The economy's hot and PR agencies are messing with the thermostat when it comes to rates. The game is to see how high they can push the mercury - and how many euphemisms they can come up with for "rate hike" - before the bottom drops out and clients start shedding their services like wool in the summer.
Rates have risen steadily since the mid-90's - especially in sizzling areas like cyber-communication and healthcare. In the high-tech sector, for instance, account executives are now being billed at rates of $150 per hour, says PR agency consultant Al Croft, of A.C. Croft & Associates in Sedona, Ariz. But even in less hyper-heated environments, $120 to $130 per hour is common. The new rates represent a quantum leap in billing compared to the $75 per hour account executives could eke out of clients 10 years ago, he says.
As for principals and senior PR executives, today's agencies are doubling or even tripling billing rates for their top guns with comfort. The increase appears driven both by agencies' judgment of what the market will bear, and by the need to offset escalating salaries resulting from the tight job market.
Of course, hourly rates aren't the only numbers on the rise. Monthly retainer fees are following suit. According to Rick Gould of the New York accounting and management consulting firm Gould Eisele Crombie, one small New York shop recently reported that it had raised its monthly minimum to $5,000 - a threshold that, until recently, was more characteristic of only the largest firms.
Market Brews Special Blends
Although hierarchically tiered hourly rates remain the staple measure for bringing in revenues, some agencies are leveraging the market upswing and experimenting with alternative billing structures. A small but growing number of firms have dropped rates tied to job titles in favor of a single, flat rate for the whole agency.
These so-called "blended" rates fall between $120 and $150 per hour - roughly the equivalent of an hourly rate for a mid-level account executive or account supervisor - according to David Baker, a PR and ad agency management consultant with the Memphis, Tenn., firm ReCourses. This assertion is backed by Gould, who recently polled several firms using blended rates, and found them to fall between $140 and $150 per hour.
The blended rate strategy offers a number of benefits, Baker says. Clearly, it makes billing "easier administratively," but that's not the main reason firms should consider it. The big pay back is in client perception. Blended rates diffuse the notion that the principals are the "primary producers" for the agency, by virtue of their high billing rates.
This is key, considering the backlash many agencies have suffered after implementing premium rates ($250 an hour and up) for their top people. While this move is often intended to free up principals' time so they can manage their firms and grow good people, clients often perceive the high rates as a hint that they have to buy the best talent to work on their accounts.
Then again, the blended rate concept could incite client flak of a different sort. Clients of the more skeptical variety will likely interpret "flattened agency hierarchies" as a nice way of saying their accounts are being managed by lower level staff. And this won't fly.
Evaluating "Value" Billing
Another billing trend on the rise is "value billing." In this model, the agency's project bid is based not so much on estimated hours and billing rates, but rather on the firm's judgment of what the program is worth to the client. "I think it's going to be the trend of the future," Gould says.
Maybe so. Or maybe the term "value billing" is simply a new buzzword for an age-old concept. Agency fees have never been based solely on clock-punching, and clients have always been more than willing to pay top dollar for the intangible benefits of who-you-know, where-you've-been, and what you can bring to the table.
(Croft, 520/284-9054; Baker, 888/476-5884; Gould, 212/239-0804)
Average Hourly Billing Rates in 1998 |
||
Title |
Average | Range |
| AE | $90 | $62-150 |
| Sr. AE | $112 | $100-155 |
| AS | $118 | $92-175 |
| VP | $148 | $110-225 |
| President | $206 | $145-400 |
Bargaining Chips
Sue Kennedy, vp/director of consumer marketing & PR with Cohn & Wolfe Washington DC, offers some tips for clients heading into agency negotiations:
Be Realistic. As with everything in life, you get what you pay for. "For example, a press conference, from soup to nuts, runs between $5000-$10,000," she says. "We once had a client come back to us and say they found someone who would do it for $1,500. When we later asked how it went, the response was, 'Well, it didn't.'"
Shop Around. Agencies that have confidence in their work and their fee structures won't be threatened by a client's desire to explore competitive offers, she says. Corporate clients should take a cue from government and nonprofit sectors, which are required by law to secure at least three bids on every project. "It's a good practice. It keeps everyone on their toes," she says.
Set Parameters Upfront. "The client has a right to demand certain fee structures and [staff commitments]," she says. Fee negotiations should be settled before project work begins. "If the agency underbids a project and it ends up costing a lot in extra staff time, that's the agency's problem."