1
0
Gini Dietrich

It’s Time to Rid PR Firms of the Billable Hour

By: Gini Dietrich | May 5, 2010 | 
29

Yesterday Martin WaxmanJoe Thornley, and I were recording our second podcast for Inside PR and our topic was the evil billable hour in PR firms. It’s live today and you can listen to it here.

But, because a podcast is so one-sided and because we went off on a tangent that I want to explore further, I thought we could discuss it here.

Exactly one year I blogged about this topic (see it here, but read the comments; that’s where you’ll find the good stuff) and I hate to say we’ve not come to a better conclusion in 12 months time. We don’t actually bill by the hour so the evil billable hour isn’t as prevalent as it once was. We bill for projects; that changed more than a year ago. But we still have to track our time and that’s what I want to get your thinking on today.

In our business, no matter if you’re doing traditional PR or digital communication, you are selling time. And, people who don’t bill their time don’t understand everything that goes into what we do…mostly because it’s not tangible. Sure, digital communication has made our services more measurable and less expensive, but we’re still selling our brains.

I know if someone asks to pick my brain and I’m not going to get new business out of it or it’s not going to turn into a good referral network for me, it’s not worth me giving that person my brain for free. My brain = money. And to know how profitable my brain is, I have to sit down daily (or weekly) and enter my time.

But the idea that we have to track our hours to know whether or not the time we are spending on a client’s account is profitable for our business and to show the value of what we do to our clients seems very archaic. Problem is, we don’t have an answer.

I was thinking about this while pounding out the bike miles this morning. There has to be a better way.

If you were me, how would you change the financial model to be rid of billable hours and tracking time?

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communications firm. She is the lead blogger here at Spin Sucks and is the founder of Spin Sucks Pro. She is the co-author of Marketing in the Round and co-host of Inside PR. Her second book, Spin Sucks, is available now.

26 comments
Demetri Dallis
Demetri Dallis

Gini-

Nice topic! A couple of different thoughts that I had on the subject and we have been internally testing. One includes, for digital marketing, the amount of time spent or "brain power" on a service. A monthly revenue model could be custom developed based on individual client requirements. The second, but most unlikely, could include working on a percentage, performance-based model. If our "brain power" is as good as we value, then the performance should materialize to expectation more often than not. The client wins since they only pay based on the outcome. The agency wins if a transaction outperforms and turns into an ongoing engagement. The downside is that the agency takes the time and money risk upfront with the "hope" they deliver for the client and stay within their budget.

George Rosenberg
George Rosenberg

I often recommend to agencies I advise that they consider a hybrid model -- retainer plus time. The retainer helps with cash flow (cash is still king in most firms) and the "plus time" kicker commits the client to paying for time above and beyond the retainer -- but only with their prior approval. The key to successfully implementing this model is ongoing time tracking and frequent communications with the client about time spent against the retainer.

Eliminating the billable hour is admirable and for some firms realistic depending on the kind of work they do. Selling products vs. services (something that many consultants do) is a way of developing a different pricing model, but it does not always lead to lasting relationships.

Per Abbie's suggestion, this would make an interesting topic at Counselors in Asheville.

Abbie S. Fink
Abbie S. Fink

Gini -- sounds like this wood be an excellent topic one night in Asheville. Get all our brains together :)

Gini Dietrich
Gini Dietrich

Thanks Jay! What I would love to get to, eventually, is even some sort of revenue share with our clients because, as you point out, we now can track results as they affect sales.

Am I seeing you in Asheville??

Jay Baer
Jay Baer

Coming at this from the digital agency perspective, and now helping a lot of PR folks make that transition, here's how I've done it. Establish for the client an outline of deliverables and outcomes. What are you going to do? When will it be done? How will it be measured? And then charge a monthly/quarterly/annual fee for doing so.

Certainly, you will use some sort of hourly rate calculation to come up with your fee, but that calculation doesn't need to be shared with the client. Ultimately, if you get the job done in less time than you thought you would, you should benefit. If it takes you longer than you thought to get the job done, you should suffer.

The more we can tie professional services to outcomes (especially measurable ones), the easier it is to move away from billable hours and profit drag they create. Because the impact of their work is so traceable, many digital agencies (including the one I used to own) are partially or wholly compensated on actual, defined results (sales, leads, traffic, etc.).

Can we get PR into that methodology? Perhaps not entirely, but the inherent trackability of social media and PR 2.0 make it easier. At the end of the day, we need to be paid not to pound nails, but because we know where to pound.

