Is winning new business always good for a PR Agency?
11th June 2014
There are plenty of pitching opportunities out there right now, as Jay Neale, founder of The Agency Works, leading finance and operations consultants to the creative industry, says: “With the best economy since 2007, creative industries worth £74.1 billion to the UK plc in 2014 and advertising spend up again this quarter (according to Bellwether) it’s fair to say that the creative sector, and PR in particular, is experiencing what can be described as a feeding frenzy.”
But how do you work out which work is worth chasing, let alone, taking on?
Neale points out that many agencies focus on turnover rather than the profitability of the client, and will often employ resources to service an account when in reality those resources are not required. Neale adds: “In real terms, many agencies do not produce an accurate cost forecast or have appreciation of resource and charge-out rates when pricing up work for clients. They often don’t establish what a client’s budget is, so can’t establish a cost in association with the new business opportunity. I see lots of examples in agencies where they have spent £10k to win a £20k piece of work.”
“Agencies then tend to price up work based on what they think the client’s budget is, not what hours are actually needed to deliver the brief.”
Neale says the way to avoid taking on work that doesn’t pay is to ask key questions about the brief first: Is it realistic? Can those challenges be solved with that budget? What would be the cost of our agency solving those challenges and therefore does it fit with the client’s budget? If so, how much time and cost do we, the agency, budget for in trying to win that work and solve those clients’ challenges?
There is no doubt that working out the value of PR work is a challenge. Richard Fogg, MD of technology PR agency CCgroup, gives the example of a campaign that cost roughly £15,000 in fees, but which led to £3,000,000 worth of “qualified pipeline”.
How should the PR effort be costed?
Fogg asks: “Should it be half of the anticipated profit? That’s significantly more than £15,000. But what about campaigns where the result is reputational enhancement or company exit? How do you value that?”
Fogg concludes: “If I’m looking to build a sustainable, predictable business then value-based pricing is troublesome. I’m not saying ‘never’ to value-based pricing, I’m saying ‘not right now’ because the current model is not broken. Time-based billing, with a service-level agreement and predicted outcomes works. Why can’t we be confident in that? I can’t imagine this discussion ever appearing on ManagementConsultancyMoment.com!”
Sometimes, you have to decide to turn work away. One problem is working out which clients may have small budgets now, but which could become more profitable in the longer term. Sue Grant, co-founder of agency onechocolate communications, says: “We regularly turn away work as we pride ourselves in working with top-class clients who are either market leaders or start-up innovators who will be market leaders in the future. Spotting those innovators can be challenging and I’m sure we don’t always get it right. I turned away a prospect just last week because his business strategy seemed weak with no major USPs in a very competitive market, he was going to be talking to six or seven agencies and couldn’t give me any indication of budget, not even ball-park ones. The danger is – was he serious or was he just simply gathering ideas?”
A key problem for PR agencies is deciding how to price a campaign or project in order to win business. Simon Turton, owner of agency Opera PR, says: “When I am writing a proposal I always seem to spend more time on the ‘fees and timescales’ section compared to the time taken on the objectives and how we will deliver the desired results. The reason why it takes so long to work out our fees is because we’re having to balance what the client wants doing against what we think they would be prepared to pay (most clients don’t give an indication of budget), and invariably we err on the side of caution – and go for the lower-fee option.”
“This is negative on two counts. First, going in with lower fees actually feeds the over-servicing aspect of the contract and, second, it means that you could end up resenting the new client before you’ve started working with them because you have had to discount your fees.”
Turton compares PR charges with those of other professionals, saying: “There are parts of the economy where fees are hardly ever challenged. Take accountants or solicitors, are they ever asked to compromise on their fees? Such professional service companies seem to be able to set an hourly rate (often in the hundreds) and get away with it.”
This leads Turton to conclude that perhaps PR should adopt a fee structure based on billable hours and scrap the retainers. “Yes, it would mean more work to calculate what each client is charged, but it might help to reduce the issue of selling yourself too cheaply. It would certainly help agency owners to see much more clearly how much over-servicing has been going on.”
However the fees are calculated, Turton has one final piece of advice: “Never work for any client that has battered you down on price to the point that it is almost a loss-leader. We are not charities and we should not donate our time to clients that should be paying the right price for the job.”