October 4, 2023
Using an agency with value-based pricing may be more advantageous to you.
While many public relations agencies still rely on billing by the hour, this approach likely doesn’t serve your best interests. As this model becomes more adverse, agencies and clients find themselves at odds, and you have to face numerous disadvantages.
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Why do PR agencies bill by the hour?
Most agencies continue to use this model primarily because it has been the norm, and they likely find it inconvenient to adapt to a new system. This method also seems easier as tracking employees’ time is more straightforward.
Six reasons to avoid hourly billing from a public relations firm
Paying by the hour has become outdated and no longer serves the interests of you or the PR firm effectively. Here are six reasons you should find an alternative agency with a more efficient compensation model.
- Conflict of interest
The hourly billing model can create tension between you and your chosen agency. While you want to minimize costs, they aim to maximize earnings. Without discussing expectations and the value of their work, tension and dissatisfaction can arise on both sides when there’s not an alignment of interests.
When a PR agency bills by the hour, it can leave you uncertain about the amount of work required, which makes it challenging to project costs effectively. With this model, you’re forced to accept the agency’s invoice, which can lead to skepticism and mistrust.
- Output over solutions
By using this model, agencies produce more work rather than delivering innovative ideas or business solutions.
- Punishing efficiency
Agencies that leverage technological tools and improvements in efficiency are penalized with the billable hour method, as they can’t adjust billing rates accordingly.
- Lack of transparency
You’re left in the dark regarding final costs until you receive the final bill. Firms can’t determine prices in advance with the billable hour system, leaving you with no information about costs until it’s too late.
- Lack of distinction
Agencies that use this outdated model aren’t distinguished leaders in their field. Finding a PR agency with a more efficient and modernized method is more beneficial as the company seeks to improve its system and remain ahead of the competition.
"Clients don’t invest in agency support for the hours involved or the work," said Steve Boehler, founder of Mercer Island Group. "They have business issues they need to address. When agencies understand the business issues that are most important to the client, they are much more likely to be able to really help."
The solution? Embrace value-pricing.
Consider the value-pricing model as an alternative to paying a PR firm by the hour. With this approach, you and the agency collaborate and determine the desired business outcomes for both parties while agreeing upon clear, measurable goals.
For example, if you’re in the banking industry and looking for a set number of new checking accounts made through advertising, you could determine the lifetime value of a checking account customer and the revenue it presents. With a defined close rate, you then know how many prospects must be driven to the bank to meet your goal for new accounts.
While the PR firm isn't responsible for actual sales, it’s accountable for driving the required number of prospects set by you. They can propose various strategies aligning with your budget, ensuring your profitability.
The value-pricing approach lets you focus on results rather than being concerned about hours worked. As long as the firm delivers more value than its price, it’s a win for both parties.
This method fosters a stronger relationship between you and your agency based on trust and clear objectives while allowing you to control the price-to-value ratio. If you’re considering paying a PR firm hourly, it’s time to rethink your options and seek out a firm using value-based pricing.
Drew McLellan’s article "Why you need to stop billing by the hour" inspired this post.
Mistakes can impact your success, so check out our e-book “15 mistakes companies make when hiring a PR firm” – don’t let hiring the wrong PR firm be one of them.
Photo by Karolina Grabowska
Topics: PR tips