Gini Dietrich
Gini Dietrich

I was thinking more about this during my ride this morning (the wind was blowing 37 mph so I had A LOT of thinking time as I pounded each pedal down...not easy riding). I think Steve is right...without time data we're flying without radar. So now I want to find a way to sell products vs. services. Where the product is our brain. Another blog post in the making. Coming soon.

Steve Haweeli
Steve Haweeli

Charting our time - which includes charting time spent posting, monitoring or creating messages for soc med channels - has been the single most important managerial decision I've made as an agency principal. Is the system perfect? No. Do we have a reasonable idea of client profitability? You bet. Without that data, We are flying into the clouds without a radar. We have done a good job of teaching our clients what time management is and they all seem to appreciate the discipline. By the way, I have to constantly remind myself to enter my time. But I do it. Sometimes from my iPhone. We use TimeFox - it's a pretty fluid interface.

Samantha Scott
Samantha Scott

In answer to your boiled down question in the comments, Gini, we have developed an average amount of time or perceived cost associated with generic projects. For example, if someone just wants a press release developed and sent out then we average 2-3 hours and have a set cost associated. However, if there's a project in mind that we've done before we will estimate it based on that. It's lead to a "service menu" of sorts that we provide to smaller businesses.

We still bill hourly and record our hours (in 15 minute increments), but it's more of a checks and balances system, especially since we work with quite a few interns and freelancers. I want to make sure we're not over servicing or wasting time.

Richard Bosworth
Richard Bosworth

We need to drop the 19th century machine driven culture and replace it with something more appropriate to the age of the knowledge worker. No longer do we have to stand over and mind machines for a 12 hour shift and get paid for just that. We have to be more flexible and creative, if you look at how and when you "add value" it doesn't happen to order but it does happen however, there needs to be space / time for that to take place which should be allowed in your processes. So yes have a record of hours engaged on a project but allow a good percentage for creative and learning time - agree a standard that fits your business model.

David Winch
David Winch

Brad has got it right here.

I won't repeat other people's thoughts but do as Brad says and check out the thoughts of Ron Baker, Ed Kless and the others at the Verasage Institute.

OK, just one regurgitation:- The client doesn't care how you did something they couldn't do, or how long you spent doing it, as long as you delivered what they wanted within the elapsed timescale they were expecting. (In fact, if you deliver early, they can enjoy the value for longer!)

Having helped them see the true value of having their problem fixed, before you ever got started, means your fee shows a remarkably high return on investment to them. And it should be highly profitable for you too, otherwise you wouldn't have taken on the job, would you!

Martin Waxman
Martin Waxman

I enjoyed talking with you about this on the podcast and still feel the same way I did a year ago - i.e. I hate billable hours.

But, I think I'm starting to mellow a bit when it comes to tracking time and understanding why we need to measure hours spent to help determine profitability.

I think the biggest question for all of us in creative services is: what is our value? Is it the idea, the high level counsel, or the time we spend on tactical executions. Personally, I see the idea/strategy as having the highest value, but often taking the least amount of time. There's a puzzle we need to solve!

Roger Wohlner
Roger Wohlner

Gini, geat post and great discussion among the folks who have left comments. When I left the world of corporate finance/accounting I first went to an accounting firm that did financial planning. Everything was based upon hours and I just never "got it." Ever since going out on my own about a dozen years ago I bill a flat rate for one-time projects such as a financial plan, a portfolio review or a 401(k) plan review. For ongoing clients, the fee is either a percentage of the assets under advisement or a flat ongoing fee. Either way, the ongoing fee covers all aspects of a client's financial situation so brain-picking is part of the fee. I agree with those who would not let someone pick their brain with no hope of any sort of ongoing paid work. Happily, most of the brain picking I am involved with tends to be with fellow advisors. I think over time the give and take here tends to even itself out, I find this to be one of the best parts of being a NAPFA member and a financial advisor.

David
David

I'm with Gayle, 100%. This is why I rarely take "cold calls" from people seeking my business anymore. I prefer "referrals" because I can get pretty impatient w/people with "too lofty" goals who haven't done their homework. The "I'd like to pick your brain" ruse only goes so far with me, particularly with people with whom I have no previous collegial connection. With true pals, I'll give general advice but at a certain point, I'll genuinely sigh and shrug and say, "to explore this any further requires a plan on how you plan to integrate PR into your business goals, and that would take a lot of time to the extent that I'd be forced to charge you for that, as much as I'd hate to." They generally understand.

