When a SaaS founder is shopping for a marketing or creative agency and one of the candidates leads with "we bill at $200 an hour," the right move is to politely end the call. Not because $200 is too much or too little — it might be either — but because hourly billing reveals an agency that's incentivized to take longer, not to deliver better. The agency makes more when work drags out. The buyer pays for time, not for outcomes. The two sides are pulling in opposite directions before the first deliverable ships.
[Insert diagram: a comparison of two billing arrangements — hourly (agency revenue grows with hours billed, buyer pays for time regardless of outcome) vs project-based (agency revenue fixed by scope, agency incentive aligned with shipping faster). Annotations show how each model affects the agency's behavior over the engagement.]
Hourly billing isn't even controversial anymore in agency circles. The serious agencies have all moved on. What's still controversial is what should replace it. Project-based, value-based, productized, and performance-based pricing each have advocates, drawbacks, and a specific fit. Here's the framework we use at Conversion Factory to evaluate marketing agency pricing — both as practitioners and as buyers of services for our own work.
Why hourly billing is broken for both sides
The clearest way to explain why hourly doesn't work: imagine an agency principal walks into your house and offers to organize your sock drawer at their effective hourly rate. Say it's $200. Same person, same time, exact same skill set. Would you pay it? No. Not because the time isn't real — it is — but because organizing socks isn't worth $200 an hour to you. The value is in the work, not in the time.
When you hire an agency hourly, you're paying for time. When you hire an agency for a project, you're paying for the work. Those are different things, and the hourly arrangement actively encourages the wrong behaviors:
The agency is incentivized to take longer. Not maliciously — the incentive just slants that direction. A junior who could finish in three hours has every reason to take five. A senior reviewing the work has every reason to do another pass. The shareholder math reinforces it: revenue per project goes up when hours go up. The agency that finishes fast loses revenue. The agency that drags loses nothing.
The buyer can't evaluate value during the engagement. "It might take four hours, it might take twelve, we'll see" is the canonical answer to scoping questions in hourly arrangements. The buyer agrees to an open-ended bill. When the invoice arrives, there's no way to know whether it was a fair effort or a padded one. You either trust the agency, or you don't — and trust without measurable accountability is a fragile arrangement.
The agency captures the margin between buyer rate and pay rate. An agency charging $200/hour and paying its strategist $100/hour is taking the $100 spread as overhead and profit. That's not inherently bad, but the buyer is paying for that spread regardless of whether the strategist is producing $200/hour of value. In a project-based arrangement, that spread is implicit and the buyer pays for outcomes; in an hourly arrangement, it's exposed as a line item the buyer literally pays for time.
Even "transparent" hourly reporting is theater. Some hourly agencies bill weekly with detailed time sheets — "Tuesday 3:00–5:00 PM: strategy work on homepage messaging." Sounds rigorous. But the buyer has no way to know whether two hours of "strategy work" was real strategy or a half-hour of thinking and a long lunch. The transparency is on hours logged, not value delivered.
The killer line on hourly: time isn't the thing the buyer wants. The buyer wants the deliverable. Pricing the deliverable directly is more honest, more aligned, and more accurate to what's actually being transacted.
The three pricing models that actually work
Three models have emerged as the credible alternatives to hourly: project-based (fixed scope, fixed price), productized (off-the-shelf service packages), and value-based (price scales with the client's stakes). Each has a clear fit and clear trade-offs.
Project-based — fixed scope, fixed price
The most common move away from hourly. The agency and client agree on a defined scope ("redesign the homepage, copy + design + dev"), the agency quotes a fixed price, the client pays the fixed price, the agency delivers the scope. Simple.
Why it works:
- The buyer knows exactly what they're paying for and exactly what they're getting
- Budget approval is straightforward — there's a single number on the contract
- The agency is incentivized to work efficiently; finishing faster preserves margin
- Both sides can evaluate fit before committing the bigger checks
Trade-offs:
- Scoping is hard, especially the first time you work together. Both sides are negotiating against gaps in shared understanding.
- Change orders happen. Project A starts as a homepage rebuild and becomes a positioning rebuild as the agency uncovers deeper issues. The "fixed" price becomes negotiated.
- The model commoditizes the work over time. Once a buyer knows the price, they can shop the same scope to competitors. Switching costs are lower.
- It's rigid. If the client realizes mid-project that they actually need something different, the contract has to be renegotiated.
When to pick it: clear discrete deliverable, both sides aligned on scope, established relationship or strong references reducing the unknown-unknowns. Most marketing site projects, brand identity systems, and one-off campaigns fit cleanly here.
Productized — off-the-shelf service packages
Productized services are project-based pricing taken to its logical extreme: a published price for a published scope. The agency lists the offer on their site like SKUs in a store. The buyer can compare options, pick the one that fits, and transact without a long negotiation.
