Hourly billing always had cracks. AI just split them wide open. If you’re still charging by the hour, you’re about to feel more pain—lower revenue, tougher client conversations, and a smaller agency valuation when it comes time to exit.
Here’s the hard truth: if you don’t change, AI will keep eroding your margins. The good news? You can start shifting without blowing up your entire pricing model. Let’s walk through what to do now.
Why hourly pricing is broken (and worse with AI)
Agencies like hourly pricing because it feels easy. Count the hours, multiply by the rate, send the invoice. But easy doesn’t mean smart. You’re not selling hours—you’re selling outcomes.
That mismatch has always been there. But AI makes it impossible to ignore:
- Fewer hours, less money: What used to take 12 hours may now take 4. Under hourly billing, that’s a two-thirds revenue loss.
- Clients notice: They’re asking, “Why am I paying the same for fewer hours?”
- Your overhead doesn’t shrink: Rent (or remote team travel), salaries, insurance—none of that gets cheaper just because your team works faster.
- Buyers discount you: When margins fall, buyers assume your model is broken. That means a lower EBITDA multiple—and a smaller payday if you ever want to sell.
At a recent event, an agency owner mentioned using AI to cut a key deliverable from 40 hours to 10 hours. If they charged hourly, they’d have cut their revenue by 75%. Fortunately, they charge on a milestone basis—so revenue stays the same, while their productivity went up.
Hourly billing was fragile before. AI broke it completely.
Action plan: How to fix this at your agency in six steps
Let’s walk through how to start fixing this at your agency. If you’d like my help, I share more about an option at the end of this article.
Step 1: Start with new clients
Don’t start by trying to rewire every existing client—that’s the hard road. Instead, roll out milestone pricing with new clients first: fresh relationships mean fresh expectations.
How? Write proposals around outcomes, not hours. For example:
- “Homepage design delivered and approved” instead of “20 hours of design.”
- “Three campaign concepts delivered” instead of “15 hours of creative time.”
You’ll get some things wrong at first—that’s fine. Better to work out the kinks with one new client than risk confusing all of your existing ones.
Step 2: Build paid discovery into the process
To sell milestones, you need clear scope. That’s what paid discovery gives you.
Think of it as a fixed-fee front door: a workshop, an assessment, or a short project that helps you define exactly what the client wants. Paid discovery creates clarity, positions you as a strategic partner, and keeps you from falling into the trap of guessing hours up front.
Agencies that skip discovery tend to slide right back into hourly billing. Don’t skip it. Here’s more on getting started with paid discovery.
Step 3: Redesign proposals and sales conversations
Hourly proposals emphasize effort: “20 hours at $150/hour.” Milestone proposals emphasize outcomes: “Homepage designed and approved.” That’s a mindset shift, and it takes new sales language.
Clients used to hourly billing will push back. Here are two scripts you can use:
- The transparency objection
Client: “We like seeing the hours—it shows us what we’re paying for.”
Agency: “You’re not buying our hours—you’re buying the outcome. Milestones give you complete transparency on what you’ll get and when, without the surprise of a running meter.” - The fairness objection
Client: “If AI makes you faster, shouldn’t we pay less?”
Agency: “We’ve invested in tools and expertise that help you get results faster. Milestone pricing ensures you pay for the outcome you want, not the minutes it takes us. That way, you benefit from speed without punishing quality.”
Notice what’s happening here—you’re reframing value.
Step 4: Prepare your team for delivery shift
This isn’t just a sales change—your team has to deliver differently too. Because success under milestone pricing is about hitting outcomes, that means:
- Creating milestone checklists so “done” is crystal clear.
- Adjusting incentives so people are rewarded for milestones, not hours.
- Coaching account managers to explain outcomes clearly and keep clients aligned.
If your team keeps slipping back into hourly language, clients will hear it. Fix it internally first.
Step 5: Manage pushback and run a hybrid transition
The reality is that some clients may never leave hourly. Trying to force everyone into milestones overnight will only backfire.
The better path: run a hybrid transition model. Keep legacy clients on hourly pricing while introducing milestones for new ones. Over time, expand milestone pricing as you gain confidence.
If you face pushback, remind clients:
- Milestones give them predictability.
- Milestones guarantee deliverables.
- Milestones align your incentives with theirs.
The key is to stay consistent in how you talk about it. If you sound tentative, clients will hesitate.
Step 6: Tell the transition story
Even if you don’t plan to sell soon, it benefits your agency to grow like you might. Buyers want to see momentum. You don’t have to be 100% milestone-based yet—you just have to show you’re moving in that direction.
Here’s the story you can tell: “We recognized hourly wasn’t aligned to your goals, so we started shifting to milestone pricing. Here’s what we’ve learned so far, and here’s what’s next.”
That narrative makes you look smart, proactive, and valuable. Buyers like to see progress—they don’t expect perfection.
The payoff: revenue protection and future value
Switching to milestone pricing isn’t just a survival tactic. It’s a growth move. Agencies that make the shift see:
- Revenue protection: AI makes you faster—and milestone pricing helps you capture the benefits, instead of losing money because you’re faster.
- Happier clients: Outcomes are clearer, invoices spark fewer arguments, and trust grows.
- Stronger margins: You’re pricing for value, not variable inputs.
- Higher valuation: Acquirers pay more for agencies that can show predictable, outcome-based revenue.
In short: milestone pricing keeps you in the game now—and makes your agency worth more later.
Conclusion: take the first step
AI didn’t just change how you deliver work—it changed how clients think about what they’re paying for. Hourly pricing was fragile before, but now it’s broken. The question isn’t if you’ll shift, but when.
The six steps in this article give you a roadmap: start with new clients, build paid discovery, redesign proposals, retrain your team, run a hybrid model, and tell your transition story. Each step gets you closer to a stronger, more future-proof agency.
But here’s the thing—making this shift isn’t just about swapping line items on invoices. It touches sales, delivery, client expectations, and even your agency’s valuation. That’s why trying to wing it is risky.
- If hourly pricing is holding you back, book an Agency Growth Diagnostic. We’ll look at your pricing model, map your transition to milestones, and design a plan that protects revenue while building long-term value.
- Not ready for yet for 1:1 help? Subscribe to my newsletter for practical, real-world strategies on how agencies can stay ahead on AI and client expectations.
Question: What’s your next step to shift away from hourly pricing?
