What is Output-Based Pricing? (And More Importantly Why Should You Care?)
If there’s one thing that unites procurement teams, marketing directors, and agency leaders, it’s a shared frustration with the archaic nature of the billable hour. It’s a system that rewards inefficiency, prioritizes effort over effectiveness, and turns every client-agency conversation into a debate over time sheets rather than results.
But here’s the good news: the future of agency compensation isn’t about counting hours—it’s about delivering outcomes. This is why and where output based pricing comes in.
Output-based pricing is a fixed-fee model where agencies are compensated for delivering specific, predefined outputs rather than billing for time or headcount. Therefore, instead of paying for the number of strategists, designers, and media planners assigned to a project, clients pay for the actual work delivered—whether that’s a campaign, a set of digital assets, or a fully developed brand strategy. One key aspect to include to ensure you have the dedicated and high quality team you want and deserve is to input into your agency contract specific team members / staffing plan so although you won’t know the hours used, you will have peace of mind knowing the best team is working on your deliverables.
Agencies get paid for what they deliver, not how long it takes them to do it. For clients, this means greater transparency, predictable costs, and a clear alignment of incentives. For agencies, it means the freedom to work smarter rather than just longer.
Why the Shift? The Problems with Input-Based Models
Historically, agencies have been compensated based on an input-driven model—one that calculates fees based on the hours they spend required to deliver an output. The problems with this model are well-documented and is something almost all of our clients have to struggle with:
- It rewards inefficiency – The longer something takes, the more an agency earns. To caveat something may take longer due to the client actions, such as unclear SOWs, inefficient ways of working, or changing live briefs, for this approach to work and be beneficial for both parties, these aspects must be eradicated – it’s definitely a two way street! See ‘How Output-Based Pricing Works in Practice’
- It misaligns incentives – Agencies are encouraged to fill scopes with headcount rather than focus on impact.
- It leads to scope creep disputes – Clients see costs rising with little clarity on value delivered.
- It’s outdated – In an era of automation, AI, and remote work, measuring “hours worked” is an outdated metric of success.
How Output-Based Pricing Works in Practice
To make an output-based model successful, it requires:
- A Well-Defined Scope of Work (SOW): The client and agency must align on the exact deliverables, their expected quality, and performance expectations. A well defined Taxonomy is essential (See recent article by Simon Francis on Taxonomy)
- Flat-Fee Pricing per Deliverable: Pricing should be based on the actual value of the output, not the effort required to create it.
- Clear Benchmarks for Quality & Performance: Ensuring there’s an agreement on what constitutes a “successful” delivery.
- Flexibility for Scope Adjustments: If additional revisions or new assets are required, a predefined change order process should be in place
The Benefits: Why Everyone Wins
For Clients:
✔ Cost Predictability – No surprises, just a fixed fee for agreed outputs.
✔Transparency & Accountability – You know exactly what you’re paying for.
✔ Efficiency Gains – Agencies focus on delivering impact rather than tracking hours.
For Agencies:
✔ Encourages Innovation – Agencies can find smarter ways to deliver great work.
✔ Higher Margins for High-Performing Agencies – Efficiency is rewarded.
✔ Fosters Better Client Relationships – Conversations shift from costs to value creation.
Common Concerns & How to Address Them
❓ “What if the agency under-delivers?”
- Contracts should specify delivery expectations, performance criteria, and review processes.
❓ “How do we determine fair pricing?”
- Benchmarking past work and using tools like Flock’s FAST (Flock Agency Scoping Tool) can help set fair, competitive pricing against market and agencies in your ecosystem.
❓ “What about flexibility? Can changes be made?”
- Yes! Scope change mechanisms ensure fairness without reverting to input-based models.
The Role of Technology: How Flock Associates is Leading the Change
At Flock Associates, we’ve helped numerous clients transition to output-based models using our proprietary FAST (Flock Agency Scoping Tool)—a system designed to streamline asset-based pricing and SOW management.
With FAST, marketing and procurement teams can:
- Define and standardize output-based pricing for all marketing disciplines.
- Gain full visibility on costs across all agencies and markets.
- Ensure fair, transparent pricing without the inefficiencies of billable hours.
- Benchmark assets against live market rates and agencies in your ecosystem.
Want to see how FAST can help your organization? Get in touch with Flock today with the form below or email (iain.lewis@flock-associates.com, simon.francis@flock-associates.com, cormac.loughran@flock-associates.com)
Conclusion: The Future is Output-Based
As brands continue to seek greater efficiency, accountability, and transparency, output-based pricing will become the industry standard. Agencies that embrace this shift will build stronger client relationships, drive profitability, and create work that truly moves the needle.
It’s time to stop measuring success by time spent and start measuring it by work delivered. The days of debating timesheets are over— certainly and no one’s going to miss them.
What’s Next? If your organization is still navigating the transition to output-based remuneration, Flock Associates can help. Contact us with the form below or email (iain.lewis@flock-associates.com, simon.francis@flock-associates.com, cormac.loughran@flock-associates.com)
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