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17.10.08

Payment-by-results PR: Jury’s still out

pr,We’ve had an interesting debate today at GREEN about the pros and cons of offering payment-by-results (PBR) PR.
The debate has been interesting, because we really didn’t reach any firm conclusion on the pros and cons. However, we do know of two agencies which offer this service – one is doing very well (mainly because we suspect they quickly convert PBR clients to retained clients on a fixed monthly) while the other is struggling.
So what is PBR? Basically for every column inch generated by a PR company the client pays a success fee. So, for instance, GREEN in one month might generates £40,000 worth of coverage in national, regional and trade press then the client agrees to pay us 33% of that value. In other words at the end of the month we are at liberty to issue an invoice for £13,000.
Fantastic! So then, how do we value the client’s three-minute slot on BBC Radio 4, or The One Show on BBC TV, or a five minute piece of ITV? All of which we have achieved for clients in the past. That’s worth… erm thousands?
However, if the client gets tough we agree a 25% rate which means £10,000 fee for us. If the client is unhappy with that then perhaps we can reset the matrix.
Okay, so we say we will charge £200 for every £1,000 of coverage generated. On this model, and based on the above scenario, where we have generated £40,000 worth of coverage in a month that would justify us issuing an invoice to the client £8,000.
Oh Dear! Still too rich for the client? Okay we cut a deal and we say £150 for every £1,000 of coverage generated. Monthly fee: £6,000. Still too much? Okay let’s say £100 for every £1,000 generated. Monthly fee: £4,000.
Damn! The client only has a budget of £3,500 a month – which is probably what we would have agreed as a monthly retained fee anyway.
The reality is that communications consultancies do work on payment by results even for a client on a retained monthly fee – because if they don’t deliver they get sacked. What do you think?

4 comments:

Rob Artisan said...

Ian,

It is an unworkable model.

What if the coverage is low on month but high the next. You are not meeting targets and could lose the client and then the next month potentially lose them again as it looks as though you are overcharging.

One agency in Cheshire made a big fuss about this method, and that no one else was doing it - for good reason.

It is just a gimmick or desperation on their part.

I fear that in the tough times ahead it might be forced on us or attempted to be forced on us.

But if you can offer value then the results easily justify the fee, and there is no need for this.

Rob

Richard said...

I agree with everything, and I think PBR is dangerous. I've had several inquiries about it and it's those who are generally looking for "something for nothing".

It would also mean chasing every cutting, and few clients want to pay for a cuttings agency.

And as you point out, how do we measure online, blogs, forums, radio, TV? I recall having a client on the lunchtime BBC news once, approx 20 seconds, and we did get a kind of PR cost, but it blew the monthly report well and truly out of the water.

Ian Green said...

Rob/Richard,
I agree - but I think the smart move is to begin by offering PBR. If you're good the client will quickly realise he/she will get a better deal if they move to a retained fee but it always comes to expectations.
For instance we have dealt with one client in the past whose product appealed to the women's market. And, of course, as we know women's magazines work to extended deadlines of up to three months. After the first two weeks on the account the client was asking why they weren't getting any coverage. Sigh!

Dan said...

Would it make any sense to use PBR as method of attracting potential clients to sign up to a retainer?

The business model is far too complicated, so maybe you could use it as a trial subscription -- cap it at a certain amount, and at the end of the trial, draw up a comparison of how much the coverage is worth against what it would cost on a retainer.

Does that make any sense?

The downside of this would be the extra work on your part, without guaranteed business at the end. But it would probably warm up those potential clients, who might be initially dubious to PR.