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Gini Dietrich

Value-Based Fees: What Are You Going to Do?

By: Gini Dietrich | April 30, 2009 | 
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“FOR SALE! PR CAMPAIGNS! ONLY A PENNY PER IMPRESSION!” This is what Peter Kim wrote in his comment on our blog post about value-based fee structures.

This is all fine and dandy if you’re a publicity firm, but the issue is that we don’t just do media relations. So how do you put a dollar amount on communication campaigns when media relations is only a small part?

We had great comments from everyone and the discussion created quite a nice list of pros and cons, based on an almost commission-based fee structure for professional services firms…those of us who add value, but not in terms of something tangible. Because you can’t hold, see, or feel communications, it’s difficult to decide what kinds of value to place on things such as existing relationships, media training, executive coaching, materials development, messaging, employee and/or internal communication, SWOT and/or competitive analysis, leadership development, and speech writing.

All of those things are important in developing the brand and engaging key stakeholders, but they’re not tangible. So who decides their value? The client? The agency? Both?

Let’s first examine the pros and cons that were discussed in the comments section of this week’s blog post.

Pros

* If we learn how to manage expectations, it’s a win/win for all involved.

* We have the ability to help determine value, based on our expertise and industry knowledge.

* We have the ability to set goals, timelines, and realistic results upfront.

* We keep talking about wanting to be seen as a partner and have a seat at the executive table; this is our chance!

* We now can move from a supplier/vendor relationship to being a true business partner because we are invested in both the risk and the reward.

* We now have the opportunity to think not as PR professionals, but as business owners that have P&L responsibility.  If we create a risk/reward scenario with our clients, we have access to their business operations which makes all of us more successful.

* We can work with the c-suite to agree upfront to a defined success metric…across all departments.

Cons

* There is not a one-size fits all; what is success to one client (number of stories and millions of perceived impressions) is not the same as success to another client (how much did PR help my bottom line this month/quarter/year?).

* Most of the time PR, specifically, isn’t measured to business results.

* Service relationships are typically based on subjectivity, not objectivity, and the client sometimes changes that subjectivity in the middle of a campaign.

* We are held responsible for achieving our goals, but something out of our controls happens; i.e. not getting into planograms at retail early enough, an unavoidable crisis, etc.

* There are times the client doesn’t respect you or take your counsel, but you’re still held accountable for results.

* Sometimes clients hire agencies thinking they don’t have any work left to do. When the client doesn’t provide the internal resources we need to achieve the results, we can’t be successful.

* How to quantify different parts of a program; i.e. when a certain percentage of the target audience becomes a certain percentage more aware of the brand, that’s a certain price?

* Value seems to be a matter of perception, rather than an understandable, quantifiable amount.

* If the key players aren’t involved in the upfront conversations we’re bound to have issues come budget review time.

So how do we begin to determine value on the non-tangible things we provide?  Scott Farrell suggests a few things. “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 client’s 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.

Or 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.”

The best part about all of the comments we received is that there also are solutions. Below I’ve listed my favorites!

Solutions

* Include social media in all communication campaigns because it’s easy to measure, it provides instant gratification, and it’s targeted very specifically to any audience.

* Charge 80 percent of a project, with 20 percent (or higher) when you reach agreed upon objectives

* Separate (and, per above, usually fixed) fees for up-front strategic work, ongoing execution, and on-call crisis and reactive efforts.

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

* Cover your minimum costs with the main fee based on achieving expected results and a bonus based on overachieving milestones.

We are going to try a few things. First, we’ve learned how to directly measure our efforts to business goals for our clients because they do treat us as partners, we do have access to the c-suite, and we do have access to their dashboard reports and other analytics.  But these relationships exist only with our current clients.

So with prospects, we’re going to try a hybrid of the solutions listed above in order to gain the trust needed to become partners in their businesses. Social media is becoming a large part of our programs so it’s easier for us to measure, but we’re also asking, upfront, for access to business objectives, revenue targets, and analytics they review daily, weekly, monthly, quarterly, and annually.

What are you going to do?

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.

6 comments
Lorne Fisher
Lorne Fisher

Gini, couldn't agree more! Our discipline must be valued by the c-suite and the only way to earn that respect is focusing on what matters to them - driving business!

Dan Wallace
Dan Wallace

We strongly believe in value-based fees. In fact, that is a core part of our offering. Because we do strategic and operational performance improvement, growth in free cash flow is the right metric. It's still tricky. What is the appropriate baseline from which to measure growth? Still, it creates such powerful alignment of interest that it is worth striving for.

As Gini points out, PR is intangible, so it's much tougher. I suggest structuring the value-based fees around specific, concrete outcomes (whatever you control and they can measure) so that there is no post-hoc question whether you achieved them or not. It may be easy to agree on the value of an additional bag of pet food, but you can't prove whether you delivered it or not. There are reasons why the client wants you to do what you're going to do. The *VALUE* of your work exists only in the client's eyes and is hidden in those reasons. Explore them in depth and get the CLIENT to explain the value to YOU, not the other way round. Then you have the context for a deal.

Dave Van de Walle
Dave Van de Walle

I remember back in the startup days, late 90s, when there was quite a valid pro/con discussion about agencies working for stock options. It came back to the same sort of deal -- some were against it, must be hourly or project base, couldn't do that; some were for it, great idea, we share in success with you.

Skin in the game is nice, measurable results are nice -- agreed upon targets are best.

Brad Farris
Brad Farris

I like the options. The truth is that the client determines the value of our work regardless of what we charge for it. So agreeing with them about what they are going to charge for it is the only way to have both sets of expectations align. Make a deal, then continually touch base to keep everyone on the same page. Change as often as needed to keep everyone aligned.

Liz
Liz

A lot of those solutions really resonate, particularly the point about understanding business goals vs. PR goals. The best thing that can come out of a very well considered pay-for-performance model is that both client and agency have to analyze and really understand their activities in the context of the business... which will in itself focus everyone's time more effectively and make campaigns more successful.

Adrian @adriandayton
Adrian @adriandayton

Great post, a number of attorneys mentioned to me that billable hours is the only way for litigation to be run. I think that is kind of a lazy excuse, here in your post you give some great possible alternatives. Clients like alternatives and benchmarks, I think they motivate those doing the work- and manage the expectations of the client.

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