PR TECHNIQUE: BILLING METHODS - From retainers to stock: the new world of PR billing

While many PR agencies still use the mainstay retainer, others are starting to explore different ways to bill - ways that may make clients more comfortable and agencies more profitable. James S. Bourne reports

While many PR agencies still use the mainstay retainer, others are starting to explore different ways to bill - ways that may make clients more comfortable and agencies more profitable. James S. Bourne reports

While many PR agencies still use the mainstay retainer, others are

starting to explore different ways to bill - ways that may make clients

more comfortable and agencies more profitable. James S. Bourne

reports



When Neil Myers had his own software company in the 1980s, he ran it in

an orderly fashion befitting his background as an engineer. One aspect

of the business, though, seemed beyond his control or comprehension:

those enigmatic and expensive PR and advertising invoices. His questions

about fees or follow-up activity were met with warm smiles and hearty

invitations to lunch, but no answers.



He sold his company in 1988 and opened a PR shop a year later,

determined to be more accountable to his clients than agencies had been

to him. He established a ’menu’ billing system that charges fixed fees

for projects (example: dollars 250 to pitch and schedule a press tour

meeting). Myers says that when he incorporated his billing method into

his sales pitch and saw the relief on prospective clients’ faces, he

knew he’d touched a raw nerve in agency-client relations.



’If you look at why people hate PR firms, (billing problems are) a very

big piece of it,’ says Myers, whose firm, Connect Public Relations, is

based in Provo, UT.



’Menu’ billing has proved so popular with Connect’s biggest client, the

Internet security company Semantech, that Semantech insists its other PR

firms bill the same way, says corporate communications manager Genevieve

Haldeman.



Myers isn’t the only one innovating. Many PR firms are using different

billing methods designed to be more efficient, profitable and

comprehensible to clients. It’s crucial for both sides to know what

those billing options are.



Most professional service firms, including the biggest in PR, bill by

the hour. Many smaller PR shops work differently, accepting everything

from the stock of clients to fees dependent partially, or totally, on

how well they meet objectives such as media coverage. Rick Gould, CEO of

Gould Eisele Crombie, a New York accounting firm that specializes in PR

agencies, says an hourly rate blending those of junior and senior

executives is gaining popularity.



Every method boasts true believers; even the retainer system, dismissed

by many as a black hole for clients’ money, is defended by

loyalists.



’Clients love to know that one month is similar to another month,’

contends Brian Cohen, chairman of New York’s Globalcomm Group, which

bills its mostly tech clients by retainer. ’Everybody wants some form of

predictability.’



The retainer system, he adds, ’is only broken when people are charging a

lot more money than they should’ - it even makes moot the oft-lamented

issue of unexplained costs cropping up on invoices.



Lise Olson, vice president of corporate communications at

BarterTrust.com, a San Francisco-based professional services exchange,

agrees that retainers work when there are open channels of communication

around a well-defined list of objectives and fees. ’Good agencies,’

Olson says, ’are ready to report on their activities.’



The flip side of the steady-as-she-goes retainer is seat-of-the-pants

performance billing, where agencies receive little or no pay unless

clients get what they want. Dick Grove, president of Kansas City-based

Ink, says that if his far-flung freelance execs don’t generate press,

they usually don’t generate a check. Clients like his incentive method,

Grove says, because it helps them justify PR expenditures. He stops

short of promising indirect, longer-range results like stock or sales

boosts, though, which most pros believe can’t accurately be traced to PR

efforts.



FileNet, a Southern California software maker, switched from a

traditional retainer firm to Ink. Corporate relations manager Tom

Hennessey says he’s been in closer and more frequent contact with Ink

than with his company’s former agency, and he praises Ink’s willingness

to tweak the PR plan when initial stories concentrated more on the

FileNet CEO’s athletic exploits than on software.



Performance billing’s thrill-seeking sibling, value billing - in which

agencies charge much higher rates for crucial last-minute work - came

about through the ascension of crisis communications. Gould says crisis

practitioners saw the opportunity to charge more for helping pull

clients from the edge of disaster. ’Is that worth only 16 hours times

their rate?’ he asks. ’Or could it be worth dollars 50,000 for two days’

work?’



Companies have paid PR agencies in stock in good economic times since

the 1960s. Legal experts say it’s ethical, even for IR firms, as long as

the agencies don’t stray toward insider trading. Some have used client

equity as ’golden handcuffs’ to keep executives from leaving. Lee

Levitt, a New York management consultant for PR firms, says some

agencies create ersatz mutual funds with client stock, which allow

employees to ride the market while saving the firm 401(k) contributions.

Levitt advises clients considering equity to at least cover their costs

in cash.



LaunchSquad, a Bay Area pre-IPO specialist for tech companies, usually

takes about 25% of its fee in stock, says co-founder Jason Throckmorton,

though it has accepted as much as 50%. Before making a decision on

equity, he says, LaunchSquad assesses its confidence in the client and

finds out how much stock the client is comfortable parting with.



In the end, successful billing requires unambiguous communication and a

complete lack of surprise for both parties. In other words, as critical

as it is, it should be pretty dull.



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