Entrepreneurs: When choosing PR Firms, think results, not retainers!

Companies of all shapes and sizes are demanding that their marketing budget be measurable as well as profitable, and generate adequate returns on the investment made. So why is it that many PR professionals and agencies still resist client efforts to align their fees to a business metric, opting instead to use the traditional – and largely academic – ad equivalency index?

Instead, entrepreneurs should demand that their PR firm embraces performance-based rate structures, as the ability to measure results is now much more cost-effective and readily accessible. This model aligns a majority of client fees to actual results, such as pinpoint article placement, speaking opportunities, industry award recognition and customer/partner/investor lead generation.

Think and Act Strategically

When choosing a PR agency along these lines, companies must look to see if its principals – first and foremost – think less like a Marketing or PR person and more like business managers who thoroughly understand their client’s business and competitive landscape. Communication practitioners should be able to clearly comprehend how their client’s executive team and board of directors measure success. While sales will undoubtedly reign supreme, other aspects of the business will retain significant value, such as:

• Profit margins,
• Distribution and technology partner agreements,
• Investor (private or public) interest,
• Rate of customer acquisition,
• Strategic product roadmap,
• Average sale price per customer and so on.

Agencies will fail to realize true success if their evaluation differs from – or worst case, contradicts – the criteria of their client.

How Performance-Based PR Revenue Models Work

Under a performance-based model, a PR firm should charge a small amount of a client’s budget to a monthly program fee in return for offering that company unlimited hours of work. This eliminates the potential for agencies to be perceived as “nickel-ing and dime-ing” clients for time spent on non-valued items.  The remaining budget should then be structured in performance fees where clients pay only as results occur.  Some examples include:

• Articles placed, tiered by size, circulation and demographics,
• Speaking opportunities secured,
• Industry awards secured,
• Qualified customer, partner, investor leads brought into the pipeline,
• Web traffic increase and subsequent conversion rates,
• Unsolicited PR opportunities secured,
• Brand value/perception audit increases with targeted audiences

The benefits of performance-based revenue models are numerous and mutual for the PR agency and the client:

• Performance metrics/expectations are outlined and agreed upon in full between
  the agency and the client before an agreement is executed, since it will determine
  how and for what an agency gets paid.
• The business risk is shared between both parties. The agency doesn’t make its
  money unless it can produce.
• The ROI is embedded in the fee structure.
• Client satisfaction and understanding increases.
• Client retention increases.
• Client turnover/churn decreases.
• Client referral rate increases.

Performance-based PR fee models also apply to all aspects of public relations and marketing – and not just media relations as some would believe.  It’s all about setting measurable goals and aligning fees accordingly. Some examples include:

Crisis Communications

Agencies can tie their fee structure to their effectiveness in meeting those goals, such as where and when those key messages were portrayed in a broadcast or print story and how many resonated with key stakeholders. PR firms could also measure their effectiveness by how long the crisis lasted when compared to other similar events.

Internal Communications
An organization can most certainly look at internal communications for its value in improving employee retention and recruitment rates. The reduction in employee churn and increase in productivity are indeed quantifiable and mission-critical elements in any organization. PR agencies need to recognize this and align their fees accordingly.

Counsel to Execs
Oftentimes, PR professionals offer such counsel to ensure executives can either solidify key messages and/or effectively convey them to their stakeholders and media. PR agencies should create benchmarks as to the capabilities of an organization before and after such counsel and measure the improvements over a period of time. Firms may also find that this program’s benefits extend beyond corporate communications to the marketing product management, sales/customer service and investor relations departments.

More and more clients today are asking their PR firms to share the burden of generating results. As a result, this sharing model will drive performance-based revenue models to evolve as the industry standard for the next decade. The underlying question to all of this is whether one believes PR efforts can be measured and benchmarks can be set. To that, I answer with an overwhelming yes.

About the Author: David Oates, APR, is the President of Stalwart Communications Inc., a San Diego-based marketing and public relations firm. He also runs a social media site, PayonPerformance , to engage business leaders in discussion on this business model.  David can be reached at david@stalwartcom.com.

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