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Gini Dietrich

Starting a Public Relations Firm: The Business Side of Things

By: Gini Dietrich | June 27, 2013 | 
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Starting a Public Relations Firm- The Business Side of ThingsI remember when I started Arment Dietrich. I was way too young to be starting a public relations firm. I had no idea how little I knew and how much growing up I had to do.

But not one to do things the easy way, I figured the school of trial and error would show me the way (plus that whole problem with authority thing that kept getting me in trouble with employers).

And show me the way it did. Not only did I have NO idea about the business side of things, we went through the Great Recession while I was learning and it nearly put us out of business.

I remember reading things about running a business. I even joined Vistage to help me learn how to do it.

But nothing quite hit me smack in the face like good old experience and failing so badly I almost had to go back to work for someone.

I also didn’t have a mentor or the foresight to ask someone in the business for help. Call it pride or stubbornness or plain, old I didn’t think anyone would take the time.

So last week, when I wrote about the importance of tracking time and my dear friend Kate Finley asked some additional questions about running the business of a PR firm, I decided I would share some of the answers with you.

Retainer Too Low

We’ve all been there. We propose a program for a new client, we budget it out, and then we get to work and find a ton of things we didn’t expect that are creating more work or putting obstacles in the way of getting things done.

There are a few things you can do upfront to protect you if that happens:

  • Be extremely clear about the work you’re doing and detail it in your proposal.
  • Put in writing what is included and what is not.
  • Explain what a scope of work change is and what will trigger one.
  • You can even detail how many hours each week the client gets from you. This is important if you’re doing a retainer or flat rate. Some people think retainer means you’ll do as much work as it takes.

Then be very diligent about not overservicing on projects not included in the scope of work and coach your team on how to politely, but firmly, tell the client they’re asking for something not included.

We had a situation where, after working with a client for two years, we knew exactly how much time things would take to accomplish. Going into year three, we budgeted based on our experience with them the previous two years.

But they hired someone new and she created three times more work for us. About four months in, I had to have a conversation with the CEO about how this new person was eating away at our budgets by requiring nearly daily meetings, constant phone calls in between, and urgent emails late at night (midnight our time).

I handled it in this way: I explained how much we enjoyed working with them and that year three’s budget had been created based on our past experience with them. I explained why things had changed, but also that we were super happy to work with this person.

In order to do that, though, we’d have to increase our budget to include all of this extra meeting time and hand-holding she needed.

About a week later, they brought back our old day-to-day person and things went back to normal.

Letting a Client Go

When you are starting a business, this is the hardest thing in the world to do. You don’t want to give up the revenue, but you also know they’re not a good fit.

When you let a client go who is toxic or isn’t a good fit, it rewards you in double the revenue later.

I know. I know. Easier said than done. But I’ve seen it over and over again in our business.

Every year (it’s happening here in about a month), we sit down and determine which clients are profitable and which are not. Then we also discuss the pros and cons of working with that client.

Are they high-maintenance? Do they have unrealistic expectations? Do they refuse to work with anyone but me? Are they toxic or mean or rude?

If the answer is yes to any of those questions, we then discuss whether or not we think it’s worth trying to save the relationship or if we should fire them.

Typically, we fire the bottom 10 percent of our clients every year. Which means two or three good clients are let go. Every year.

It’s really scary and, as the business owner, I have to take a deep breath and show no fear.

But I have truly found, once you do that, it frees up your time to work with the already existing good clients or to find the ones you want to work with, who appreciate you.

None of us go into a client relationship thinking it’s going to turn sour, but it happens.

We’ve let three clients go already this year and the collective sighs I’ve heard from my team are pretty incredible.

It’s hard to do, but it’s very well worth it.

Starting a Public Relations Firm

It’s not easy – this whole business side of things.

Most of us go out on our own because we think we have a better way of doing things. Some of us are extremely good PR professionals and the logical next step is starting a public relations firm.

What we quickly realize, though, is running a business takes us away from our craft.

We have to keep a clean balance sheet, we have to understand and manage a profit and loss statement, we have to budget to profitability, we have to know when it’s time to hire new employees and how to attract – and retain – them, we have to create process and procedure, we have to worry about things such as paid time off and holidays and covering for someone when they’re sick, and we lay in bed at night wondering how we’re going to make payroll.

It’s not the easiest job in the world, but it’s one of the most rewarding.

