How Do Creative Agencies Typically Bill Their Work?

Most creative agencies I speak with have multiple ways in which projects are billed to their clients. This seems to be the case regardless of whether they are interactive, brand, advertising, design or even architectural firms.

These agencies tend to have some clients being billed on a retainer basis, some projects are billed based on time and materials, and an offering of fixed fee projects as well. Of course the goal is always to bill an amount that is equivalent to the value of the work done on a project. However, that’s often easier said than done.

With the current economic climate, many companies have a defined budget for each creative project. While it may not be desirable in all cases, many agencies I speak with are billing more and more projects based on a fixed fee structure. A fixed fee structure is great when your agency has an excellent handle on estimating and managing time. It may not be ideal to bill long-term and complicated projects by a fixed fee structure since those projects may require more time than allotted to get the job done. In this case, your agency would be running at a loss!

Efficiency is key when billing fixed fees. It’s very important to keep an eye on how the work being done compares to the budget. Utilizing a project management software like Function Point to track your work will help you stay on budget and ensure that you’re hitting your target net effective multipliers. A system like Function Point can also help your team produce real-time reports, track time being spent against jobs and compare actual vs. estimated costs.

As any owner or principal of a creative agency will tell you, it’s impossible to stay under budget for every project. After all, the most important thing is the quality of the work as long as you remain profitable enough to stay in business. If your agency is billing based on a fixed fee and you do go over budget, a postmortem review is very important.

Then, even if your agency is not hitting your target net effective multipliers, at least you’ll know and “knowing is half the battle”. (G.I Joe)

To learn more about agency billing options and fee structure, be sure to check out our blog article on a review of billing services for creative agencies, or check out our free eBook to learn more about how a project management and billing software could improve productivity and profitability at your creative, digital and advertising agency.

This article was contributed by former Function Point team member, Marc Wilson.

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