Time is money
Profitability of PR agency is primarily defined by one simple equation: how many working hours it spent, and how many it managed to invoice, and at what price. In other words, no matter the remuneration model, an agency needs to keep track of working hours it spent. Agency profitability depends on the number of billable hours. If you wish to establish a long lasting, mutually beneficial relationship, then don’t ask the agency to participate in the pitch for free, don’t ask it to develop creative solutions that you would not use and don’t ask agency representatives to participate in marathon unproductive meetings: to an agency, it is a pure loss. The loss has to be compensated, or the agency will lose profitability. If the agency is using more working hours than it is able to invoice, it is not sustainable, and you will lose a good partner, or have worse and worse communication results.
5 basic remuneration models for PR services:
- Retainer fee. Usually a good option for both client and agency. Client gets a better price because fee includes a package of services, and agency gets cash flow security. It is important that both sides agree what the package contains, for instance: number of services/activities within a month, number of working hours for particular experts, certain results that need to be accomplished.
- Actual time spent. Agencies have defined working hours price list for every expert, and they can usually calculate (in most cases) how many expert working hours are required for a project. It is usually more expensive than retainer fee, but it allows for simple increase or decrease of agency work. Price lists usually have a special pricing for crisis communication, 50% or 100% more expensive than regular hours.
- Project fee. Agency has a price list for activities or pre-defined project, and the fee is paid after the event. Activities can be as simple as writing and distributing a press release, and as complex as organizing a business conference.
- Success fee. For PR work, it means defining the expected KPI-s, basic price for 100% accomplishment, and bonus and malus. If the agency does not accomplish the goals, it is paid less, and if it manages to overachieve – it gets more. This model can only be negotiated with clients who have established and very precise ways of evaluating the PR campaigns and can set realistic expectations. It is not possible to activate this model after or during the project.
- Agency commission. PR agencies generally do not work on agency commission principle, with one exception beign third party services. For instance: when PR agency organizes an event, all the PR activities will be charged by one of the listed models, and commission will only be aplied to third party vendor invoices. Agency does not make money on that commision – it is usually 3 to 7%, and covers the expenses of banking transactions, advance payments, etc. If you wish to avoid such provision, you can choose to pay the expenses directly: it would give you full transparency of expenses, and remove the strain from the agency cash flow.