Almost Timely News: AI And The Death of the Hourly Business (2023-09-17) :: View in Browser
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What’s On My Mind: AI and the Death of the Hourly Business
What do most lawyers, accountants, PR professionals, marketing agencies, and consultants have in common?
Their businesses are doomed.
Okay, that statement probably needs some explanation. They all bill by the hour. These firms charge by how much time we customers consume of their talent. Lawyers at Big Law firms charge in 6 minute increments – and at anywhere from 350 –750 per hour. Marketing agencies and PR agencies bill by the hour as well; back when I worked at a PR agency, we all had to track our time down to the 15 minute increment and input that time into time tracking systems. That data then went to billing for clients, and the entire profitability of the agency was based on charging essentially 3x the effectively hourly rate of the employee. If you got paid 25 an hour, your bill rate to the customer was75.
Believe it or not, this made sense in the old world. Hourly billing is never at cost because you have a lot of overhead. Your talent is never at 100% utilization – meaning that every minute of the day that your talent is working, they’re billing. And you have entire roles or even entire departments that still cost money but do not bring in money, like accounting, HR, etc. Even sales people don’t bring in direct billable time because they’re out selling, but they don’t service the accounts.
So that business model worked really well for the last hundred years.
No more. AI is about to Miley Cyrus the hourly billing model for white collar professional work billed by the hour and come in like a wrecking ball.
Let’s look at a couple of examples. A while back, my company needed to have a particular legal agreement written, and we were billed for 10 hours of work by our law firm. That seemed fine at the time, and it was, the attorney did a fine job. We got what we needed to take care of business. Bill? 4,500.
Not too long ago, a friend asked me for help with a similar legal agreement. She couldn’t afford a full attorney. What did I do, not being an attorney myself? I of course used generative AI to create the same document. It was quite good. I then took it to a different large language model and asked that model to check the first model’s work, looking for omissions and deviations from best practices. It found a couple of minor things, but nothing significant, and then the agreement was reviewed by a human attorney friend who gave it their blessing with no changes. (graciously, at no cost)
The agreement – written by machines – was reviewed by a human attorney with no changes.
That is a big, big deal.
How long did I spend on the task? About 15 minutes. That’s87.50 in billing if you go by the rate of 450 an hour. If I were that attorney we paid4,500 for the same amount of work, I’d be very, very concerned about no longer being able to bill that much based on time.
Here’s a second example. At the aforementioned PR agency, we had a junior role called an account coordinator (AC). Despite the name, they didn’t coordinate much; what they did was grunt work, from photocopying stuff to taking notes on client calls to copying and pasting Google results into spreadsheets. I kid you not, on one team, there was an AC who copied and pasted Google search results for 40 hours a week. I would have clawed my own eyeballs out in that kind of role. (that’s not true, I would have automated my entire job and then just wandered around with a cup of coffee all day)
The agency even had utilization standards for how much billable work each role was supposed to do. The staff roles were 100% utilization – every minute of work, they were supposed to be doing billable work. The managers were at 75%; 25% of the time, they were supposed to be doing non-billable work like helping out with sales, professional development for their teams, and generally trying to help their teams be more productive. The executives – directors and VPs – were at 50%. Half the job of those people was sales because there wasn’t a dedicated sales team, so half your day, half your week, etc. was supposed to be pitching new business.
Many of the tasks that the staff level roles fulfilled – taking notes during meetings, writing press releases and content, copying and pasting stuff – those are all tasks that machines can and probably should do. There is no reason in the world for a human to manually transcribe a call now and then extract meeting notes from that call. None. Services like Otter can record the call and then with a large language model produce meeting notes and action items by speaker or team very easily. There is no reason for a human to write a generic, bland press release filled with self-congratulatory praise of a mediocre product or service. Machines can already do this better than humans, and even inject a little levity into it.
Which means that account coordinator role, as well as the account executive and even senior account executive (the three staff roles at the agency) cannot possibly be at 100% utilization any more. There simply isn’t enough billable client work to go around when you use AI intelligently to streamline operational processes. The days of an account coordinator writing a press release, an account executive editing it, and a senior account executive proofing it are and should be over. A machine should write it, another machine should edit it, and a human should be the last set of eyes on it.