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.

49 comments
marcelam
marcelam

Thank you for this article! As a PR student, this story shows me that it is not easy to start a company, but it is possible. My dream is to find a mentor from whom I can learn, for example, how to handle a crisis or how to reach the audience. With a mentor, I would have the opportunity to improve my skills and learn new ones, gain valuable knowledge, and further my professional development on a one-on-one basis. This year, I have discovered how interesting PR is and how much I enjoy analyzing different PR scenarios.

I hope to find a job in PR, because I’m not the kind of person who can begin my own firm without having experience. In the meantime, I’ll remember what I need to know to protect myself. Thanks again.

Marcela

Kato42
Kato42

Gini, I think it's wonderful that you're sharing such an honest look at the business side of things. I watched my mom build a business (not in PR), and it's a rocky road. Articles like this are a great thing for anyone considering following their entrepreneurial dream of starting their own firm.

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Lilian Raji
Lilian Raji

Reading this, I thought it was something I'd written and forgot I put out there.  Then I noticed it wasn't my name on the bi-line.  ;-) Everything here resonates with me - from "problems with authority" to starting an agency without the adequate prior knowledge (my only agency experience was as an intern before deciding to go out on my own - the decision being one made out of necessity when the recession of the early aughts kept me from getting hired by any agency as they cut budgets and trimmed staff).  I also took the road of trial by fire and in the process, was burned several times but ultimately learned when to pull myself out of the flame before any real damage could be done. 

Setting your fee too low is perhaps the number one mistake you make when you go out on your own. I think it comes from not truly knowing what the market will bear. When I started getting a variety of budgets from different clients (which, at the time, I accepted anyone instead of being more discriminating), it finally dawned on me that I'm doing the same amount of work and using the same amount of time for both the client with the generous budget and the client who sold me a sob story as to why they couldn't pay more than a certain amount.  I decided then I would only work with clients who accept my higher fee.  This sounds like common sense, but it's amazing how only experience can teach you this. 

I could go on and on about the various lessons learned from taking the road less traveled in starting a public relations agency without prior agency experience, but the biggest lesson I'd like to share with anyone thinking of going down this road is this:

The client that asks you for a significant discount on your fee will be your biggest problem.  Don't accept their sob story, don't let their vision and passion for their company tug on your heartstrings, don't think to yourself "gee, it would be nice of me to help this guy/gal out as they clearly need PR to help their business grow and I already have enough clients paying my full fee - I guess I can do this favor...". Thank them for their interest and let them know you do not negotiate your fees.  If you do not, the universe will punish you for sacrificing your business value by making this "client" the very definition of a living nightmare.  Not only will they act like they're actually paying your full fee, they will demand MORE than what the real clients paying your full fee would ever expect. 

Lastly, make sure you have an out for yourself on all of your contracts.  When you discover you've unfortunately stumbled on what I call an energy vampire, or as others refer to as a "toxic client", this clause on your contract is what will save you from banging your head against a wall in self punishment for accepting this bit of business. 

And one final tip - get a merchant account to start accepting credit cards.  As of now, we only take payment by credit card, with a signed authorization from the client allowing us to automatically charge the card based on a predefined schedule.  Yes, you're losing 3% of your fee to the merchant company (which you should add into your proposed fee anyway), but the peace of mind it provides knowing that you will get paid for your hard work is worth that 3%.

RegisDudley
RegisDudley

I LOVE these. They're clear and concise points! I've shared with a few independent consultant friends :). 

There is also the pressure to base pay on performance for some new PR agencies. This really grinds my gears because so many factors can influence performance of activities (esp. when it comes to media relations). Don't give in to this, friends!

bhas
bhas

There is good, solid advice in here. 

Here is a question, though. Picture this scenario.

You have a good opening conversation with the client, have a pretty decent feel for what they want and are confident that you can deliver it. You two also seem to gel and the project is exciting. 

 You draw up the plan, the client okays it and you work your ass off to hit the deliverables. And then the inevitable happens. The client seems to have a sudden change of mind and decides that they don't really want that, and could you redo the whole thing again, with these modifications. You take another stab but you might as well be spitting into  a storm. The client is unmoved.

