Value-Based Agency Compensation Models

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My agency is in the midst of going "all in" with respect to pay for performance/pay for value compensation models. The journey has been ugly but we're making progress by thinking about marketing success from a project management perspective.

Why are projects seldom successful? Projects fail for six simple reasons:

1) Objectives are not clear
2) No measurement in place
3) Plans are too big/optimistic, scope creep
4) No accountability
5) Execution stinks
6) Static plan, dynamic world

To define value, we look at each tactic individually. For example, a monthly email newsletter. We then have a conversation with the client each month about what they value. In this case it might be 5% new subscriber acquisition each month, readership/open rates greater than 10%, etc.

In the case of PR, value is created by a combination of # of placements, referring links, traffic and other factors. Every client will value these things differently.

We ask the client to force rank/weight all their tactics each month. The sum of the force ranked tactics creates a percentile performance grade for the month.

This methodology is by no means perfect - in some cases it can be very subjective. The tracking spreadsheet is always undergoing revisions and updates - many driven by our clients. However, the biggest value for us is the "discussion" and shared accountability.

Ben Bradley
MaconRaine

Here is my two cents. What is wrong with agreeing to a set amount for PR services, getting those services and then paying the bill? Seems quite academic to me.

I have experienced this issue from both sides. First as being the PR practitioner providing the service to a client and more recently as being the client and employing a PR firm. When I was delivering the service at the set amount and my client would question my bill, I had to question the client and their integrity. Were they really dissatisfied with the service or where they just trying to pay a lesser amount? I believe it was the latter and I would generally walk away from those clients. Now as the client employing a PR firm at a set amount, I make sure to provide a clear definition of the goals and expectations of the services to be performedu00e2u0080u00a6as long as they are living up to their end of the bargain I will live up to my end and pay the bill. I will only complain if they stepped outside of their authority and performed services that I did not authorize which increased the amount we previously agreed upon.

Another way of looking at this is, if I donu00e2u0080u0099t think they got the results, I should probably examine my management of the agency, rather then quickly blaming them and ask for a fee reduction.

I agree with Giniu00e2u0080u0099s assessmentu00e2u0080u00a6you wouldnu00e2u0080u0099t tell the waiter in a restaurant u00e2u0080u009cletu00e2u0080u0099s see if I get heartburn from the meal and Iu00e2u0080u0099ll decide what I owe you.u00e2u0080u009d Come on get real here and donu00e2u0080u0099t make this complicated. Current fee structure works just fine for me.

Gini u00e2u0080u0093 great idea for a post. I think everyone is struggling, or starting to, with this in one way or another. Lots of good insights here. It looks like we all agree, at least in principle, on the importance of setting expectations, value is defined by the client and the responsibility of the agency, and that times, well they are au00e2u0080u0099changing! I, too, think the billable hour should take its place in history next to Astroturf and credit default swap (CDS) valuations. I agree with Nat, Scott and Luis about the importance of establishing trust, which in our business is really about listening, asking really good questions, listening even more and then following-up with real incremental value. A big part of the u00e2u0080u009cmanage expectationsu00e2u0080u009d phase that is so often missed is truly understanding the clientu00e2u0080u0099s expectations in the first place and defining u00e2u0080u0093 with a scalpel, not a shotgun u00e2u0080u0093 what success AND failure ultimately look like (Tom is dead-on here). For example, if youu00e2u0080u0099re the new kid on the block u00e2u0080u0093 what happen to the old kid? Did he get run out of town? Why did your client pick you? Itu00e2u0080u0099s important to remember that we as service providers are sometimes paying for the sins of others. Itu00e2u0080u0099s useful to know your clientsu00e2u0080u0099 history and baggage heading into an engagement to see what irrational expectations arenu00e2u0080u0099t being articulated upfront (tip: behavior is truth!).

1. Value chain analysis u00e2u0080u0093 where are you really providing the most value in the eyes of your clients? From concept to execution to the bottom-line, where can you help and where are you expected to help? Map it out, grab a whiteboard and throw it all up there. Are you really adding value or simply augmenting the clientu00e2u0080u0099s either under-manned or over-bloated staff? Are you really responsible for a bottom-line result or is it a key performance indicator (KPI)?