And the task, which could take up to 8 billable hours – 4 for the coordinator at 125/hour, 2 for the account exec at150/hour, and 2 for the senior account exec at 175/hour – would now bill at 2 for a human’s final review. Let’s be generous and say the senior account exec would keep that task. Instead of billing1,150 to the client, as an agency owner, you could only bill $350.
That’s a massive loss of billable time, more than enough to push an agency from profitable to unprofitable in a hurry.
So how do we solve for this? How do we accommodate the usage of AI without destroying our profitability? We have to do this in two steps.
First, if your company bills by the hour, you need to make the pivot to value-based billing immediately. Today. Perhaps even stop reading this newsletter and call a meeting of your senior leaders to do so. (Alan Weiss’ Value-Based Fees is an excellent read.) Value-based billing is where agencies should have been for the last 20 years anyway; the value of what you do isn’t how long it takes you to do it, but the knowledge and applied skill to do the task.
A press release costs 1,000 not because it took 8 hours to do it but because you know what language to use to help that press release achieve its goals. Hell, your expertise is what helps you set those goals to begin with as a master practitioner of PR.
An NDA costs4,500 not because it took you 10 hours to copy and paste a template and adjust it, but because you know the law and what clauses should or should not be in it. Do you need a data protection clause that’s GDPR compliant if a company does not do business in or with the EU? No. You know that as an attorney. You can tell the machine what to put in and what to exclude and let the machine do the heavy lifting.
If you switch to value-based billing, how do you know what to bill? This is where the data you’ve collected thus far will help. You know from your existing data that on average, a general ledger review takes 12 hours and you bill that out at 2,400. Go through all your services, all your tasks in your current time tracking system and look for the median billing for that task. If you have a lot of anomalies, choose the measure of centrality that makes the most sense for your business, but in general you should be able to arrive at a sense of what any given task is worth just from the data you have on hand.
Switching to value-based billing is the single most important thing you can do to protect your business from the impact of AI if you own or have responsibility for an hours-based business. When Katie and I started Trust Insights, we threw away the hourly model from the get-go because you’re not paying for time, you’re paying for the combined 50 years of unique professional experience we bring to the table. The old adage of a plumber charging you500 for the 5 minutes to fix your boiler because they know which part to fix holds true. Do you care how long it takes me to run an attribution model? No. You care that it’s right and it’s useful. Whether it took me an hour, a day, or a minute is immaterial to the purpose.
That’s the first step. The second step, once you’ve switched to a value-based billing model, is to wholly embrace the use of AI everywhere that’s feasible within your business. Every task we’ve just discussed, every task that you’ve charged by the hour for, convert to use AI as much as possible.
Wait, what? Didn’t AI just cause us to need to make massive changes to our business? Why would we embrace it?
Because the changes it’s forcing on your business are universal, but the benefits it brings are not. Every hourly business will need to pivot to deal with the changes AI is bringing, but not every business will benefit from AI evenly. The business that goes all in will be more efficient, more effective, and more profitable than the business that dabbles or resists AI.
Let’s get hypothetical. You have two PR agencies, one that embraces AI and one that doesn’t. Both switch to value-based billing and have a rate card that says a press release is 1,000. That’s your revenue. AI is now the X factor on the cost side. If you bill following the 3x rule, your cost per hour for a fully human process that takes 8 hours is383 for the account coordinator, account executive, and senior account executive to keep doing things the way they’ve always been done. Your ROI is (earned – spent / spent) so (1,000 – 383) / 383 or 161% ROI. That’s good.
If you’re the business that adopts AI to do everything except the final pass, your cost for the two hours it takes for your senior account executive to do human review on the machine-generated press release is $116 (remember we are counting our cost, not what we used to bill this person at). Your ROI is (1,000 – 116) / 116 or 762% ROI.
Which business would you rather be? The business that has 161% ROI or 762% ROI? You don’t need to be a data scientist to figure out that one. Moreover, the business with the 762% ROI has a lot more wiggle room to undercut pricing or do other things to capture market share because their expenses are just so much lower.
