S4 Capital has announced a revolutionary new pricing model that will transform how agencies charge for their services: instead of billable hours, they’re moving to… subscriptions. Fixed monthly fees. Annual contracts that auto-renew. All costs absorbed into the price rather than passed through as variables.

You know, retainers. The pricing model most independent agencies have used for decades.

In this episode (somewhat abbreviated due to Gini’s technical difficulties), Chip and Gini dissect the holding company’s “brilliant innovation” with the appropriate level of sarcasm, then pivot to the more interesting question buried in the announcement: how should agencies price around AI? The conversation moves from eye-rolling at repackaged retainer models to wrestling with legitimate uncertainty about how AI costs will evolve and what that means for agency pricing strategies.

Chip points out that we only know what AI costs today, and it’s likely those costs will rise as platforms realize they’re replacing expensive labor and can charge accordingly. This creates a pricing puzzle—do you transparently pass through AI costs, absorb them into your general cost of doing business, or find some middle ground? Gini shares how she’s handling questions from college students about whether jobs will exist when they graduate, explaining that the work itself is shifting from doing to orchestrating, from creating to editing and refining AI outputs.

The discussion highlights the difference between cosmetic changes (calling retainers “subscriptions”) and substantive challenges (figuring out sustainable pricing as AI capabilities and costs both increase). They land on the principle that AI costs should be factored into your total cost of doing business rather than line-itemized separately, giving you flexibility to adapt as the landscape shifts without locking yourself into specific cost structures that may not hold.

The subtext throughout is that holding companies remain out of touch with how most agencies actually operate, still discovering “innovations” that the rest of the industry implemented years ago.

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And Gini, I think I wanna subscribe to your wisdom. I don’t wanna, I don’t wanna, you know, pay you retainer or anything like that. I wanna subscribe.

Gini Dietrich: Oh okay, sure. $1 million a week.

Chip Griffin: $1 million a week?

I don’t know. Yes. I mean, even, even for you, that might be, that might be a little bit much.

Gini Dietrich: It’ll be worth it. I promise. I promise. I’ll give you some benchmarks. It’ll be, it’ll be worth it.

Chip Griffin: Oh, some benchmarks. Oh, well, I mean, as long as there are some benchmarks.

Gini Dietrich: Yes.

Chip Griffin: That’s really, you gimme some pretty charts to show that.

Absolutely. That you’re achieving those benchmarks, I assume.

Gini Dietrich: Yes, absolutely. I’ll, yes, 100%.

Chip Griffin: Yeah. Okay. Well, that, that should solve it. That’s, that’s good for me. If it’s good for you and so, you know. Let’s do it.

Gini Dietrich: Amazing. Yay. That was easy.

Chip Griffin: Yay.

Gini Dietrich: No, I don’t have to work anymore.

Chip Griffin: We’re gonna talk about pricing today.

We’re gonna talk about how you charge for your services and it seems like we’ve talked about this a lot, but, but now we have a brilliant new idea being foisted upon us from holding company land.

Gini Dietrich: Brilliant is sarcastic, by the way.

Chip Griffin: Where all of the ideas come from. I mean. Holding company mind. I think every, every good idea and innovation in the agency world has come from a holding company, hasn’t it?

Gini Dietrich: Yeah. I think, I think you’re right. Yep. Yes.

Chip Griffin: And it’s always, it’s always very original thinking that we can expect from the holding companies.

Gini Dietrich: Uhhuh. Yes.

Chip Griffin: So that’s what we have to discuss today. We have the proclamation from none other, none other than S4 Capital. S4 Capital, for those of you who don’t know, is I think, didn’t they originally describe themselves as like the non holding company holding company or something like that?

Gini Dietrich: They did, yes.

Chip Griffin: They tried to pretend

Gini Dietrich: they did

Chip Griffin: That they’re not really a holding company.

Gini Dietrich: Mm-hmm.

Chip Griffin: They’re still a holding company folks.

Gini Dietrich: Yes.

Chip Griffin: And so what we are being told is that we should move away from the billable hour to a subscription model. Ugh. Now this wild innovation is something that has never been considered before, so I’m glad they’ve brought this to the table.

Certainly we’ve never heard of retainers in the agency world.

Gini Dietrich: No. Never. Mm-hmm. Nope.

Chip Griffin: So this must be different than a retainer, correct?

Gini Dietrich: Um, nope.

Chip Griffin: No.

Gini Dietrich: I mean, when I dug into it, it’s, it’s essentially a retainer. Essentially.

Chip Griffin: So the brand new. Innovative idea from holding company land? Mm-hmm. Is that, that we should have retainers and not billable hours?

Gini Dietrich: Yeah. I think the difference that they’re trying to expound, expel, expound upon, expand upon is that, it’s renewable every year, so you don’t have contracts. It’s the same amount every month. Retainer. Mm-hmm. And there was one other piece. Hang on. I, I wrote it down. One year terms, it renews every month.