2. Match risk to reward u00e2u0080u0093 look at your where your work exists in the value chain (see #1 above) and charge appropriately. Maybe your chain looks like this: discovery -> concept -> solution/consult -> implementation -> measure -> result -> follow-up action. What is worth value-pricing and what could your client really do on their own but theyu00e2u0080u0099re paying you to do better, faster and cheaper than using an internal resource?

3. Narrowly define what success looks like u00e2u0080u0093 as Iu00e2u0080u0099ve said before (to you Twitterati), most agencies skip the u00e2u0080u009cwhyu00e2u0080u009d and launch right into the u00e2u0080u009chowu00e2u0080u009d; this is a crucial mistake and often leads to spinning wheels. It leads to your work being about the effort and not about value because you never properly set the work scope, and consequently the clientu00e2u0080u0099s expectations to achieve results u00e2u0080u0093 just like Juli pointed out. Get behavioral with your clients. Ask them questions. Never stop asking questions u00e2u0080u0093 ever. Ask them things youu00e2u0080u0099d ask interviewee. I think youu00e2u0080u0099ll find your clients are dying to tell you this information. Itu00e2u0080u0099s cathartic. Failure is a lot easier to define than success too.

4. Map your ideal client experience u00e2u0080u0093 this is something weu00e2u0080u0099ve found extremely useful at Vox. What are the crucial bookends to your client engagement? What are the moments of truth where you need to check-in with your client and take their temperature on the engagement? 9 times out of 10 this step alone will stop those rate reduction talks dead in their tracks u00e2u0080u0093 your clients need, want and deserve that attention.

To sum it up, perhaps the best model is a mix (isnu00e2u0080u0099t that always the answer?). Looking at your client value chain (again, through their eyes NOT yours), certain parts might only be worth an hourly rate u00e2u0080u0093 or better yet, a fixed rate or even a package like Shannon says u00e2u0080u0093 I really like that idea. Enhance the usability of your pricing u00e2u0080u0093 howu00e2u0080u0099s that. Luis? :) Charge conventionally for low-value work like discovery and implementation. At first Juliu00e2u0080u0099s idea of charging 80% of your established rates sounded good, but then it lead me to believe it may diminish the perceived value of work almost before it began. Your rates, hourly or fixed, are what they are for a reason. Hopefully thatu00e2u0080u0099s because you have an indispensable skill, youu00e2u0080u0099re an astute business owner who knows what your market can absorb and what youu00e2u0080u0099re worth. Be fair and realistic, or reap the whirlwind. Then explore value pricing for your high-impact activities like consulting, problem-solving and producing results. Iu00e2u0080u0099d love to hear thoughts on this.

Great discussion going on over at @ginidietrich's blog about value based compensation: http://is.gd/vqt7

I think that the driving issue is precision. I recently blogged about the shift in deal conversation from "Do the same things for less money" to a willingness to consider trade-offs - http://is.gd/vqRf The trade off that I think people are seeking is precision in their spend- "I will spend more money if I know that it is going to exactly the result I am seeking." The pay for performance approach is not so much about the variable cost rationalization of PR/Marketing expense, although I am certain that is part of it. The concern reflects a strong concern that the PR/marketing firm is not applying a specificity of effort to outcome- By applying the pay-for-performance model, there is a belief that precision has been achieved and that risk has been mitigated. The challenge is to create a sense of comfort around precision without shifting compensation to a 100% risk position.

First off, Thanks to Gini for creating such a relevant discussion. Lots of good thinking here and I agree with several users on various points.

My opinion comes from the corporate client side so this type of discussion is music to my ears. Why? Because as corporate marketers in lean profit times we need to justify spending more than ever. If we donu00e2u0080u0099t u00e2u0080u0093 itu00e2u0080u0099s gone!

Ad budgets are being slashed and scrutinized more than ever. Marketers are being forced to migrate toward media that can be tracked and measured all the way down to the cash register and show a short-term ROI. The same type of thinking is going to be applied to branding and PR. Thatu00e2u0080u0099s not to say this is the right thing to do but itu00e2u0080u0099s the short-term profitable thing to do. If we canu00e2u0080u0099t truly measure it u00e2u0080u0093 cut it!

This type of thinking is a reaction to the current economic environment but itu00e2u0080u0099s also a byproduct of the online/data revolution. In some weird way itu00e2u0080u0099s like the perfect storm for CFOs.

To have a truly successful relationship between client and agency you must have upfront and defined success metrics with the key budget decision makers. The best way to keep on solid ground with brand advertising and PR is to force the CEO/CFO/CMO to agree upfront to a defined success metric. If you donu00e2u0080u0099t involve each of these key players in the conversation youu00e2u0080u0099re bound to have issues come budget review time.

