“We’re not showing you the rates of a person versus the cost of computer; we’re packaging it,” ter Haar said. “And that’s quite popular at the moment. What used to be retainers, we’re just packaging in these types of fixed fee structures.”
The price of talent
Although AI will have some negative impacts on the industry’s workforce – some jobs will inevitably be eliminated – top talent is still important and increasingly expensive in the evolving landscape.
Monks doesn’t always have success convincing clients to go the route of pricing based on certain outcomes or KPIs reached, but when it does, it can “unlock margin” in its senior talent when they hit certain goals for the marketer, ter Haar said.
In that scenario, he said Monks will split out the cost of its people, which would not typically happen in the aforementioned packaged model, and then figure out with the client certain KPI goals for its people to hit. If they do, the shop gets the margin.
“That’s a nice way to show commitment to our conviction that our model outperforms more traditional ways of working,” ter Haar said. “Our clients still want really great people and I think honestly, as an agency, our distinction against software off the shelf has to be the quality of our people. You get really great people; they run the machine.”
Christine Moore, a managing partner at Raus Global, a firm that supports marketing procurement teams, is currently seeing some agency fees increase, including for the talent managing AI technology. She said that senior talent is becoming “pricey,” and in some cases, she is also seeing shops charge more for hours since they are dedicating less time to projects.
Moggs criticized shops that respond to AI by charging more for hours. He said those shops likely don’t know how to adapt yet, and are instead acting like “a deer caught in headlights.”
What is your value?
Moggs is a proponent of values- or outcomes-based pricing.
He has long encouraged shops to brand themselves based on a specific KPI they are particularly adept in delivering – such as growing loyalty members for marketers – then price based on that value.
Outcomes- or values-based pricing is another solution in Williams’ new “pricing stack” – charging based on hitting a certain metric, backed by the power of AI. He said it’s a “powerful” model that he imagines agencies will increasingly adopt.
“They just say, ‘We’re going to optimize this entire process using AI tools and we’ll take our compensation in the form of increased sales, increased brand recognition, increased leads, increased click-throughs,” Williams said.
Markacy, a full-service agency in New York, has moved to more outcomes-based pricing, according to Ryan Mason, its president and chief operating officer.
“We don’t see AI in the category of a billable tool, but more as something we use to deliver faster, smarter results for our clients,” Mason said. “Businesses don’t inherently want to pay for AI, they would rather pay for outcomes that AI helps unlock.”
In this new AI-powered world, several people interviewed said agencies must focus on the value they provide clients and then put a price on that.
“AI is exposing the fundamental misalignment between the value agencies provide and how they’ve been charging for it,” said Brian Kessman, founder and principal consultant at Lodestar Agency Consulting. “We can’t price using time any longer, so the goal is moving to pricing anchored in business outcomes and value. In doing that, pricing is the last step of a necessary three-part transformation: positioning, product, then price.”
Kessman’s solution (as seen in the chart below) essentially means agencies must define their value based on the specific expertise they provide, turn that expertise into scalable solutions such as licensed IP and AI-powered offerings and then create pricing “anchored in the outcomes you create.”
Cost arguments
There is some argument over whether AI should result in discounts to clients.
“How should agencies charge for AI? They shouldn’t,” Moggs said. “They should be charging based on the projected value of the outcome that they’re going to deliver by solving a problem for a client. Instead of a threat, it becomes a weapon. It enables agencies to solve those problems more efficiently. Just because they’re using a tool doesn’t mean that they’re providing any less value to the outcome of the client.”
Some people interviewed maintained that being able to pass back some of the costs saved from using AI to clients will determine which agencies will be successful in winning business going forward.
“Clients are increasingly asking their agencies to explain how they are implementing AI, expecting those agencies to pass on some of the resulting efficiencies without necessarily caring how the particular efficiency is achieved,” said Roch Glowacki, managing associate on the digital, commerce and creative team at law firm Lewis Silkin. “In the foreseeable future, agencies that successfully integrate AI in a way that maintains quality outputs while reducing costs will, of course, have an advantage.”
But AI doesn’t always mean cheaper.
Aaron Edwards, CEO of full-service digital agency The Charles Group, cited one instance early on in the agency’s adoption of generative AI. He said the shop ended up spending more on a project that used gen AI to “basically build the entire campaign” than it would have by building the ads with its own artists using CGI or VFX. That was because the AI tools were good at generating images, but the tech couldn’t make simple edits, forcing the agency to entirely regenerate parts of the campaign.
Agencies have been pressured by thinning margins for years now, with some pieces of business being awarded to shops based on how low they can get fees.
“When you price based on time and effort, faster delivery should mean lower fees. That’s the logical outcome of an effort-based pricing model, and clients aren’t wrong to push for it,” Kessman said. “This is especially problematic for agencies still selling their expertise the same way as their competitors: as a menu of capabilities and services with custom scopes for every project. That structure makes it easy for buyers to compare firms and negotiate fees down.”
Most people interviewed said that for agencies to survive, they need to adopt new compensation models faster than probably the overall industry is prepared.
“[AI] is going to accelerate this entire trend like we’ve never seen before,” Williams said. “I will boldly predict, in the next 18 to 24 months, there won’t be any agencies billing for time.”
Source: AdAge