Professional clients know how the game works and are generally keen to paying for your time. The newbies don't understand hence I must explain it to them. I don't do biopsies over lunch unless I'm paid. I do lunch to eat and to gossip and to chat and to generalize. But if I sense that someone "out of the blue" is going to leverage the "networking" into getting something for free, the red lights immediately go on in my head and I'm like Gayle, I put my business hat on because she's right, Our EXPERTISE is our PRODUCT. If we give away more than just a "tease," we're shorting ourselves.

I do NOT want clients who don't understand this or take umbrage with it. I will "guide" a "sincere query" in the right direction, but I'm not going to waste precious time on driving down to a meeting that I sense is "more than networking." Again, this is a case-by-case thing. I generally have a feel when someone genuinely wants to "re-connect" socially vs. someone who wants that AND free business advice. I go easier on people with whom I've been in routine contact, but "cold call queries" are a non-starter if I don't know the person in any previous face-to-face context. You could rightly argue that I have lost a lot of potential business that way, but I'm enough of a success to be choosy while still being courteous, kind, sincere and fair. I'm not a jerk about this. I just lay things out in a way that forces the listener seeking free advice into MY shoes. I know it's cold to say that I generally want something out of such "free transactions" too, but is there any other way to put it?

Gayle
Gayle

It took me ages to realize how much expertise I was giving away for free by responding to constant requests to meet for coffee, lunch, etc. to "pick your brain." Expertise is my PRODUCT. Then there was the time involved taken away from other client work. Even a "half hour" for coffee ends up being an hour or more, plus driving and shut down time. That's two hours just for a start. I can't afford to give away several hundred dollars of time for free to everyone who asks.

I began using one of several tactics, depending on the request. For people looking to network or seeking career advice, I replied I'd be happy to chat on the phone for a few minutes, but that my schedule didn't permit a meeting. For people looking to "pick my brain" for PR advice, they were told that I'd be happy to meet with them, and my hourly consulting fee is $XXX. For people looking to hire a PR professional wanting to talk and "get ideas," I'd tell them my first hour of consultation for prospective clients was free, with additional hours billed at a rate of $XXX/hour.

It's been amazing to see how the requests dropped off, even from the career/networking advice types, with the serious prospects not batting an eye over being charged. Businesspeople and professionals understand how it works. The rest? I probably don't want them as clients and they are doing me a favor by going elsewhere.

Craig
Craig

I've seen this from both sides of the fence (corporate and agency), and I have a feeling too many people are looking at this purely from an agency management/margin/resource standpoint. As *the client*, I compete for dollars/budget with others in marketing. My counterparts in, say, SEM/SEO can tell you that if we double the spend, this will be the outcome. If we half it, this will be the consequence. You see where this is going.

I think it's great -- perhaps noble -- for my agencies to say, we're going to do this project for $X, even if that means extra hours to get it done. But on the flipside, it makes it very difficult to make the case budget increases. Will doubling down generate double the results? Are we not getting results because we aren't profitable enough account?

IMHO, such lack of transparency is getting worse, not better, with the elimination of billable hours. And that makes it increasingly difficult to make the case for larger percentages of the budget.

Paul Roetzer
Paul Roetzer

Gini,

I started battling with this exact topic in 2004, and launched a PR firm built around standarized services and set pricing in late 2005.

It is absolutely possible to run the vast majority of services on a set pricing model; however, tracking time remains essential to report on your efficiencies. Even if you stop charging by the hour, there still must be a target hourly rate you are trying to achieve for your time.

Be glad to share some additional thoughts and lessons offline sometime.

Paul

Gini Dietrich
Gini Dietrich

John, good point. I hadn't considered that I'm picking anyone's brains for free. I guess that goes with the territory...blogging and responding to blogs is free information. I respond to A LOT of blogs and do so willingly so people get my brain for free quite consistently. In fact, you get my brain for free every time you read the blog, read anything of the articles I write, listen to our podcasts, or watch our videos. Where I have the issue is when it takes me away from client work or family time and it doesn't result in anything but someone using me selfishly.

As to the rest of the comments...what I really have the issue with here is tracking time. I'd love to find a way to "productize" what we do so there is a set price for everything, we know how many hours/brain value it takes, and there is no quibbling over invoices. Ever.

But, as Martin says on the podcast, you could come up with a really great campaign idea in an hour and it's used for three years to build brand awareness. Do you only bill $150 for it because it only took you an hour?

John
John

So essentially you're picking our brains to get your answer for free?

Bart Butler
Bart Butler

One logical rationale for tracking billable hours, especially since hours are a finite commodity, is to define the time one is devoting to client A, which is, then, not available for sale to clients B, C or D. Your time has a value, and if you're going to be in business, you need to apply it wisely.

