Compensation: Clients Who Fit the Bill

Healthy client relations are the lifeblood for PR agencies.

Every client is unique, of course, with disparate needs, and PR agency owners often must take pains to provide those services, as well as a trust-based relationship.

When it comes to effectively serving clients, one size doesn’t fit all.

The same holds true for agency billing.

For each client, PR firm owners and executives have to choose which of the multiple ways to bill that works for both the client and the PR agency.

This can be a challenging task. Every assignment, PR campaign, event or project comes with its own set of rules and challenges. What is more, client budgets are finite and balancing client budgets with agency ROI hovers over every proposal and RFP. Establishing a trust-based, win-win relationship with each client will determine the ultimate amount to bill and method utilized.

With that in mind, here is a variety of billing mechanisms to consider. They should give you a good idea on which ones would work best for specific clients.

Choose your billing methods carefully.
Choose your billing methods carefully.

> Retainer Billing: The biggest advantage to retainer billing is that it’s predictable. It should be based on estimated annual hours, by level of staff, multiplied by the hourly rate for each staff. Be sure to include high level, strategic guidance. This method is most appreciated by clients because it simplifies payment and allows them to accurately plan and budget for your future billings. And when your firm is positioning to sell, retainer billing is preferred by buyers.

> Retainer Against Hours: This is the best method of billing. The agency receives its monthly retainer, which is great for cash flow, but sends a monthly or quarterly settle-up invoice for time charges in excess of retainer or a credit balance for under utilized time within the budget. Some firms will require a minimum retainer.

> Time-Based Billing: Tried and true, this system allows your professional staff to record the time on their individual services and bill for their time. The problem with this method is that, for several reasons, staff may work more hours than they bill to the client and/or bill the client for unproductive time, Management must closely monitor this method. A quality time-management program is imperative.

> Blended Hourly Rate: This simplifies the billing process by charging a single, uniform “agency rate” for every hour worked by staff at any level. The benchmark hourly rate is $200 per hour, although some more profitable and/or larger firms have spiked their blended hourly rates well beyond $200.

> Project Billing: Clients love this one. Why? Because it contains far fewer surprises than methods incorporating hourly fees. The rub is that some projects/campaigns contain hidden obstacles or glitches that eat up time, which winds up not being adequately compensated. The upside? Working more quickly than anticipated has the effect of boosting your agency’s effective hourly billing rate.

> Value Billing: Agencies get a success fee for exceptional work, e.g., a cover story about the CEO in Fortune Magazine or the front page of the Wall Street Journal. However, this method is a risk for agencies because well-deserved compensation may be derailed by factors that lie outside the agency’s sphere of control, such as an M&A transaction that implodes at the eleventh hour or a sex scandal that erupts during a political campaign in which your client/candidate was expected to be the victor. Although in theory value billing is very motivating, in practice not many PR firms—other than those firms that do transactional work—use it.

Which of these methods work best for you, and why? We’re eager to hear your story.

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The above information is culled from “The Ultimate PR Agency Financial Management Handbook,” written by Rick Gould, managing partner of Gould+Partners.