The problem of over-promising and under-pricing

It is a familiar scenario. You are in a three-way pitch with your biggest rivals for a tasty piece of business working on a high-profile brand.

Your team has brainstormed and researched to within an inch of its life to produce three separate creative ideas across three comms platforms – any one of which could stand as a campaign in its own right.

Brainstorming and then finessing the strategy and creative ideas, researching feasibility and costs, not to mention checking that David Walliams potentially has a window in his diary and is not afraid of heights,has taken five people two weeks to complete.

All you have to do now is convince the would-be client that you can deliver the front page of the London Evening Standard, the lead story on Newsnight and get #mypyjamas trending globally on Twitter in the time it usually takes to order champagne at Shoreditch House,and the business is yours. And so the over-servicing begins.

In fact, in the PRCA’s 2013 Benchmarking Report, 32 per cent of agency MDs/CEOs stated that over-servicing was a "critical business issue". Medium-sized (£1.51m to £2.5m in fees) firms appeared to bear the brunt of the problem, with 57 per cent of bosses underlining it as a major concern.

"What is promising for the industry is that this is lower than last year’s figures, when 40 per cent of agency MDs/CEOs stated that over-servicing was a critical business issue. This is reassuring, but there is still a long way to go," says PRCA comms director Matt Cartmell.

He believes over-servicing is caused by a number of issues: "The PR industry continues to be driven by clients seeking more bang for their buck – an understandable approach considering the financial constraints on many comms departments during recent years. However, sometimes this causes agencies to take on more work than they can handle to make ends meet. The 2011 PRWeek/PRCA PR Census revealed that the average PR professional works 9.2 hours longer than they are contracted to do – working hard is in our DNA, but there is a danger that this can be taken much too far."

Industry charging standard

Alex Sandberg, founder and former chairman of College Hill and now running management consultancy Averdant, agrees over-servicing is endemic to the industry.

The issue, he says, begins with the pitch, when the scope of work is not made clear in the brief or when an agency fails to price a job accurately – over-promising and under-pricing.

"There are ways of measuring the contribution that PR makes to a business and agencies need to agree with their clients at the outset what success looks like," he says.

He believes there should be an industry-wide charging standard, built into the terms and conditions of contracts, whereby agencies accept the first ten per cent of overcharging, but clients pick up the bill after that: "If the client is getting value then why would they not be happy to pay for it?"

However, Sandberg says there is also an onus on agencies to be honest with clients about output and to manage their work efficiently: "There’s always mission creep and PR professionals are by their very nature optimists and will always find creative ways to do more. So agencies need to manage themselves and charge the right rate for the job they do. In the longer term, clients will be more demanding and those agencies, small or large, that deliver process but do not deliver insight and creativity are going to suffer."

Sarah Hall, CIPR board member and MD of her own consultancy, understands how over-servicing creeps into most agencies: "Because PR practitioners enjoy what they do and are always eager to win a pitch, they don’t always interrogate a brief properly to find out how much work is really involved before they set the price for the client."

She agrees it is important to manage client expectations and that all parties are clear on the outputs, while staff should clearly understand the hours they have to complete the allocated tasks.

According to the PRCA, over-servicing runs at an average of 20 per cent – the equivalent of working for clients for free on Fridays. Amanda Williams, co-founder of Storm Communications, says: "It is a problem that has always existed and always will as long as we continue to operate on open-ended retainers.

"The smaller the client, the higher it tends to be, and it has become worse during the recession  as we have to work harder to keep clients happy and feeling that we are going above and beyond as a valued client.

"Year-on-year, clients want to see increased delivery, but their budgets are not necessarily following at the same level."

The "retainer", says Williams, is the root of the problem. Agencies like to have the regular income to cover fixed costs, and therefore aim to have at least 70-80 per cent of business on a retained basis. This gives the stability to accept projects, which tend to have a more controllable servicing level and are priced at a higher rate.

But this is where the problems begin. You agree to operate the press office, for instance, but where does this start or finish? When do you say "this is not covered by the retainer" and does that in itself cause relationship issues with clients, when they believe they have a cover-all agreement?

To minimise over-servicing, Storm operates set key performance indicators across all clients that aim to guarantee a level of delivery against the retainer. "There is also an open policy with clients, where if we are asked to do an unexpected job or are over the limits of what we have set at the start of the year, we flag this," says Williams.

"We then have an open discussion on whether this should be charged for separately or whether it should replace an existing or planned activity. We also keep a robust timesheet system and if we are exceeding the paid-for hours we look at how we are delivering results and whether we are working with clients in the most efficient and cost-effective way."

New ways of working

When it comes to difficult conversations with clients, Williams says Storm tends to put over-servicing in the context of their business: "Would they expect to supply a supermarket with 100 widgets only to be paid for 75? The answer is always no."

Other firms have turned the agency model on its head to get away from time-based charging and to try to ensure they are rewarded not only for the time and effort spent on an account, but also the research, insight and creativity that they bring to a client.

GolinHarris is one such agency. CEO Fred Cook says: "Our goal is to move away from selling our time into offering our clients ideas and insights. I believe the challenge is how do you monetise an idea and insight? For many years, we have simply been selling hours, but it’s a different mindset to servicing a client around the principle of ideas, insight and engagement."

Cook admits that it has not changed client attitudes to fees or time overnight, but it has changed the way the agency packages its ser-vices: "Historically, we gave our ideas away and got paid to execute them. Now, we want to offer our clients strategic value and you cannot measure that in hours. If you simply talk to clients about how long it takes to accomplish something, then it devalues the offer. We need to be talking about the products we are creating."

Frank PR is one of the few agencies that does not regard over-servicing as an issue. Graham Goodkind, group CEO and founder, explains: "We do not charge for time. We do not have time-sheets or monitoring systems at all. Instead, we work with clients to show them the scope of work we are going to do, the results we hope to achieve and then we go away and do it."

He says that work might take ten hours or 100 to achieve the result, but it does not really matter if client expectations are exceeded: "Actually, the better the ideas we come up with the less time they take to execute."

He points to this summer’s drive to promote Paddy Power’s We Hear You campaign, which saw the bookie sponsor struggling Conference South side Farnborough. As part of the stunt, members of the football team changed their names by deed-poll to those of legendary players including Maradona, Beckham and Messi.

Goodkind stresses the idea took no more than a couple of weeks’ work in terms of prepping and finding the right team: "If we had been charging that in terms of time, it would not have been very much." He adds that, generally, Frank works on the basis of charging a combination of a fee for intellectual property rights and licensing for a year, plus a fee for implementation.

However, for most agencies over-servicing will continue to be a problem if they do not manage client relationships carefully or evolve their financial model to negate it.

Storm’s Williams has the final word: "Over-servicing will always be a part of the industry; cutting it out would be like finding the Holy Grail – and you know how long we have been searching for that."

The article first appeared on www.prweek.com