The premium examples in agency circles — Design Joy's monthly subscription for unlimited design, Webflow agency offers that list "homepage in 14 days for $X" — are productized. The agency commits to the work; the buyer commits to the price; the friction of scoping is removed.
Why it works:
- Lowest possible buyer friction — see the offer, decide, sign
- Forces the agency to know their offering cold; you can't productize what you can't execute repeatably
- Builds compounding revenue if the offer is subscription or recurring
- Scales without proportional sales overhead
Trade-offs:
- Requires the agency to have genuinely standardized their delivery — most agencies haven't
- Loses the ability to charge more for higher-stakes clients (a small bootstrapped SaaS pays the same as a Series B startup for the same package)
- Bad fit for clients whose actual needs don't match any standard package
- Can feel transactional in categories where buyers expect partnership
When to pick it: when the work is genuinely repeatable across clients, when the agency has the operational discipline to deliver consistently, and when the buyer market values speed and clarity over bespoke partnership. Better for execution-heavy work (design, landing pages, email setups) than for strategic work that varies by client context.
Value-based — price scales with client stakes
Value-based pricing is the most controversial of the three but also the highest-leverage. The agency runs roughly the same process for every client, but the price varies based on the client's stakes — company size, revenue, the dollar value of the outcome the agency is delivering against.
The same brand identity package might cost $5,000 for a pre-seed startup and $50,000 for a Series B with $5M ARR. The work is similar; the price is anchored to the value the work creates for the buyer.
Why it works:
- Captures more revenue from higher-stakes clients without doing proportionally more work
- The agency's economics improve with bigger clients, which lets them invest in better senior talent
- Buyers with bigger stakes are usually willing to pay more because the alternative — getting it wrong — costs them more
- Aligns the agency's margin growth with serving more sophisticated clients
Trade-offs:
- Requires the agency to have the confidence and pricing discipline to quote differently per client
- Buyers occasionally compare notes and discover the price spread, which feels unfair even when it's economically rational
- The agency has to be able to justify the higher prices with case studies and references
- It's harder to publish on a website (which is why most value-based agencies don't)
When to pick it: when the agency has earned the right through track record and case studies, and when the client mix spans a wide stakes range. The most lucrative agencies in our space typically use value-based pricing for the senior end of their client base and productized or project-based for the entry tier.
How to spot a bad agency during the sales call
A few signals that show up in the first conversation:
The pricing answer is "it depends" with no follow-up. Every reasonable agency answers pricing questions with some "depends" — different scopes cost different amounts. But the good answer follows with a concrete framework: "For a brand identity engagement, we typically range $X to $Y depending on these three variables." The bad answer is "it depends" and a request to schedule another call. That's a tell that the agency hasn't thought through their own pricing.
The agency offers hourly billing as the default. Already covered. Run.
The proposed engagement has no clear scope or deliverables. "We'll spend three months working with you and see what comes out of it" is a retainer with no accountability. Either the engagement has a clear scope (project-based), a clear cadence of deliverables (retainer with productized output), or a clear outcome the agency is held to (value- or performance-based). If none of those exist, the agency is selling time.
The agency can't articulate what they don't do. A serious agency has clear positioning: "We do X for Y, we don't do Z." The vague generalists who pitch every service to every client are usually weak at all of them. Sharp positioning — including a list of what's out of scope — is a quality signal. This is the same principle we apply to our own positioning work for SaaS clients — a clearly defined target reveals a credible specialist.
The proposal includes performance promises with no skin in the game. "We'll triple your traffic in 90 days" is easy to promise and hard to honor. If the agency claims outcomes, the next question should be: "And what happens if you don't hit it?" An agency that has a real answer (rebate, free additional work, contract reset) is taking the promise seriously. An agency that has no answer is using outcome-based language as a marketing pitch.
The references are exclusively logos, not specific outcomes. "We've worked with Stripe, Notion, and Linear" is a logo wall. "We doubled the conversion rate on Stripe's pricing page over six weeks" is an outcome. The first is brand-association marketing; the second is verifiable substance.
What this looks like from inside an agency
We're an agency. We charge project-based for client-facing engagements and run productized pricing on a few standardized offers. We don't bill hourly. We don't promise outcomes we can't deliver. We turn down work that doesn't fit our positioning. And our internal economics improve because every engagement is priced for value delivered rather than time logged.
The hardest version of this discipline is turning down a fit-poor client who's offering to pay a lot. The easier version is being explicit about who we're for and who we're not — which is the same advice we give clients about their own competitor comparison pages. Being clear about what you don't do is a quality signal that compounds; pretending to do everything for everyone produces clients you'll regret.
If you're evaluating agencies right now, the framework above is the lens. Hourly is out. The three remaining models each have a fit. The agency that can explain their pricing model — and why they chose it — is much more likely to be the one that ships work you'll actually want.
