Rick Gould has been in and around PR for some 30 years, but even he was surprised by some of the things firms are doing, or aren’t, in an attempt to reduce over-servicing clients.
Take the survey of PR firms that his firm, Gould + Partners, did recently. The survey inquired what firms are doing to try to reduce over-servicing clients and subsequently charging too little for their work, a problem known as scope creep.
“Almost all firms are over-servicing,” Gould says, though small ones, with yearly revenue of $3 million or less, are the major culprits. This largest group of firms often lacks sophisticated time-management systems (one he recommends is ClickTime) and a chief financial officer (CFO) to oversee, interpret and analyze the data such a system produces.
The largest firms, those with annual revenue of $25 million or more, “are doing much, much better” in the area of scope creep since they have quality and sometimes custom-designed time-management systems and CFOs, Gould says. When the large firms detect over-servicing, “they nip it in the bud…the smaller ones let it go and they lose money.”
Firms Not Getting It On Yearly Quotes
But to the survey results, which Gould provided exclusively to PR News Pro. (Eventually they will go to Gould’s clients.) “I was shocked,” he says, by the low response to the 2nd option, positioning the account as an annual fee to better manage monthly charges. “I thought more firms were getting it.”
For example, let’s say a firm responds to a client RFP by saying it can do a job for $10K/month. “But they really can’t,” Gould says. In this case the firm would be much better off quoting an annual fee and “having it in its contract.” In addition, he urges firms to have a clause in their agreement that allows them to assess additional billings should the client require additional services.
The other surprise for Gould was the heavy response to the last option: Educate PR firm staff to identify items outside the scope of the client agreement and get them to explain to the client that an additional cost will be involved. It’s the duty of senior execs to educate younger personnel, Gould says.
While 58% of respondents said they’re doing this, “I don’t think they are…maybe they think they are, but they’re not,” he says. It’s understandable, though, as senior executives are doing too much client work and not spending enough time managing the business, he believes. In addition, firms are reluctant to increase charges for fear of losing the client.
The first option—be completely transparent with the client regarding time charges vs. retainer—presupposes the firm has a good time-management system that allows it to be transparent with clients. Gould gives an example where a firm says to a client, “We have a $10K/month retainer, but we’re incurring $15K/month of time charges [on your account], so you tell us you love our work but we’re losing $5K/month.” Firms need to request a $5K/month adjustment to cover the level of services needed.
Sophisticated Time-Management Systems
The third option—adopt time management systems/time sheets that have more sophistication—calls for firms to issue detailed reports showing utilization, and productivity. Each firm employee not managing or doing new-business pitching should log 1,700 client hours/year; about 90% of that should be billable, he says. A good time-management system, Gould maintains, will show where each employee’s hours are being spent, and break it down by client. “Spend the money on a system that will give you what you want.”
Gould’s summation of the survey results? “We have a lot of work to do” to raise the overall profitability of the PR industry and especially the smaller firms, which he characterizes as “horrible.” Many small firms are generating profitability of less than 10% and some are even losing money. “How can a firm give raises, bonuses, have nice offices, current technology and grow with such a low bottom line?” On the upside, Gould vows to “hammer away at” scope creep, which has been a problem in the industry for decades, he says. “If we can stop [scope creep] we can add 5-10% to the average profitability of the PR industry.” The smallest PR firms are “losing money or breaking even…you can’t grow a firm, offer bonuses, have nice offices…even with 10% [profitability].”