This is what is coming to hourly-based businesses in every industry that has office-based hourly billing. Obviously, AI isn’t going to replace your plumber or other tasks that are in the physical world yet. But your language-based tasks, your white-collar professional tasks are all up for grabs by AI, especially with the most advanced systems today like LangChain-based AI networks. You MUST switch to value-based billing, and if you want a competitive edge, you should adopt AI every place you possibly can, as quickly as you can once you’ve made the billing switch.
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ICYMI: In Case You Missed it
Besides the newly-refreshed Google Analytics 4 course I’m relentlessly promoting (sorry not sorry), I recommend the livestream we did this week on interpreting customer satisfaction score data.
- So What? Interpreting Customer Satisfaction Score Data
- You Ask, I Answer: Accounting and Tax Large Language Model Strategy?
- You Ask, I Answer: Ecological Impact of AI?
- You Ask, I Answer: Understanding Generative AI Capabilities?
- Almost Timely News, September 10, 2023: Avoiding AI Point Solutions
- You Ask, I Answer: How to Find AI Work at AI Companies?
- You Ask, I Answer: Brand Impact of AI Content Creation?
- You Ask, I Answer: Using Generative AI to Make Money?
- Now with More Signals, XPro, and Virtual Mascots!
- In-Ear Insights: Who Owns Your Data?
- AI-Driven Pumpkin Spice
Skill Up With Classes
These are just a few of the classes I have available over at the Trust Insights website that you can take.
- 👉 Google Analytics 4 for Marketers
- 👉 Google Search Console for Marketers (🚨 just updated with AI SEO stuff! 🚨)
- ⭐️ The Marketing Singularity: How Generative AI Means the End of Marketing As We Knew It
- Powering Up Your LinkedIn Profile (For Job Hunters) 2023 Edition
- Measurement Strategies for Agencies
- Empower Your Marketing With Private Social Media Communities
- Exploratory Data Analysis: The Missing Ingredient for AI
- How AI is Changing Marketing, 2022 Edition
- How to Prove Social Media ROI
- Proving Social Media ROI
- Paradise by the Analytics Dashboard Light: How to Create Impactful Dashboards and Reports
Advertisement: Bring My AI Talk To Your Company
I’ve been lecturing a lot on large language models and generative AI (think ChatGPT) lately, and inevitably, there’s far more material than time permits at a regular conference keynote. There’s a lot more value to be unlocked – and that value can be unlocked by bringing me in to speak at your company. In a customized version of my AI keynote talk, delivered either in-person or virtually, we’ll cover all the high points of the talk, but specific to your industry, and critically, offer a ton of time to answer your specific questions that you might not feel comfortable asking in a public forum.
Here’s what one participant said after a working session at one of the world’s biggest consulting firms:
“No kidding, this was the best hour of learning or knowledge-sharing I’ve had in my years at the Firm. Chris’ expertise and context-setting was super-thought provoking and perfectly delivered. I was side-slacking teammates throughout the session to share insights and ideas. Very energizing and highly practical! Thanks so much for putting it together!”
Pricing begins at US$7,500 and will vary significantly based on whether it’s in person or not, and how much time you need to get the most value from the experience.
Get Back to Work
Folks who post jobs in the free Analytics for Marketers Slack community may have those jobs shared here, too. If you’re looking for work, check out these recent open positions, and check out the Slack group for the comprehensive list.
- Abm Specialist at Campaign Monitor
- Data Analyst at Aller Media A/S
- Data Science Architect at APPIC Solutions
- Digital Marketing Manager at Etsy
- Director, Sales Emea & Apac at Customer.io
- Technical Account Manager at Snowplow Analytics
- Technical Account Manager at Snowplow Analytics
What I’m Reading: Your Stuff
Let’s look at the most interesting content from around the web on topics you care about, some of which you might have even written.
