Prove Your Worth (and Profit) as a Results-Oriented Agency


Discussions surrounding compensation practices have been particularly topical lately, what with the news of ailing British Airways ’ new plan to help offset its losses: Ask employees to work without pay for up to four weeks. It’s an extreme approach, to be sure, but it might not be too far-fetched for PR agency professionals, many of whom have grappled with increasing demands from clients, to do more for less.

In fact, compensation standards in the PR industry have been evolving for some time now, as traditional models (retainers and hourly billing) became antiquated in the face of PR’s shift from a tactical to a strategic discipline.

“The PR industry is adding new compensation models and alternatives to the fixed retainer and hourly fees against preapproved budgets,” says Michael Lasky, partner at Davis & Gilbert LLP. “Agencies can best capitalize on new opportunities presented by clients by protecting, preserving and charging clients for the intellectual property they create.”

Of course, this sounds great in theory, but how can agency executives structure their compensation plans around delivering results and accruing profits in today’s turbulent economic environment?

â–¶ Take a results-oriented approach to billing. According to the June 2009 “Best Practices Benchmarking Report” released by StevensGouldPincus, “billing methods” ranks 14th out of the 21 top benchmarks of PR agencies’ success. It is also among the most variable benchmarks.

“This benchmark is the most difficult to measure and track,” says Rick Gould, managing partner of StevensGouldPincus. “The best way to approach a comparison with this benchmark is to focus on your revenue group and region. The ideal method is to charge a minimum fixed fee as a retainer and then an hourly rate for the productive, preapproved time charges that exceed budgeted hours.”

(For additional insights into success benchmarks, including specific billing methods, see Charting the Industry on page 2.)

â–¶ Incorporate measurement-proven results into compensation. “Measurement techniques are not only important to impress your client, but also to have a formula to earn a possible success fee,” Lasky says, pointing to a “performance bonus” as a possible means of formalizing performance-based compensation.

Lasky recommends the following criteria for determining the value of a performance bonus:

Objective criteria: Sales of client’s product or service; increase in market share, stock price, profitability, etc.; amount of investments in the client’s company, etc.

Subjective criteria: Matrix of superior account services, breakthrough ideas, etc.

Underscoring the prevalence of performance bonuses, Lasky also identifies a few examples of companies currently putting the practice to use:

P&G: Pays higher compensation levels both on reaching negotiated sales and business goals.

Virgin Atlantic: Has a revenue-sharing arrangement with its marketing agencies for increases in sales of the company’s in-air shopping.

â–¶ Start thinking like a broker. As communications services become more and more niche oriented, agency executives have turned to outsourcing when they can’t meet a specific client need. Often the client pays for this outsourcing at cost, but that may not be enough if the agency of record has to invest time in managing the third party. That’s where project management fees come in.

“Project management fees can be used when the public relations firm integrates and coordinates the work of other specialty marketing communications services, such as sponsorship, research or digital,” Lasky says. Generally speaking with regard to third-party expenses, Lasky recommends making sure answers to the following questions are clearly spelled out in agreements/contracts:

• Is the agency entitled to a markup on expenses? Which ones?

• Does the agency need to get prior written approval before incurring an expense above a certain amount?

• Is the agency or the client entitled to any discount or rebate received from a vendor?

• Is there any requirement that the agency use a particular vendor?

• Is there transparency in the agency’s third-party dealings?

â–¶ Be flexible enough to adjust to changes in your client’s scale. Granted, that scale is most likely a shrinking one these days, but that won’t always be the case. Either way, a results-oriented agency will be able to scale itself based on its client’s changing needs and abilities.

In terms of diminishing budgets, Tom Gable, CEO of Gable PR, identifies the following ways in which agency executives can rejigger operations to scale their productivity accordingly:

• Billable hours

• Talent mix

• Average rate

• Individual ratios

â–¶ Set measurable objectives. “Reach an agreement with the client on measurable objectives for the plan,” Gable says. “Establish the systems, protocols and procedures for providing ongoing, tangible evidence of results. Always manage for results, not time.” PRN

CONTACTS:

Rick Gould, rgould@stevensgouldpincus.com; Tom Gable, tom@gablepr.com; Michael Lasky, mlasky@dglaw.com




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