 Assuming that you are not incompetent, this is a client that will suck you dry and needs to be fired. How have you dealt with these situations, especially when there is a disagreement between you and the client on the monetary value of the work already delivered? By your book the work done was according to client specifications and you should be paid for it. By the client's book it's overnight's pickle sitting on the kitchen counter that goes into the trash.

giesencreative
giesencreative

I've hesitated to comment on both this post and your PR Firm of the Future post earlier this month. The first time, it was because the "hybrid PR professional" of the future is what I'm building myself towards—because integrating online and offline, marketing and communications seems like the only measurable, effective way to go forward.

This time it's because your first two paragraphs sound a lot like me. I'm in a position right now where it seems like striking out on my own might be my best option (as it's been my "five-year goal" for what seems like a long time now). Still, it's probably not a good idea for me to say (out loud) that I have problems with authority.

And I need to find my clients before I can make the mistake of setting the retainer too low. ;)

JoeCardillo
JoeCardillo

You know what's cool, pretty much everything you mentioned can be applied to being successful in your personal life too. Great advice. 


Todd Lyden
Todd Lyden

Gert- you should get paid for this- just sayin'

barrettrossie
barrettrossie

I know a lot of people who need to read this. :) 

ClayMorgan
ClayMorgan

When I was freelancing, retainer too low was a biggie for me, but sort of in reverse. I was very poor at controlling "job creep." You know, "hey, while you are at it could you do blah blah blah?

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anitahovey
anitahovey

Going through all of these questions now as I think about how to bring on staff to my vision of a "firm". Glad to hear I'm not alone... and I'm heading in the right direction :)

yvettepistorio
yvettepistorio

One thing I love about you is how honest and transparent you are about the company. You share everything with the team and we really get to know the business - I've never encountered that before. It's scary and a bummer to lose clients, but like you said - it frees up our time to work with good clients and find others that appreciate the work we do for them. 

Mark_Harai
Mark_Harai

Hi, Gini - the experience you're gaining on the business side of things is invaluable. You just can't learn these things in a classroom. 

There are some very talented, competent in their field, hard-working, inspired, positive, new business owners out there that will fail; not because they couldn't deliver the goods and/or services, but because they don't have a clue as to how to build and run a business profitably. 

Once you have that experience under your belt, you can run any business profitably.

Business building is a skill all unto itself. 

Cheers, miss! : )

suzemuse
suzemuse

Firing clients is at once the scariest and most stress-releasing thing you can do as a business owner. It's amazing how even one toxic client can overpower everything. 

I agree that running your own business is the most rewarding thing in the world. But it's definitely not easy, and it's definitely the hardest work you'll ever, ever do. 

Thanks for being so honest in this post - these are things a lot of entrepreneurs don't talk about, and it makes us feel very alone sometimes. It's good to know that these are challenges we all face - and that we have each other to draw on for support! 

RobBiesenbach
RobBiesenbach

"Running a business takes us away from our craft." So true. That is one of the biggest considerations people need to think about before starting a business. What really motivates you? In PR, do you enjoy the creative aspect of the client work -- the writing, the messaging, the content, etc. -- or would you be excited to build an organization, to manage people and resources and client relationships and make it grow? Two very different things with very different skill sets.

And I think the same principle holds when you're working for someone else. The higher up you go in a PR firm, the more responsibility you have for running the business, and the less you get to focus on the craft. Which is why 7 out of 10 PR firm VPs are so miserable. (I just made up that statistic, but it sounds about right.)

lauraclick
lauraclick

Um, how did you know I needed to hear this advice today?! I need to make some tough decisions like the ones you've mentioned. I know it needs to be done, but it's still hard to do. I didn't renew a contract with a very large client last year because of the toxicity and constant shifting of priorities, goals and ideas. It was hard, but ultimately, the right thing to do. I need to be more willing to do that! And, do a better job of screening clients on the front end. That will help prevent the need to fire them later. :)

It's interesting that you proactively prune your client roster every year. How do those conversations go down? Do any of them ever plead to stay with you? Just curious. 

kristathomas01
kristathomas01

Helpful to service providers of all kinds - thank you! Always so nice to wake up to your insightful words.

MohitPawar
MohitPawar

Hi Gini,

Your post conveys the message really well - because it is written by someone who has been there and done that - much better than advice dispensed by a prof. It is like reading a good manifesto. Started my first business project as a teenager, later went to b-school before starting again. Truth is a b-school teaches you to polish stuff and life teaches you what works and what does not.

