Why Brands Are Dropping the Billable Hour and Stretching Payment Terms

Fewer than one in five multinationals still pay their agencies by the hour. According to new research by the World Federation of Advertisers (WFA) and Agency Mania Solutions, 19% now use labor/FTE as their main model — down from 54% in 2011 and 33% in 2022.

That’s the headline most will run with. The number independent agencies will feel first sits further back in the report: average payment terms have stretched to roughly 75 days, up from about 65 in 2022. And the researchers name “smaller independents” as the ones under the most pressure.

The study, “How Brands Define, Scope and Reward Agency Work,” surveyed 69 multinationals with an estimated $147 billion in combined ad spend. It runs every four years, and most respondents (71%) work in global marketing procurement. These are the people who write the contracts.

Paying for the work, not the clock

Fixed-fee and output models climbed from 20% in 2011 to 33% today. Labor-plus-performance more than doubled over the same stretch, from 9% to 21%, and fixed fees now dominate creative ad-hoc work (58%) and production (61%).

The next move is toward results. Looking ahead, 63% of brands expect to use more performance-based fees, 46% more value-based models and 36% more fixed-fee or output arrangements.

“Clients ultimately care about the quality, impact and performance of the work — not how many people or hours were required to produce it,” says Laura Forcetti, director of global marketing, sourcing and director marketing services, Asia Pacific at WFA. “AI is accelerating this transition by enabling agencies to complete many activities faster, making time an increasingly weak proxy for value.”

North America is the slowest to let go. In the US and Canada, labor/FTE is still the most common model at 38%, while Asia Pacific leads the shift with 44% on fixed-fee or output arrangements.

The waiting game

Here’s where it gets uncomfortable. Nearly half of brands (49%) extended payment terms for media agencies over the past 18 months, up from 20% in 2022. A third did the same for creative and production partners.

The report doesn’t sugarcoat it. Longer terms “can create significant pressure for agencies — particularly smaller independents or partners required to fund talent, production, technology and third-party costs before receiving payment.”

That pressure, the researchers add, tends to resurface as “higher pricing, reduced flexibility, constrained investment in talent or greater financial risk.” Agencies asked to start work before purchase orders arrive, then wait months for payment, “may reasonably feel they are financing the client’s business.”

AI: a gain nobody’s divvied up yet

AI hasn’t rewritten agency economics. Half of brands say it’s had minimal impact on fees and scope, and only 20% have started updating their commercial models — though 61% plan to.

Who keeps the savings is wide open. Among brands, 33% say agencies pass AI efficiencies back as lower fees or credits, 23% say agencies keep the gain and 25% haven’t had the conversation at all.

Using AI badly is another matter. A full 82% agree an agency’s poor use of AI could get it cut from the roster. As the report puts it: “Agencies may not yet be paid differently because of AI, but those failing to use it effectively may increasingly lose the opportunity to be paid at all.”

Briefs beat bonuses

Asked what produces performing work, brands ranked great briefing first (5.6 out of 6), followed by respect and trust (5.2) and high-quality feedback (5.1). Financial incentives scored 3.9.

The irony isn’t lost on the researchers. Briefing is the top driver of performance and a long-running agency pain point.

Relationships aren’t getting simpler, either. Over a third of brands (35%) say managing agencies has become harder in the past year, while 10% say it’s easier. And while 89% say they get value for money, only 48% feel they understand what drives agency costs and profitability.

“Becoming better partners isn’t a mindset shift, it’s an operational one,” says Bruno Gralpois, co-founder and principal at Agency Mania Solutions. “That’s the harder, more durable work than any single remuneration formula.”

Bottom line

Brands want to pay for value, not time — but they’re still working out how to measure it, how to share AI gains and how fast to pay. The agencies that help write those terms will fare better than the ones waiting to be told.

Good stuff for marketers

If you’re serious about paying for outcomes, start with the brief. Your procurement peers ranked it the biggest driver of great work, ahead of money, and it’s still where most relationships break down.

Stretching payment terms looks like a cash-flow win. The report is clear it can come back as higher prices, less flexibility and thinner talent — especially from the smaller independents you may rely on most. Issue POs promptly and separate pass-through costs where you can.

And have the AI conversation. A quarter of brands haven’t talked with their agencies about where efficiency gains go. Agree upfront whether savings show up as lower fees, faster turnaround, better work or reinvestment — before they disappear into an unexplained margin.

Good stuff for indies

If you’re an independent agency, the direction is clear: price the work, not the hours. Build fixed-fee and output menus now, before a procurement team builds one for you.

Treat payment terms as part of the scope, not an afterthought. Ask for POs before work starts, deposits on large third-party costs and shorter terms when you’re carrying real financial exposure. The WFA’s own report backs you up.

Get ahead on AI. Propose how productivity gains get shared — faster delivery, higher quality or reinvestment in strategy — rather than waiting for a fee cut. Brands say they’ll pay a premium for high-caliber talent (22%) and distinctive strategic thinking (20%), so lead with those.

Finally, open the books a little. Explaining how your pricing is built earns trust without handing over every cost.

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Learn more

World Federation of Advertisers
Agency Mania Solutions
How Brands Define, Scope and Reward Agency Work
Bruno Gralpois LinkedIn
Laura Forcetti LinkedIn
Agency Mania Solutions LinkedIn
Contact: l.forcetti@wfanet.org | +32 2 502 57 40