As corporate America shortens its purse strings because of an increasing reliance on costly technology, stiffer marketplace competition and the push to do more with less staff, PR agencies are going to be held more accountable.
In short, the global market that's been part of the impetus for the burgeoning PR industry is also resulting in corporations' tougher scrutiny of PR firms, including the ways they validate the work they perform.
Today,it's bye-bye to the laissez-faire billing system that had its beginnings when pricey lawyers charged their clients by the hour - sometimes leaving little warning of what the final tally would be. Now, hourly billing systems provide the foundation for how PR deals are worked out between corporations and PR firms. But they provide only a sliver of - and a mere peek at - the more complex billing systems that are being used and will continue to evolve.
Although companies outsourcing PR projects to agencies have historically used retainer deals and agreed on caps, there used to be much more leeway for billings to exceed what was originally estimated. Now, PR agencies and corporations are attempting to settle on a marriage of the two tactics: An amount is agreed upon upfront but the hours spent on an account still have to be supported with documents and out-of-pocket expense reports.
"PR agencies have become more strategic through the years and I am more willing than ever to pay extra for good work if the benefits exceed the expectations. But I'm just not going to take someone's word for it, which is the way it used to be," said Eric Rabe, assistant VP of corporate relations for Philadelphia-based Bell Atlantic.
Rabe said that Bell Atlantic handles about 80 percent of its PR in-house but uses PR firms such as Burson Marsteller on a project-by-project basis. Rabe is among the PR executives wanting more accountability for the work conducted by contracted PR firms.
"What we're seeing is a movement away from hourly-rate billing systems to a system where you identify what a project is likely to cost and you set a kind of not-to-exceed-these-fees ceiling," said Tom Phillips, one of the principals with DeLaunay/Phillips, a marcom firm in Seattle whose clients include the Washington State Medical Association and Seattle's Best Coffee, a subsidiary of Seattle Coffee Holding Inc.
More PR companies are finding that they must be flexible and willing to adjust their billing scenarios - sometimes even overhauling them to meet outside requirements. Those changes can include the reams of paperwork (and checks and balances) that can come with a government project or the validation needed when something is done for a non-profit.
"We establish budgets for the projects we work on and do this for basic reasons - because it gives the client some security because they know what their financial exposure is going to be and so we can figure out internally what staff members and resources we're going to have to devote," said Phillips. "You don't want to constantly be thinking: 'How much am I paying for that phone call?' "
The deviation from the open-ended hourly billing system is partly attributed to PR's larger role in corporate imaging and branding strategies. And it's also because corporations are establishing longer-term relationships with agencies who they rely on as partners - not as outsiders.
"However, sometimes we're not always compensated because we decide to lose the margin if we overservice an account because the agency/client relationship is one we don't want to lose," added Phillips. "When we do work on the government side, there are very, very diligent budget parameters and deliverables (the services that will be rendered) and goals which are outlined. If we need more money, we can't just place a phone call. There is usually some kind of contract amendment."
Diane Bach, VP of communications and marketing for the American Gastroenterological Association, a 8,500-plus-member organization based in Bethesda, Md., agrees with Phillips' assessment and says that PR/marketing billing systems are far more stringent than they were when she started in PR almost two decades ago. A former 17-year veteran of Ketchum, Bach's first exposure to billing was through the hourly system where there was a very small window into what charges were being racked up.
"The hourly system was the way business was done years ago (and sometimes still is). It was what I accepted and frankly then I faild to see the benefit of it," Bach recalled. "What has evolved more and more is accountability about what is spent on projects and that means turning over lots of documentation, including receipts. Today clients are increasingly asking for justification - it's just not carte blanche." (PR for AGA is handled by the American Digestive Health Foundation which heads multi-million-dollar PR campaigns for AGA and two other societies.)
Because of that stepped-up scrutiny, corporations like Dallas-based Southwest Airlines, which had a 1996 operating budget of $3.4 million, enters into yearly contracts or monthly retainers with the primary PR houses it outsources work to: Golin & Harris in Los Angeles and FJC&N in Salt Lake City.
"We have an agreement set up that means they may provide a variety of PR counsel - from strategic communications to a service launch to a campaign for a niche audience," said Linda Rutherford, PR manager for Southwest. "It's for anything that comes up, which could also include a crisis and sometimes includes just helping us brainstorm an idea...And regardless of who works on a PR project for us - a senior VP or an account executive - we have an agreed-upon monthly fee that's pretty much set in stone at the beginning but allows for requests for additional funds if needed."
In that same way, Estrada Communications Group Inc., Austin, uses a retainer billing system that allows the client to call the shots when it comes to what kind of documentation should be submitted and on what timetable.
But Estrada still bases its system on the logic of the hourly system - meaning the firm's service fees are based on the number of hours executives propose will be needed to finish the PR work.
"Our billing system, though, is much more client oriented than it was in the past," said Raymond Estrada, VP and CFO. "In fact, we often file daily paperwork that details the PR counsel we're providing and we provide monthly invoicing updates that even include toll receipts. We're learning that the more thorough we are, the more comfortable the client is. The trend in billing today is for agencies to offer their clients more options."
"Clients and agencies today have both learned that they're not bottomless money wells," Phillips said. "And if an agency doesn't respond to a client's need on billing then it's not going to be profitable in the long run." (Eric Rabe, 703/974-3036; Tom Phillips, 206/340-6138; Diane Bach, 301/654-2055; Linda Rutherford, 214/792-4625; Raymond Estrada, 512/476-1902)
Billing Negotiations Should Include:
1. A dialogue about the work that's needed;
2. A proposal written by the PR House that includes the scope of work that will be performed;
3. A summary of the key players who will work on the account or project and what their tasks will be;
4. Memos and other written explanations exchanged between parties;
5. An agreement on the parameters of the billing system - for instance, whether it's a yearly contract, a monthly retainer or a project-by-project set-up;
6. An agreement on what documentation will be submitted and on what schedule;
7. A signed contract; and
8. Some kind of clause or portion that allows for re-negotiation if the agency finds the work will substantially exceed what's projected.