Other major issues are minimizing client interference with the creative approach and letting your resource do what you hired them to do. Another challenge in the relationship is operational and quality issues that can interfere with the success of any campaign. Advertising and PR can influence the consumer to act but the in-store experience or product experience trumps any type story youu00e2u0080u0099re trying to tell.

The responses we've received on this topic are fantastic! What a great forum for thinking through the financial models of ALL professional services firms, not just PR firms.

I'm taking everyone's feedback, as well as that I received via email, and composing a pros and cons list, with potential solutions.

Stay tuned...and THANK YOU!

Great article on why the billable hour model is outdated in any industry http://tinyurl.com/cd5asn #pr #lawyer (via @ginidietrich)

While I am in a different business (I am an organizational change consultant and leadership coach), I have a similar challenge. There are a lot of excellent ideas for how to structure pricing here already, so instead I'd like to touch on something that hasn't been talked about yet.

The key to getting out of the dollars for hours mode in my opinion has everything to do with the context of the relationship you create with your clients. I want to pick up something Liz said "fair billing rests on making sure the agency and the client agree on that answer." This, along with Luis' 3 factors point to an important shift in context we need to make in our relationship with our clients if we are to successfully change how we are compensated - FROM one of customer/supplier TO partnership.

Dollars for hours is a customer/supplier relationship that assumes that time = value from the POV of the provider and time = cost from the POV of the customer. That doesn't mean the client doesn't see and give you credit for the value you deliver but their attention when they look at your bill is on the cost.

A context of partnership is required to change this dynamic. A partnership only makes sense if you have clearly articulated shared goal AND the risk/reward equation works for both sides. While time estimates may be useful for base-lining your costs, it is not the focus of negotiating with a partner. And as Luis points out regarding risk: "as with everything, a value-based pricing model is about taking risks (for both sides) and making them worthwhile taking (again, for both sides)" Partners consider and honor the risks of both sides when it comes to compensation.

I have been coaching people in making this shift in context over the last 5 years. The most interesting thing is that it is the "supplier" that typically has the hardest time making this shift in mindset. The "customers" are more often than not ready and willing.

Hey Gini,

So I have not sorted all of this out for myself. As you know from a question I asked you not too long ago, pricing and how to charge clients has been on the top of my list of things to address for quite some time now.

Currently what I am looking at is putting together a flat fee package of services that includes an upfront charge, a monthly payment and then a bonus/incentive (whatever you want to call it) based on performance. The pricing takes into account the hours I know I put in, profitability for myself and such but it does not present the client with the image of holding a stop watch every time we talk.

So how do I then get the bonus for performance which is where the real profitability exists? The trick, I think, is in the education of the client on how to measure performance. I know that PR has value. Without good PR a companies marketing efforts can be ineffective or worse not effective at all. How do you put value on word-of-mouth? What is the value in being well known?

The business mindset that PR has no measurable value is false and to change that all we PRs have to do is to use the technology of PR to re-educate the masses. But isn't that what we do every day? :)

So I am just at the very beginning baby stages of figuring all of this out. I hope my thoughts help.

Best,
Diane

Gini,

Lawyers struggle with a very similar dilemma, and honestly something has got to give. The billable hours model is outdated, and its time to improve it. Clients want real trackable results from lawyers, PR people, and consultant in any industry should be held to that same standard.

Excellent points to consider, Gini, and great comments from everyone. This is definite food for thought. Those comments that mention u00e2u0080u009cvalueu00e2u0080u009d, however, are right on target. Especially with the written word, value seems to be a matter of perception, rather than an understandable, quantifiable amount.

In my business, we do a lot of article writing; in general, it appears that there isnu00e2u0080u0099t a lot of value attributed to writing in the publicu00e2u0080u0099s eye u00e2u0080u0093 or business owneru00e2u0080u0099s eye, for that matter. While I can tell them that my writer spent "x" amount of time researching and writing, the result they see is a 500-word (or so) document that looks like it was easy to write.
Billable hours seem to be a solution, but most of the clients know the information weu00e2u0080u0099re writing about, and canu00e2u0080u0099t see spending two hours researching for one article on what they consider to be basic information.