Frequently asked questions
"Is there ever a case where hourly billing makes sense?"
Maybe for very small, exploratory engagements where neither side can scope the work yet — a discovery phase before a real project starts. Even then, we'd recommend capping the hourly engagement at a fixed dollar amount and converting to project-based once the scope clarifies. As a default for ongoing work, hourly is structurally misaligned and doesn't get better with time.
"How do agencies that bill project-based handle scope creep?"
The good ones write the scope tightly, list what's specifically out of scope, and quote change orders for anything that falls outside. The bad ones absorb scope creep until margin dies and then either deliver something rushed or end the engagement on bad terms. The signal during the sales call: ask how the agency handles change orders. A clear answer (process, pricing, timing) is a good sign. A vague "we'll figure it out" is a warning.
"What's the difference between productized services and a SaaS product?"
A productized service has a fixed scope, fixed price, and a human team delivering it. A SaaS product is software that runs without human delivery. Productized services compound margin via operational efficiency; SaaS products compound margin via software unit economics. They're different businesses with different scaling dynamics. Some agencies offer both — productized services as the buy-now offer, custom engagements as the higher-touch offer.
"How should I think about agency retainers?"
Retainers can be project-based (a defined monthly scope at a fixed monthly price), productized (an off-the-shelf monthly package), or hourly (you buy X hours per month). The first two are fine and align well; the third is hourly in disguise and inherits all the same problems. If you're offered a retainer, ask what the deliverable cadence is. If the answer is "X hours of our team's time per month," that's hourly with extra steps.
"Does pricing model affect the quality of work?"
Indirectly, yes. Pricing model shapes incentives, and incentives shape behavior over many engagements. Hourly agencies optimize for fillable hours, which often correlates with slow delivery and over-engineered scope. Project-based agencies optimize for shipping cleanly, which often correlates with sharper scope and faster turnarounds. Value-based agencies optimize for higher-stakes clients, which often correlates with senior talent and deeper strategic engagement. Pricing isn't destiny, but it's a strong signal.
"How does this apply to in-house marketing teams?"
The same principle applies internally. In-house teams that bill by hour (i.e., track time and report it as a primary metric) optimize for visible activity. In-house teams that ship by project (clear scope, clear deliverable, clear timeline) optimize for outcomes. Most in-house teams don't think of themselves as having a pricing model, but the incentive structure of how performance is measured plays the same role. If you're an in-house marketer or running a team, the framework above — pick the model that aligns incentive with the outcome you want — applies one-to-one.
"What about performance-based pricing — should I take that deal if an agency offers it?"
Probably not as a default, with one or two specific exceptions. The structural problem with performance-based pricing: as soon as the work starts producing results, the buyer realizes they could pay a different agency 5x less on a flat retainer for the same outcome — and they switch. The agency takes all the risk during the ramp and gets paid out for one or two quarters before being replaced. The math only works when the agency captures multiples of the typical price during the short window where they get paid, and most clients won't accept that pricing once they understand it. The narrow exceptions: (1) short-sprint engagements with a defined end point (the Hormozi gym-launch model — three weeks of intense work for a percentage of the membership signups during that window, then a clean exit); (2) deals structured as equity or royalty where the upside is legally locked in (rare, usually only at the founding-team level). For everything else, the buyer holds all the leverage and the agency holds all the risk. Skip it.
Honorable mention: bartering
Worth a brief mention before we close: bartering exists, it's rare, and in the right circumstance it's a delightful pricing model. The setup: an agency does work for a client, the client pays in something other than cash — typically a product, service, or in-perpetuity access to something the agency would otherwise buy.
Zach's go-to example is his grandfather, a master plumber, who once fixed an issue at a local Mexican restaurant in about two hours. When the owner asked what he was owed, Zach's grandfather said "tell me the next time I come in for food." The owner agreed, and the family ate well for the visit. The trade was small, simple, and worked because both sides got something they wanted at a fair-feeling rate.
Where this becomes interesting at the agency level: imagine rebranding a taco shop in exchange for free tacos for life. Rebranding Southwest Airlines in exchange for lifetime flights. Doing a positioning sprint for an enterprise software company in exchange for free access to their tool in perpetuity. The trades only work when both sides genuinely value what the other is offering at roughly comparable amounts — but when they do, they unlock arrangements no cash transaction would have produced.
It's inefficient by definition (you're trading sheep for ore, as Zach put it), but inefficient isn't the same as wrong. If you're an agency reading this and someone offers you a barter trade with real value on both sides, take it seriously instead of defaulting to cash. And if you're a buyer with a high-value product or service that an agency would genuinely use, mentioning it in the first conversation might unlock pricing flexibility you wouldn't have gotten otherwise.