Social Media Marketing
- Social Media Intelligence: What It Is & Why You Need It
- Semrush Unveils AI-Powered Tool to Supercharge Your Social Media Presence
- The CMOs Social Media Marketing Agenda for 2024 via Sprout Social
Media and Content
- Strategic Thinking for PR: How to Prepare for Black Swan Events
- What government TikTok bans mean for communicators via PR Daily
- How to defend your organization against deepfake content via IT World Canada News
SEO, Google, and Paid Media
- 7 SEO Copywriting Tips To Engage Readers And Rank via Copyblogger
- SEO Monitoring Explained: Best Free Tools to Get Started
- State Of SEO: Agency & In-House Pros Navigate Disruptions
Advertisement: Business Cameos
If you’re familiar with the Cameo system – where people hire well-known folks for short video clips – then you’ll totally get Thinkers One. Created by my friend Mitch Joel, Thinkers One lets you connect with the biggest thinkers for short videos on topics you care about. I’ve got a whole slew of Thinkers One Cameo-style topics for video clips you can use at internal company meetings, events, or even just for yourself. Want me to tell your boss that you need to be paying attention to generative AI right now?
Tools, Machine Learning, and AI
- Tech leaders want balanced AI regulation in private Senate meeting via The Verge
- More companies commit to the White House AI safety accord via The Verge
- Another group of writers is suing OpenAI over copyright claims via The Verge
Analytics, Stats, and Data Science
- Panguin Tool: Overlay Google Search Algorithm Changes With Your Google Analytics Data via Martech Zone
- AI-Driven Pumpkin Spice
- 28 Powerful Email Marketing Statistics YSK via ReadWrite
All Things IBM
- Unlock innovation today and for tomorrow with a future-ready digital infrastructure via IBM Blog
- UK Government tests frictionless trade models with Ecosystem of Trust pilots via IBM Blog
- The tsunami of sustainability disclosures facing American multinationals: Is your company prepared? via IBM Blog
Dealer’s Choice : Random Stuff
- How America Got Mean
- Why Has a Useless Cold Medication Been Allowed on Shelves for Years?
- Postacute sequelae of COVID-19 at 2 years
How to Stay in Touch
Let’s make sure we’re connected in the places it suits you best. Here’s where you can find different content:
- My blog – daily videos, blog posts, and podcast episodes
- My YouTube channel – daily videos, conference talks, and all things video
- My company, Trust Insights – marketing analytics help
- My podcast, Marketing over Coffee – weekly episodes of what’s worth noting in marketing
- My second podcast, In-Ear Insights – the Trust Insights weekly podcast focused on data and analytics
- On Threads – random personal stuff and chaos
- On LinkedIn – daily videos and news
- On Instagram – personal photos and travels
- My free Slack discussion forum, Analytics for Marketers – open conversations about marketing and analytics
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Events I’ll Be At
Here’s where I’m speaking and attending. Say hi if you’re at an event also:
- ISBM, Chicago, September 2023
- Content Marketing World, DC, September 2023
- Marketing Analytics and Data Science, DC, September 2023
- Content Jam, Chicago, October 2023
- MarketingProfs B2B Forum, Boston, October 2023
- AImpact, Online, November 2023
- Social Media Marketing World, San Diego, February 2024
Events marked with a physical location may become virtual if conditions and safety warrant it.
If you’re an event organizer, let me help your event shine. Visit my speaking page for more details.
Can’t be at an event? Stop by my private Slack group instead, Analytics for Marketers.
Events with links have purchased sponsorships in this newsletter and as a result, I receive direct financial compensation for promoting them.
Advertisements in this newsletter have paid to be promoted, and as a result, I receive direct financial compensation for promoting them.
My company, Trust Insights, maintains business partnerships with companies including, but not limited to, IBM, Cisco Systems, Amazon, Talkwalker, MarketingProfs, MarketMuse, Agorapulse, Hubspot, Informa, Demandbase, The Marketing AI Institute, and others. While links shared from partners are not explicit endorsements, nor do they directly financially benefit Trust Insights, a commercial relationship exists for which Trust Insights may receive indirect financial benefit, and thus I may receive indirect financial benefit from them as well.
Thanks for subscribing and reading this far. I appreciate it. As always, thank you for your support, your attention, and your kindness.
See you next week,
Christopher S. Penn
You might also enjoy:
- What Is The Difference Between Analysis and Insight?
- How To Set Your Consulting Billing Rates and Fees
- The Biggest Mistake in Marketing Data
- Retiring Old Email Marketing Strategies
- How To Start Your Public Speaking Career
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