That said, though, the ideal would be to bill for a combination of the time you spend AND the value to the client of the work you're producing.

Susan Maxwell Stevens
Susan Maxwell Stevens

I used to work for an executive that purposely withheld key strategic information from consultants. She would say, "If they are really that smart, let them figure it out." Clearly she had a disdain for consultants, but still hired them for a certain level of project because her staff didn't have the expertise. Then, when they almost hit the mark, but not quite, she would belittle their expertise. Really, she just set them up to fail and it made her feel superior to do so.

Even in large corporations, there are pockets of office politics that relish information control and if it isn't their consultant, they won't share. They may appear to share some, but not all that would really help the project.

With this type of client still out there lurking behind a kind and open face, billing for results would be a losing proposition. I like the idea of billing for results. It requires clear defined and measurable goals, completely open communication and information sharing on both sides and research before and after to really show the value of PR. Getting all those elements every time is remains a challenge.

Susan

Brad Farris
Brad Farris

Gini:

As you well know, I am an enemy of billing for time. It's not a renewable resource, you can't make more of it, so why would you sell it at any price?

Of course what you are selling is your brain, so why measure the time it takes? If you work on something all day long and don't find the answer, but then the next morning suddenly gain a breakthrough on your bike, how do you bill for that? Do you bill the bike time? Do you not bill the unproductive office time? It's crazy.

If we determine our fees not by what it costs us to deliver those services, but by the value of the results we achieve then it doesn't matter (to us or the clients) how long it took. If we find ourselves working really, really hard on a project that doesn't have a lot of value for the client that's not a profitability problem - that's a strategy problem. We picked the wrong project. If we bill them for all that time they aren't going to like it, they are going to be disgruntled, because we didn't give them a good value.

Choose to do work where your brain makes a HUGE impact for your clients, charge them some fraction of what that value is worth to them, and you both win.

The guys over at http://www.verasage.com have been helpful in thinking about this. Their whole reason for being is to kill the billable hour, and their thinking on this is really smart.

Brad

Andy Donovan
Andy Donovan

I agree with you Gini - the days of "picking one's brain" especially when there's no chance of a project in the workings have to come to an end. I started out saying that opinions are free but advice should be on the clock - then realized everyone started out saying "Can I get your opinion on..." I typically bill out on a pre project basis and work out a monthly consultation fee for those who simply want advice on an ad hoc basis.

I think we have to demonstrate that our time is worth what we bill out and that includes not giving our free advice. Anyway - am keen to see what others here and on Twitter have to say about the topic. Cheers, Andy

Brian Meeks
Brian Meeks

Gini,

I am not terribly familiar with how PR firms work, but my gut tells me that a TOC financial model would work really well.

I am not sure I can do a throuough jog of explaining TOC (Theory of Constraints) and the approach of analyzing business and making decisions based upon a throughput model, but I feel like Eli Goldratt's methodology would solve a lot of the issues.

Eli Goldratt has written several books, most notably, 'The Goal', 'It's Not Luck', and 'Critical Chain'. I am extremely well versed in his methodology and if you (Gini) or anyone reading this, would like to 'pick my brain' for free, just send me an email. (I don't work for or have anything to do with Dr. Goldratt)

Sincerely,

Brian

Abbie S. Fink
Abbie S. Fink

I don't really have an issue with tracking billable hours. It is more about explaining what that means to a client. Some pitches are successful with one phone call, others need a lot of follow-up. Some clients need more face time, where others are just fine with written reports. So when you talk in terms of hours, it doesn't necessarily equate to the strategies and tactics at hand.

We've addressed the issue a couple ways -- we talk in terms of monthly investment or monthly fees rather than a retainer. We provide detailed accounts of what we've done for the month but do not attach the hours. We use the hours as internal gauge. Certainly we can and will provide the hourly breakdown if a client requests it. But more often than not they are more concerned about how we are using their investment to implement the communications programs we have been hired to do. The number of hours really don't matter.

Trackbacks

  1. […] Gini Dietrich points out in her blog post, “It’s Time to Rid PR Firms of the Billable Hour,” even though we know it’s a problem, […]

  2. […] billable hours. Nearly two years ago to the day, I blogged about PR firms needing to be rid of the billable hour structure. You still have to track your time because that’s your inventory. But the idea that clients […]

  3. […] billable hours. Nearly two years ago to the day, I blogged about PR firms needing to be rid of the billable hour structure. You still have to track your time because that’s your inventory. But the idea that clients […]