Pay-for-performance might work as well, but again, it becomes a matter of value. Do I wait for two months so the client can say, u00e2u0080u009cyes, that piece brought in u00e2u0080u009cxu00e2u0080u009d amount of visitors, so you can get your money nowu00e2u0080u009d?
So, Iu00e2u0080u0099ve chosen fixed pricing with an upfront deposit. The client and I talk about what they need, I tell them how much it will cost. If theyu00e2u0080u0099re agreeable, they send the deposit and the work begins.

Why the deposit? Because, especially in the current economy, even my company has had issues with clients being unable to pay at the end of the month. With a partial payment, I have the chance of recouping at least part of my costs.
Unfortunately, value IS perception. If you donu00e2u0080u0099t believe it, consider the number of people who will buy a bar of coarse soap for $1, when a bar of silky soap that will u00e2u0080u009cmoisturize and hydrateu00e2u0080u009d is sitting next to it for $3. The overall question is, no matter what the results are, whatu00e2u0080u0099s your time worth to the client? Scary really.

One last thought what about consultation or how about recommendations that take time and research? Who pays for those ideas? Free advise is nice but not when it's backed with years of experience.

Coming from the development world, it's pretty straight forward - you charge per hour and at the end of the project, there's a product to show for it.

But with PR and similar methods, I don't think that applies. It's not one method that works or one website to show at the end. It's a stream of ideas and actions that can achieve one goal at the end or multiple goals of varying levels of measurement.

The question becomes how do you assign value to certain actions? Do you quantify and say when a certain percentage of the audience becomes a certain percentage more aware of the brand, that's a certain price?

Great questions!

You know? I threw away the old hourly billing model years ago. It doesn't work.

I don't know about anyone else, but a lot of my PR strategies are dreamed up when I'm not 'on the clock.' So how do I bill for the ideas, which is what you're really paying for with a public relations pro? Unfortunately, it's gotten extremely painful financially to compete with VAs and others writing press releases and sending them out.

So I've created packages, and my clients seem to like them.

Still, it;s all about setting and meeting client's expectations.

I remember seeing a PR firm do this years ago (I believe Annie Jennings PR) and thought it was brilliant. Pay for results.

However, the amount was really high when you did get placement but everyone know exactly what they were paying for. "Results" were in placements not in sales results, etc... since that's how you measure PR in my books anyways, it made sense.

I firmly believe in value based pricing and hourly pricing does not give any incentive for the service provider to be more efficient at something and does not take into account the value of a campaign that was perfected on its first try, it only encourages padding and client questioning of hours spent.

Gini, spot on debate, especially in this market. Something we learned. I go in part with the argument that GA and adwords give a degree of measurability, but the problem is relevance. If you do a campaign and the site shows a spike of traffic, that is good but what if they are all the "wrong type of people." B2C PR is more difficult to measure, but still possible, but certainly B2B PR is measurable through IP address tracking. Through this route you can work out which specific organisations are responding to which specific stimulus. I recognise the limitations of static v dynamic addresses, but even so, if you can see 50% of the traffic by organisational name that is lot more than people have seen before and give a strong step forward to making PR measurable.

We measure our own PR that way and it has helped us maintain a strong relationship with our agency. Doesnt stop price discussions but at least they have something to come back to us with rather than just "trust me it works." - just a thought.

I hate billable hours. (A strong statement, I know.)

Yet, as an agency owner, I realize how important it is to track our staff's time and ensure they focus on the work-to-be-done, achieve breakthrough results that provide the best value for clients and yes, even make a profit for the firm.

I completely agree with you, Gini, that the current business model needs to be reexamined and I, too, am open to new ideas. I wonder if there's merit in a two-part model that's both project and incentive-based.

Hereu00e2u0080u0099s how it might play out: Agency gets compensated fairly for a program with fees that cover strategic plan development, creative materials, media lists, plus all the work we do to execute the program and achieve results.

Add to that some incentives, based on exceeding the measurable objectives client and agency agree on at the outset. That way, there's reasonable compensation and profits for the agency and both parties become u00e2u0080u0098partnersu00e2u0080u0099 by sharing some of the risk and reward.

Of course, thereu00e2u0080u0099s always the matter of listening to counselu00e2u0080u00a6 but thatu00e2u0080u0099s a subject for another post.

I think the main point of this whole discussion is that there are several different ways to understand "Value" in a service, so a "Value-based" pricing model will never be unique from agency to agency or client to client, and not even within the same agency and the same client.