Thanks for sharing your story :)

Joshua Wilner/A Writer Writes
Joshua Wilner/A Writer Writes

Toxic relationships are bad everywhere. Sometimes people think that money makes them better but I have rarely found that to be the case.

When a business relationship goes south you have to ask some very hard questions about what sort of return you are getting from it. 

Some years back I let a client go because their expectations were unrealistic and they refused to work with us to develop a reasonable compromise. The money wasn't worth the frustration and negative feelings that came with it.

Although I will concede that had they quadrupled what they were paying my tolerance might have gone up just a bit.

GraceFagbohun
GraceFagbohun

This is a great post. I studied public relations. I graduated 8yrs ago & focused on family. I would like to start a public relations firm, but I don't know how to go about it. I've been applying for jobs for the past 3yrs without any success. I would like you to advice me on steps to take.

jolynndeal
jolynndeal

Gini, your posts are so very real.  Thanks for sharing the good with the bad, without SPIN.  PR is like cosmetology to me, complete with swapping stories just like at the salon. Practioners get together and share stories of failure and success. We are very supportive of each other.  My focus is the small business owner and I love being able to help people who are working so hard to succeed. They've given everything they have to their business and it's a pleasure to be a behind-the-scenes part of the success.

aimeelwest
aimeelwest

Very interesting.  I love your 4 questions that you ask about clients each year and really they should be asked if they make an unhappy team or cause more stress/work they are just not worth it. 

Plus I'm sure the cost of letting them go is less than having a therapist on retainer for the employees. 

MichaelBowers
MichaelBowers

You are wise Gini.

Another Super Post! This is valuable to most business operations especially those that bill by the hour. Agree, most people get into business for themselves because they are passionate about what they do not because they like accounting and billing and collections (all of the business stuff). However, you won't be in business long if you don't master these things. I have seen both points, controlling hours and firing clients, come up with people I work with. These are huge and are a must handle. 

I have a friend that is struggling with the client firing question. A bad client will not only zap your cash and time but they can be toxic to the energy of the team. Firing clients is not fun, well maybe sometimes it is, but better to do it sooner rather than later with it is to late.

Thanks as always for sharing your business experience. It is very helpful.

RegisDudley
RegisDudley

@bhas Perhaps more check-ins are in order. If you stated from the get-go that you'd have check-ins every ___ weeks and/or every project milestone, and you are clear that you won't move forward until after approval, you could have those approvals to prove that the client accepted the work at each time point. Then you have proof that they must pay you for everything they've approved. You can negotiate doing the work over if they don't like the final project, but they must pay you for everything they've approved. Thoughts?

blfarris
blfarris

@GraceFagbohun My advice -- go find a client -- just one. That first client will be more help to you than you know.

blfarris
blfarris

@MichaelBowers The best thing about firing toxic clients is that they make room for (and give you energy to find) really terrific clients.

bhas
bhas

@RegisDudley This is a situation that especially bedevil designers where clients seem to know what they want, until they see what they were talking about and then realize that they didn't want that. There are forums filled with horror stories like these, and I think there is even a website selling posters and T-shirts with slogans excerpted from client emails.

I agree that constant check-ins is absolutely necessary, but what do you do when the client changes their opinions as frequently as a weather vane in a tempest? This situation will be exacerbated when it's an agency situation because it's not just your billable time on the line- it's the entire agency's.


Kato42
Kato42

@RegisDudley @bhas Hmm. I've run into situations like this one as an employee (because a lot of my work has been in large organizations that treat "communications" as an internal firm that has to "bill out" for its hours). It's a horrible situation to be in, and I agree that regular check-ins and sign-offs can help... but in my experience, there are still people/clients who just don't get it. Plus, you want to be careful - there's a risk of moving from being a company that helps business owners to one that throws so much "red tape" in their way that they perceive you as being the reason nothing gets done.

I'm curious to see what Gini has to say on this one!

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MichaelBowers
MichaelBowers

@blfarris @GraceFagbohun I agree with this. Many people I deal with project their business to where they want to be rather than where they are. If your goal is to have 10 clients and you currently have one then getting your first client is the most critical thing you have to have one before you can have two and two before three, etc. 

belllindsay
belllindsay

@KateFinley NOT just because. Because they are toxic, or time-stealers, or rude and demoralizing, or expect too much, and in so doing, are creating an environment of stress and unhappiness. :D