It’s, it’s not a fixed checklist. So eventually you get more output over time, especially if you’re allowed to use AI. And it allows you to absorb costs. So instead of you doing a pass through on expenses, it just absorbs it into that and you, you still pass it through, but it absorbs it instead of doing it one off because procurement doesn’t like variable pass through costs.

Chip Griffin: Mm-hmm.

Gini Dietrich: So those were the big things in the subscription model versus the hourly bill hourly model.

Chip Griffin: Gosh, I, I mean, I, I really hate to break it to them, but that’s how I’ve run every one of my agency businesses for a quarter of a century.

Gini Dietrich: For years. Yeah.

Chip Griffin: I mean, I consider myself a relatively innovative guy, but I, I don’t, I don’t claim to have invented that, so I’m, I’m not gonna sue them for doing this.

Gini Dietrich: Right.

Chip Griffin: Because I came up with it first. I certainly didn’t, but I think, I think if they did a little bit of research, they would find this is actually a pretty common way Yes. To do business if you are not a holding company.

Gini Dietrich: Correct. Yes.

Chip Griffin: I think this is one of those circumstances where the holding companies have got their blinders on Uhhuh.

They’ve, they, they drink their own Kool-Aid. They focus only on the way that they do things. And yes, holding companies do a lot of dumb stuff, particularly on the advertising side. They, they like to use billable hours. They like to do pass through expenses with dramatic markups. They like to take kickbacks from publishers and websites in order to place advertising there.

Mm-hmm. They do all sorts of stuff. Mm-hmm. That I think is a really bad idea.

Gini Dietrich: Mm-hmm.

Chip Griffin: So I guess maybe we should be encouraged by the fact that they’re going to act in a way that’s a little bit more normal. I don’t think it’s gonna help them. I think all of the struggling that we’ve seen holding companies go through in recent years is only gonna continue because the holding company model is a bad model.

Yeah. It is a broken model.

Gini Dietrich: Yeah.

Chip Griffin: And you, you can only put so much makeup on it and try to make it look good. It’s just not gonna happen.

Gini Dietrich: It’s, I mean, I read it and my first instinct was, I think I even said to you, oh, so it’s a retainer. And then I, I dug deeper and I read the comments and I read the article and like I dug deeper and I was like, yeah, this is not, it’s not anything that, to your point, that those of us who have run, been running agencies for years, granted not gigantic ones, but those of us who have been doing it, that’s, that’s how I do it.

I have annual contracts that renew, unless you send me a letter saying we’re done. We have a monthly retainer, we have a, you know, we, there is work that compounds over time because we get smarter about your business and yeah, we’re using AI for certain things and there is some heavy lifting up front to get things started.

So yeah, it compounds over time. Like all of those things are, are true. It’s called a retainer.

Chip Griffin: Yeah, and look, I, I mean, I would have more respect if they said, you know, look, in order to, to meet. Where the clients are at in today’s environment, we’re simply going to rename retainers as subscriptions. I, I could respect that.

And, there is a case to be made that for a swath of clients, at least, they are more receptive to the word subscription than the word retainer, especially if they’re in tech. So if that’s what this was, that would be fine. But to pretend that it is a brand new way of doing things

Gini Dietrich: Yeah.

Chip Griffin: Is just laughable.

Yeah. Now I do think in reading the Digiday piece that there, there is an interesting tangent that is not fully encapsulated in this thinking, but it, it opens a door that I think is worth discussing and is worth thinking about for agency owners. Agency leaders at, at every level we’re talking, holding companies or a, you know, a solo shop, and that is how you price around AI.

Mm-hmm. And I think that there is currently a strong mindset that if you can do it with AI, this is from the client side, that if you can do it with AI, it ought to be cheaper. There’s a strong feeling from the agency side that if we do it with AI, we should still charge the exact same amount because it’s the value that we’re creating. As usual, I think the truth lies somewhere in the middle.

Gini Dietrich: Sure. Mm-hmm.

Chip Griffin: I think one of the real challenges, and it’s highlighted in the Digiday piece, is that we only know what AI costs us today.

Gini Dietrich: Correct.

Chip Griffin: So we need to be really careful as we’re thinking about pricing. We need to keep a close eye on it because as I’ve said before on, on this show and elsewhere, I think it is likely that the cost of AI will go up over time.

Gini Dietrich: Mm-hmm.

Chip Griffin: That, that we’re, right now, we are in this adoption phase where typically things are underpriced to get people hooked essentially on it. Mm-hmm. So we’ve all seen what we can do with AI, but as AI becomes more and more of a labor replacement, the vendors understand that the value that they’re creating for you is going up.

Gini Dietrich: Yep.

Chip Griffin: And so just as you want to charge your clients more, because you’re providing more value, they want to charge you more because they’re providing you more value.

Gini Dietrich: Yep, yep.

Chip Griffin: On top of that, the cost of actually doing all of this continues to go up. And yes, they’re becoming more efficient in some of the models and that sort of thing so that they can balance the quality and the cost.