To track the value of a service, we need to consider 3 factors:

1. Trust - Trust is essential from both sides. The agency needs to trust the client and, even more, trust the client's product being advertised or no matter how much effort is put into the message, customers won't be coming back and the campaign success will be short-lived. On the other hand, the client need to trust the agency and its methods so they can give them enough room to do what they believe will work better, instead of questioning the strategy every step of the way.
So, my first analysis here is that you usually CANNOT work based on value when there's no trusted relationship established with the client yet.

2. Expectations - No matter the negotiation, success is a matter of expectation. Setting the right expectations from the start is the only way, in my experience, to ensure satisfactory results and to avoid discussions on the real value of the service provided.
Now, how to set the right expectations? It is a mix of confidence in your own capabilities and knowledge of the market you work in. Each professional will deal with this in its own way, but successful professionals can set right expectations without any effort, because they know their capabilities and limits as well as the current state of their markets.

3. Risk - As with everything, a value-based pricing model is about taking risks (for both sides) and making them worthwhile taking (again, for both sides). The best approach is the one where the agency minimum costs are covered (no one will risk for long if they have to pay to keep working), the main fee is based on achieving expected results and there's a percentage (bonus) based on overachieving milestones.
This way each party share the risk of a minimum cost for believing in the engagement (or the need of the engagement), a fair price for its success and a premium for any extra ROI provided.

I know my answer is not a simple one. But I learned over the years that nothing is simple in our line of work and it's good that way or we would all be out of jobs...

The hourly bill and cost plus model is broken. Peter Drucker noted as much in his Five Deadly Sins of Management - Cost plus pricing is sin #3 and it is no different conceptually from hourly bill. The supplier incentive is fundamentally misaligned with that of the client. Firms that figure this out and work with clients to align incentives will be huge winners in all this. Coke (and P&G) is willing to pay you/us more than you/we would have otherwise received if we help their business succeed (and prove it) and are willing to share the risk when we don't.

This applies to market reseach agencies as well - more fodder for that discussion here, http://www.trgisky.com/blog/full-service-market-research-pricing-crazy

Like many others my budget for public relations, marketing, etc has been cut. I must show a return on our investment before I receive approval from our Executive Team at the proposal stage. I believe the value can be outlined by both the client and agency at the very beginning. We prefer goals, project outlines and timelines that are measurable.

This is a really interesting question, and what strikes me most is how expectations of value-based compensation vary depending on the type of service provider in question. If you pay a dry cleaner to remove a stain, and they are unable to do so, you dispute the bill... however, if you pay a surgeon to remove a tumor, and they are unable to do so... do you also dispute the bill? In some cases, probably. But it seems like the customer's instinct is different in these two situations, and it has something to do with the fundamentally different expectations we have for our relationships with different types of service providers.

The comments here about managing expectations are right on. And part of that is simply managing the expectation of the relationship: is the agency a doctor or a dry cleaner? Whether or not there is a universal answer to that question, I think fair billing rests on making sure the agency and the client agree on that answer.

Since when did people pay for something without expecting value? Why has Google's adwords been so successful? Because you can measure it success. It's time for ALL businesses, not just ad agencies, to give real value.

Value is a function of results, yes, but it's also a function of risk. So Juli's point a few comments back about compensation exceeding 100% of normally billable rates isn't an exception for this sort of model -- it should be the rule.

We're odd ducks at my shop and abandoned the hourly model several years ago. Today, most of the work is done on a fixed-fee or fixed-retainer basis -- quite literally, the back-of-the-napkin model started with, "OK, how do we eliminate time tracking and set up one-line invoicing as a goal?" Everything grew from that. That's not to say we don't know where our time is going or what our margins are, but we never want the client to feel like one more call to the office means he's chewing up his retainer in 15-minute increments.

The work that we can get value-billing agreements in place for usually looks like this:

* Separate (and, per above, usually fixed) fees for up-front strategic work, ongoing execution and on-call crisis efforts. All of these fees are within our margin target, and the value-billing component, if any, is gravy.

* A written list of business objectives (not communications objectives, not hits in the media -- measurable business-success objectives) from the client that represent a sort of good/better/best set of aspirations, with performance fees payable to us if they meet some or all of those objectives within the contract period.

We ask for the business objectives even when we're not value billing -- our work is at its most relevant (and our invoices most likely to be paid quickly) when the client clearly sees that what we're doing directly, measurably moves those objectives forward.

