“The agency/client relationship is just like a personal one—the No. 1 cause of a split is over money,” says Steve Cody, cofounder and managing partner of PR agency Peppercom.
At the heart of an agency/client financial rift are bills, bills and bills. And the key to staying together? “Make sure there are no billing surprises,” says Cody.
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To ensure there’s no surprises for Peppercom clients, the agency submits a scope of work report for each upcoming month.
“Say a client is paying $10,000 per month, and we put together a scope for October that shows we will do $13,000 worth of work,” says Cody. “We’ll then ask clients to take things off the to-do list, or authorize the new figure. This takes the surprise out of billing.”
BILLING TRENDS
Agency billing hasn’t changed much in recent years, says Art Stevens, managing partner at StevensGouldPincus and a PR agency consultant. But the economy has affected the billing process quite a bit. There is two primary ways agencies bill clients, says Stevens: standard retainer billing, and project-basis billing. In addition, says Stevens, value-add billing has come into vogue—where agencies would receive a bonus if there was a big media relations hit. “It’s like incentive clauses in baseball,” says Stevens. “You get a CEO on the cover of Time, and you get a bonus.”
But with the recession and chopped PR budgets, clients have been requiring agencies to do the work for less money. “That trend seems to be stabilizing,” says Stevens. “Budgets appear to be loosening up and agencies are doing better.”
Stevens says there’s one thing that has remained stable across the agency billing board: “The client wants to get as much work as they can, with a higher level of agency people involved, for as little a fee as possible,” says Stevens. “That’s how companies save and make money.” Agencies, on the other hand, try to hold the line and make a reasonable profit. “It’s a never-ending battle,” says Stevens.
Yet it’s a battle that, with good communications between the two parties (and given that both agencies and clients are expert communicators), doesn’t have to happen.
BE REASONABLE
One thing that did happen during the recession is that agencies were afraid that they would lose clients. “So they went all out in over-servicing clients,” says Darryl Salerno, president of Second Quadrant Solutions, a management consulting firm that advises many PR agencies on business strategies. “The problem is that now they can’t seem to generate reasonable profits because they are giving clients far more worth than what is being paid for.”
That has to be good for the client, right? Salerno says in the long run, no. “Agency people start to burn out, and they lose good people,” he says, which lowers the level of quality agency work. The solution: “The smartest agencies are the ones that have honest conversations with clients, establishing reasonable budgets that match closely with the work,” says Salerno.
BE ORGANIZED
Yet, says Stevens, many agencies fail to do this. “I’m astonished at how many agencies come up with retainer fees without realizing how much work is really involved—without determining how many man-hours are being used,” says Stevens. “Often budgets are prepared off the cuff.”
And, continues Stevens, this lack of budget oversight should be a red-flag to clients or potential clients, because disorganization can also work in an agency’s favor. “I think it’s vital for agencies to have in-house controllers, yet many don’t,” he says. So clients need to not only determine who the account team is going to be, but also check into the accounting team.
Echoing Cody’s thoughts, Stevens says it all goes back to “no surprises”—by either side.
He recommends a basic plan for the year—above and beyond the initial proposal, and signed off by both parties, “so both client and agency are on the same page,” he says. And, the client should make it clear to the agency that it has to sign off on any additional work that is not in the basic yearly plan.
WATCH OUT-OF-POCKET
One significant variable, continues Stevens, is out-of-pocket expenses (see accompanying typical bill), which can often cause problems. “Out of pocket has ruined many agency/client relationships,” says Stevens. “The last thing an agency needs is to mar a relationship not by bad work but by bad out-of-pocket billing.”
Peppercom’s Cody says that while out-of-pocket beefs are rare with Fortune 500 firms, smaller firms and start-ups, particularly VC-funded tech companies, question every expense, as is their right. Stevens says agencies need to do the right thing when it comes to out-of-pocket expenses—carefully itemizing charges and providing the proper backup.
It’s clear that proper due diligence on both sides can prevent a war over billing. Here are some caveats for clients in evaluating their agency bills:
• Note what percentage of your agency budget is being spent on administrative costs. “It’s in the client’s best interest to have as streamlined a system as possible,” says Salerno
• Clients should work closely with agency to make sure the right level people are doing the work. “Don’t insist on a VP when a senior account executive is fine,” says Salerno. “It may cost you a lot of money.”
• Have a dialogue early on. Both sides will have valid points in budget planning. But remember, “if an agency blows budget because lack of competency, that’s not the client’s fault,” says Salerno.
Peppercom’s Cody says that agencies need to do their part to quell any billing conflicts with clients. He has the following suggestions:
• Show a consistency in terms of packaging the bill. It should be put together in a logical way so the client can quickly peruse it and sign off.
• Connect the financials with key program elements. “Have a note that says ‘we accomplished this, this and this,’” says Cody.
• Client questions about bills should be responded to immediately. “Not in a week, but within a few days,” says Cody. PRN
CONTACT:
Steve Cody, [email protected]; Art Stevens, [email protected]; Darryl Salerno, [email protected].