But, but nevertheless, it’s likely that over time the cost is gonna continue to rise. So if they’re gonna have a smaller margin, they’re gonna make up for it by fixing that margin, by charging you more. Yep. So regardless of how you get there, you are going to be charge, be paying more for AI in five years than you are today.

Gini Dietrich: Absolutely.

Chip Griffin: So, so you do need to be thinking about how you are structuring AI and in particular the Digiday piece put out there, the, the thought of are you transparent about what the AI costs are or do you just consider that part of your cost of doing business? And I, I think this is, there is a lot of room for meaty conversations in the, the coming months and years trying to figure out how to tackle this most appropriately.

Gini Dietrich: It’s funny you say that because I’ve been doing a lot of speaking virtually to juniors and seniors in colleges, in college classes. And one of the question that continues to come up is, and I think it’s really interesting that they’re talking about this at school, which is smart, but it continues to come up, is, is there a job for me when I graduate from college?

And my answer has been the job that I had when I graduated from college is not the job that you’ll have when you graduate from college. Like, you’re not gonna stand at the copier and make clipbooks, you’re not going to open Bacon’s books and make media lists. You’re probably not gonna make media lists at all.

You’re not gonna make clipbooks at all. You’re not going to, you probably, you may not even be pitching media. Like those things are, are going to be done by AI. What you are going to be doing is sort of orchestrating your, or conducting your orchestra of AI bots, so you have to understand how to prompt accurately, how to give it the right kinds of input so that you get the right output.

How to edit its work, you know, those are the kinds of things that you have to understand. And so when you think about, to your point, what this is going to cost, it may not cost the same as a full-time employee. It may not cost the same as five full-time employees, but it’s going to cost you something, and that has to be…

Just like you would absorb an employee’s salary into your, your however hourly rates or retainers or however you’re doing your pricing, that same thing. The AI needs to be absorbed into that.

Chip Griffin: Yeah, and I think, I think ultimately, I mean, first of all, I would agree with you on the, the first jobs thing. If I think back to my first job, in an agency as a junior account executive, I can’t think of more than 5% of my job that I did back then that, that today Yeah.

Can still be done. And, and some of it’s because of AI’s not just, you know, technology has Sure. Has improved. I mean, nobody’s standing there at the photocopier. That’s nothing to do with AI.

Gini Dietrich: Yeah.

Chip Griffin: But, you know, good luck finding a photocopier most of the time, even if you need one. And so, you know, those are the, the kinds of things technology has, has completely replaced a lot of what we did.

And AI is just accelerating that even further. So certainly those kinds of jobs are not there. And, and I think that it’s fair to say that, that a college graduate going to work for the first time in an agency is, is really going in from a functional level at a, at about a level above where, where you and I started back in the day.

And so fundamentally that means the skill sets are different, right? Because when you, when you’re that level up, you are doing more editing than creating, you are doing more guiding than doing. It doesn’t mean that you’ve gone, you know, completely all the way to being just a manager. You know, not people aren’t just gonna jump right in and just be managers.

Let’s be realistic here. You do. But the, the kinds of things that you’re doing require a different skillset than what we needed going in. Because we weren’t doing a lot of editing of other people’s work. We weren’t doing a lot of guiding and checking and, and all of that kind of stuff. We had someone else who was doing that to our work.

Now, now you have to know how to do that effectively and to your point. And it’s, it’s not just about the prompting. It’s understanding what you’re getting back and then how to re-prompt, how to tweak, how to get the most out of it, how to make sure that it actually makes sense, whatever’s come back.

Because I mean, AI has come a long way in the last year. It doesn’t mean that everything that it does should be immediately blasted out to the universe. And that’s not just because of factual stuff. It may be just sometimes the tone isn’t quite right, or, or maybe it misses the point slightly because you didn’t give it enough information to begin with, and so you need to be able to look at it and have that level of judgment to understand when you need to apply human editing or when you need to ask the, the AI to take another stab at it or to do whatever you need to do to get the quality that the client is expecting.

 And I think, but it, it needs to be priced into your, your total cost of doing business, single invoice, not separate line items for all of this. Because I think to you, as soon as you start getting into, to separate line items for it, you put yourself in a difficult position to adapt as needed.

And the reality is that none of us really knows what the, the innards of an agency in 24 or 36 months is gonna look like. We all have pretty good guesses, right? I mean, but, but the reality is we just don’t know for sure. And so we can’t put ourselves in a box by specifying here’s what it costs or say, Hey, we’re just gonna pass through these costs for the markup or those kinds of things.

It needs to be factored into your cost of doing business.

 And on that note, I think we’ve provided some good food for thought and hopefully you’ll be able to think about pricing in perhaps a way that is a little more. I don’t know, rational, thoughtful, and more usable than what the holding companies are currently thinking or maybe have ever thought. But any case, I’m Chip Griffin for myself and Gini Dietrich.

This has been another episode of the Agency Leadership Podcast, and it depends.