THE AGENCY BUSINESS: Risktakers can find profits with pay-for-placement PR firms

PR agencies that charge their clients by the media impression need to have the right team and structure in place to make such a pay-for-placement setup work well.

PR agencies that charge their clients by the media impression need to have the right team and structure in place to make such a pay-for-placement setup work well.

The PR business slowdown of recent years prompted some PR people laid off from other jobs to start their own firms. One business model to consider when starting up a new agency, or revamping an existing one, is pay-for-placement. Some argue that pay-for-placement - in which clients pay not for hours worked but for media hits accomplished - makes more sense in tough economic times, when clients are more closely monitoring expenses. "After the downturn in the economy, every business model has changed except for PR," says Richard Virigilio, managing director of PayPerClip PR. The Stephenson Group, a New Jersey PR shop, spent more than a year researching and testing pay-for-placement before launching PayPerClip in May. "We've had so many of our clients asking for it," explains Virigilio. Pay-for-placement isn't for everyone. Agencies considering using the model must be able to support themselves until the first placement is achieved, for example. They also need to find employees who are good at ferreting out story angles in a client's operations and who enjoy pitching the media. A compensation system has to be devised to get the most from employees, and a fee structure must be constructed that takes into account operating costs, such as media monitoring. "It takes somebody who is willing to take financial risks," says Dick Grove, CEO with Ink, a Kansas City, MO, firm where 65% to 75% of its business comes from pay-for-placement. Grove started with the model in early 1997. Today, he employs 19 people in the US, Europe, and the Far East. The non-pay-for-placement work he does largely has grown out of clients who started with pay-for-placement. Grove put together a fee structure that takes into account circulation, the type of media in which placement is achieved, and story lengths. Fees for a major story can range anywhere from $1,500 to $15,000. He begins a new assignment by discussing client goals and then creating a publication target list. He next determines an overall budget based on goals and the target list. This provides a spending ceiling the client can plan for. Contracts last six months to a year. "What you tell the client is you're not going to get everything on this list. You can't promise or guarantee a placement," Grove says. Cash flow can be tricky because money doesn't start coming in until placements are achieved. "The model is designed around the idea that we take most, if not all, of the financial risk," cautions Grove. How fees are structured can help mitigate some of that risk, others say. Marsha Friedman, president of Event Management Services of Clearwater, FL, has been doing pay-for-placement since 1990, beginning by concentrating on talk-radio interviews. She requires clients to pay in advance, debiting their accounts each time an interview is secured. She asks clients to agree to a campaign with a minimum of 15 interviews. If she achieves only 10, she'll refund the payment for the missing five. For clients seeking exposure on national TV shows, she asks for a project fee of $5,000 up-front. As shows are booked, clients must pay immediately or Friedman will cancel their scheduled interviews. PayPerClip asks for 75% of its fee when an interview is done and the last 25% when a story is published or aired. Its fees range from as low as $200 for a small market radio sound bite to $4,700 for a feature story in a major newspaper, magazine, or trade. Clients try to renegotiate fees downward when they feel a firm knows them well enough that placements become easier, warns Gene Grabowski, a VP with Levick Strategic Communications in Washington, DC. "Make sure clients understand the billing; make sure they understand what they're paying for," he advises. PayPerClip has been trying out three different employee-compensation models, demonstrating the trickiness of coming up with a system that motivates employees while still producing reasonable profits for the firm. Grove lets employees work from home offices to hold down overhead expenses and uses a straight commission system to pay pitchers. "We believe very much that everyone is in it the same way," he says. Friedman tried using commissions for her employees but gave up on those five years ago, switching to a straight salary structure. With commissions, she explains, "what I found is the quality gets lost." She first tried hiring salespeople to handle placements, feeling they would be comfortable cold calling the media, but today uses only experienced PR people. Others agree that pay-for-placement requires staffers with experience in what the media want. Keys to setting up a pay-for-placement firm
  • Establish a fee structure that takes all your costs into account and provides some cash flow early in the pitching process.
  • Clearly outline for clients what to expect and what publications are reasonable to pitch.
  • Find pitchers experienced in cold calling reporters and who know what story angles appeal to the media.
  • Establish a compensation system that rewards pitchers, but allows the firm to profit as well.

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