Agency pricing models are under more pressure than ever. Not because clients are being difficult, but because the traditional effort-based model just doesn’t hold up anymore. Especially now that AI can accelerate agency work in ways we couldn’t have imagined.

In a recent conversation with Brian Kessman, founder of Lodestar Agency Consulting, we dug into how creative agencies can shift their pricing strategies to stay competitive and profitable without relying on outdated billing models.

Let’s walk through the key takeaways.

Why Effort-Based Pricing Fails in the Age of AI-Powered Agency Work

What Is Effort-Based Pricing?

Effort-based pricing (also called time-based or cost-plus pricing) is when agencies bill for hours worked or resources used. It’s long been the default for many service businesses, but in today’s fast-paced, AI-augmented world, it’s starting to break down.

Why Is AI Disrupting Traditional Agency Pricing Models?

Here’s the problem: if you charge based on time and effort, then faster delivery equals lower fees. But AI is accelerating how quickly creative work gets done. So clients aren’t wrong to expect price reductions. The logic makes sense.

The result? Agencies stuck in a time-based pricing model are essentially scaling busyness, not value.

“Agencies are burning out because they’re trying to grow by selling more hours. That’s not sustainable. AI is just accelerating the reckoning.”
– Brian Kessman

4 Agency Pricing Models That Work Better Than Effort-Based Billing

Brian outlined four pricing models that work better in today’s market:

1. Output-Based Pricing
   Fixed fees tied to deliverables.
   
2. Outcome-Based Pricing
   Fees tied to the business result.
   
3. Performance-Based Pricing
   Compensation tied to KPIs (e.g. conversions, revenue impact).
   
4. Value-Based Pricing
   The holy grail—pricing based on a percentage of value delivered, not just deliverables or inputs.
   

You don’t have to leap to value-based pricing overnight. But moving away from “cost-plus” thinking is step one.

4 Key Shifts for Evolving Your Agency Pricing Strategy

This isn’t just a pricing change. It’s a full value model transformation. Brian identified four critical shifts:

1. Philosophical Shift
   Redefine what makes your firm valuable. Think insight, speed, and outcomes, not just execution.
   
2. Strategic Shift
   Decide which problems you solve best and stop chasing every project.
   
3. Operational Shift
   Build systems to deliver those solutions repeatably and reliably.
   
4. Measurement Shift
   Shift your focus from hours logged to problems solved. Effectiveness is the new efficiency.
   

Start With One Problem, Not One Project

You don’t need to “burn the house down” to get started. Brian recommends:

• Pick one high-value problem your agency solves well.
  
• Build a repeatable solution around it.
  
• Test it with a pilot offering.
  
• Measure sales velocity and pricing power.
  

“It’s not about launching a new service—it’s about solving one problem better than anyone else.”
– Brian Kessman

The Future of Agency Pricing: Focused, Outcome-Driven, and Powered by AI

The future agency isn’t just using AI to go faster. It’s aligned around client outcomes, designed for repeatability, and focused on solving high-value problems.

Yes, pricing is changing. But what’s really shifting is how agencies define their value.

And those that make this shift now? They won’t just be future-ready. They’ll be the ones leading the future.

Want to dig deeper?

Want to see how this shift plays out in real life? Catch the full webinar with Brian Kessman – or let’s chat about how Parallax insights are helping agencies price smarter and scale with confidence.