And if they have unrealistic objectives? Or if their objectives are not ones that can be impacted by communications? Then we are probably not a good fit for the engagement.

Gini, you raise two questions here. First, who determines value? And second, how accountable should and can communications be when it comes to bottom line results? The simple answer to the first question is that itu00e2u0080u0099s the client who determines value. Itu00e2u0080u0099s the clientu00e2u0080u0099s money and the clientu00e2u0080u0099s business. We can say that a three-minute segment on the Today Show has value, or that propagating tens of thousands of conversations among the clientu00e2u0080u0099s target consumers has value (and, undeniably both do) but unless the client believes or we can show that those efforts link to a measureable business result, the value argument is going to be hard to prove.

Agencies arenu00e2u0080u0099t completely out in the cold, though, when it comes to determining value. First, they can actually help a client determine value and, incidentally, identify an appropriate level of investment. Ask a pet food client how much it would be worth to the company if consumers who frequently switch brands were to buy just one more bag of the clientu00e2u0080u0099s food a year and you instantly not only help define the value of a brand loyalty campaign, but also help zero in on a reasonable investment the client should make to derive the benefit of increased share. The same is true if you ask what it would be the savings in dollars to reduce employee turnover by five percent, or speed the approval of a permitting process by three months. Conversations like these at the start of an engagement frame the work not only in terms of results, but also help determine price to be paid for the benefit gained. In other words, value.

Regarding measurement and accountabilityu00e2u0080u00a6 I strongly disagree with those who continue to say that public relations canu00e2u0080u0099t be tracked or measured, or that its impact on business results canu00e2u0080u0099t be discerned. Even worse is when those claims are used to devalue PR agains other elements of the communications mix. The secret is to move beyond measuring gross impressions, ad equivalencies or even message delivery efficiency and instead measure the quantitative connection to business performance and the attitude/behavior change of key stakeholders. And that can be done with some fairly basic statistical analysis that show clients how hard EACH communications element u00e2u0080u0093 including public relations u00e2u0080u0093 works individually and together when it comes to achieving goals and delivering business results.

This kind of measurement and willingness to be accountable fits well within the emerging value conversation and u00e2u0080u0093 perhaps most important u00e2u0080u0093 gives communicators the ability to speak the language of C-Suite, not simply the language of the PR department.

I think I agree with Dave's comment above. Why not try a mix, where you are compensated at a certain percentage (say 80%) of your regular hourly rate for the job done, time put in.

Then, with the client, create a list of goals or objectives, where if they are reached, that extra 20% is then billable. If you exceed over above the set expectations, you could be compensated at a percentage over and above 100% of hourly rates.

This is a model we are contemplating trying with new business. This way there is a risk/reward payoff for both parties. You are risking a percentage of your hourly rates, but the reward is gaining that back and then some. The client, in turn, is taking a risk on you and your services, but their reward is having their goals reached, and hopefully then some.

Would you consider operating in this manner as a trial?

I say give it a try. If it works for a couple of clients, continue it. If it doesn't, cut it. In "interesting times", we've all got to be creative.

As far as value, I understand the concern with placing too much value on clips and impressions. However, right now, that is a starting point. As your model grows, you will gain insights on what how to better prove value.

"FOR SALE! PR CAMPAIGNS! ONLY A PENNY PER IMPRESSION!"

(Just a novice opinion)

The biggest question here is how to measure the success of a campaign. With major social networking sites still trying to figure out their own business model and the demise of what media USED to be, PR professionals are still looking for answers to this question.

Gone are the days we could say "your story was printed in x many papers and you got x many readers" or "your television broadcast was seen by x many people"

Sure we have online and print circulation, ad rates and quantifying equations of what is an effective placement and what counts as just pickup, but how do you put a true monetary value on the success of one campaign?

Campaigns need to be measured on a multi-level, ever-changing, expectation of results. And PR pros need to manage those expectations. If a client gives you new age thinking, you need to bring back innovative, forward moving results. If you get traditional expectations of x many impressions and X amount of ad rates, then you can bring back those impressions (But you should be advising your client to come to the digital age).

Being a novice and a former serial intern-ist, i've seen many different ways of measuring campaigns. No one is going to have "the one" answer to measure results and that way of thinking is fading fast.

So sure, let's get paid based on results. Anyone want to tell me how to measure what's successful and what's not?

