When your PR agency buys items or third-party services for a client, the traditional approach has been to bill them to the client separately as “out-of-pocket” expenses.
Often, the agency’s direct out-of-pocket expense is increased by 17.65%, to cover the time and services involved in obtaining the item or the third- party service being billed.
This 17.65% mark-up has been the benchmark for the industry for as long as anyone can remember. It’s advisable to put it in your client contract, applicable to routine rebillable costs such as telephone, copies, supplies and the like.
“Suggested” contract wording for out-of-pockets
“As is standard industry practice, all out-of-pocket expenses will be billed separately from and additional to fees. All expenses incurred by PR agency in association with providing services to client, including but not limited to messengers, faxing, local and long distance car/taxi service, telephone, postage, shipping, photocopying, supplies, travel, meals, photography, mailing house charges, etc., will be reimbursed by client within 30 days of receiving expense invoices from PR agency.”
“Suggested” Contract Wording for Outside Suppliers or Vendors
“The cost of using outside suppliers or vendors (e.g. printers, media list services, press clipping service, photographers, designers, video crews, etc.) will be billed directly from those suppliers to client. If for any reason client requires PR agency to provide payment to one or more of these suppliers, then client will reimburse all such costs to PR agency upon receipt of the related invoice, in addition to the industry standard rate of 17.65% mark-up for the cost of facilitating those payments.”
BE SURE TO CLEAR THE ABOVE WORDING WITH YOUR LEGAL COUNSEL.
Charging Administrative Fees
Another option for firms to recapture their rebillable costs is to charge an administrative fee, a percent of the invoice for services. Based on our Best Practices Benchmarking Surveys the percent charged ranged from 3 ½ to 7 ½ percent.
Excerpted from “The Ultimate PR Agency Financial Management Handbook”