Interesting topic that many companies who hire vendors struggle with. I'm not a fan of billing by the hour myself and prefer set prices for set work. A PR release should cost a fixed amount; many functions a PR or advertising firm offers can be broken down into set prices for each project. With the rise of social media and the overlap with PR, this is going to become far more of an issue because simple retainers and bill by the hour rates just don't make sense to businesses.

Interesting topic. And a lot going on in order to figure out the 'right' answer.

Perhaps a mix between the two extremes. Pay based on the scope of the project. Then a bonus for a successful campaign. Success of course determined by mutually agreeable terms.

But to say a provider shouldn't be paid for their work, ridiculous.
Equally ridiculous? Producing work that isn't trackable.

Both sides need to work to educate each other on the expectations that can or can not be achieved.

Do you think base plus bonus would work?

In any professional relationship, success is often defined at the front end (the same can be said for personal relationships, too!). In most instances, the disconnect in delivering value is caused by a failure to manage expectations.

What we say when talking to clients is fact, is reality. What the client hears is also just as right. The art in managing expectations is finding an agreeable mechanism to first gauge and then monitor the agreed upon expectation.

So, where does value (or the price of value), fit into the client dynamic? It exists at the front end - when the price for work to be performed is a mutual agreement, in fact, a contract.

Clients are always entitled to challenge value, and in the restaurant analogy, a bad piece of fish, or forgotten piece of the order, shouldn't be paid for, and reduced from the bill. But Gini is spot on: if you ask for something, and that is delivered, the client has an ethical obligation to pay. And if they fail to believe the value is less than what they paid for, then they are entitled to ask for a discount. But the argument must be based in objectivity, not subjectivity.

So, as the game changes, clients can't abuse the relationships they have with professional service providers. If they engage the services, they must pay, and pay promptly!

When markets shift, and companies shift the burden to their service providers to define value, or worse act as the sales arm, then that fundamentally shifts the burden in an unfair manner. The PR firm, ad agency, consultant, etc., is not the sales force. They are not commissioned employees in the traditional sales model sense. Rather they are critical tools in the arsenal of resources that companies pay for to give the sales force, the employees of the company, to achieve their goals.

Companies would never send out a sales force to close business without giving them the support critical to success: sales pitches, client service teams, product managers, or a functional product or service to sell. That's why companies retain the services of external support to accomplish their internal goals.

When the company shifts the burden to third-parties, they cede responsibility for "closing the deal" or "delivering the value" of their products. Penalizing those they contract to support the goals is myopic at best, and unethical at worst.

Value billing may work in some instances (it works often the lawyer-client relationship), but only when fair and reasonable goals are set at the onset, when expectations are managed, and when the companies take responsibility for the value they deliver. Shooting the messenger (or messaging vehicle) is a cop out.

Coke's model is an interesting one that caught my eye as well. I'm not so sure that billable hours are archaic, but they do fail to recognize value. I agree with Mike regarding PR not being very trackable or measurable and like his idea of a hybrid model.

The thing I like about Coke's model is its focus on results.

I blogged about this today too; for more of my perspective, see: http://intouchsolutionsdigital.blogspot.com/2009/04/forcing-focus-on-results.html

Gini:

Charging by the hour must change. (see my article on the topic http://www.anchoradvisors.com/pages/article_view/22.php?aid=38 )

You are the expert, the client wants you to determine how much value your work can create. When you do that you can make more money. (And clients love to buy your confidence.)

If your efforts don't produce results, who's fault is that? Why should the client be forced to pay for it?

I know that in your business effort and results aren't always tied in each month. Sometimes it's a slow news day and you get lucky and other times you get pushed out for the swine flu :-) But over time, whether you bill for time or value, if you don't get results the client will leave (or not pay the bill).

Have you thought about a guarantee like David Maister suggests? http://davidmaister.com/blog/585/Satisfaction-Guaranteed

This approach will work well for some clients some of the time. We stopped using PR firms because the first thing they would say to us would generally be "Well, none of this can be tracked and it might not work" To use your analogy, that is like going into a restaurant and the chef saying "Well, our food might be good tonight, but no guarantees"

It is certainly a valid thing to say for a PR professional. Its true. But, a PR professional isn't competing for my $$ against other PR professionals. They are competing against other marketing channels. Those channels are continually getting more trackable while PR remains woefully stagnant.

What about a hybrid model. A smaller retainer with a focused set of publications targeted to carry a story?