Owners of PR firms learn quickly that if they want to get paid fairly for their professional work, they must establish and account for hourly rates per staff at all levels. To get to the right place, they must manage salaries, overhead, benefits, out-of-pocket expenses, utilization rates and – most important – profitability.
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In many ways, this is the easy part even though it is essential. The hard part is ensuring that you give clients what they need within the parameters of the budget you have agreed on. And doing so without going overboard, without giving clients more time and attention than you should for what you are being paid for your professional services.
Yes, there are times when an agency may have to exceed what the budget calls for, but these times should be kept to a bare minimum.
This requires strong monitoring and management!
Cost of Overservicing
I have often noted in conference presentations, webinars and blogs that if you over-service a client by 10 percent, you essentially are working for free returning from Thanksgiving weekend. And if you over-service by 15 percent, you will be working for free virtually since Halloween.
I ask you: are you staffing your client teams correctly, have you budgeted correctly and are you guilty of scope creep, meaning taking on more work than originally contracted for without reallocating resources and/or budget. It is a tough but necessary conversation to have, not only with the staff that manages the accounts but the clients as well. If we are the trusted adviser and part of their team, then these types of conversations should be part of the ongoing review of the business and a critical component for budgeting for the upcoming year.
Let’s look at an example. If an agency has 20 employees and, on average, each one over-services just three hours per week at a $200-per-hour blended billing rate through the course of a year, the cost of overservicing would be $600,000 in lost billing. The formula is relatively simple: # of employees x billing rate x over-serviced hours per year (assuming a 50-week year).
So, how do you avoid overservicing in your agency if you are an owner or principal? How do you keep things in balance week by week, month by month and year by year, especially when so many agency owners and principals think it is pretty much a way of life? You can’t help it, they say, considering what excellent PR work requires – strategic thinking, research, audience development, planning, messaging, targeted delivery, crunching data, monitoring media, and evaluating effectiveness.
Well, you can help it, you must help it. Otherwise, you undermine your agency’s annual profitability, business growth and overall value, a key factor in advance of the day when you sell your agency for greater financial and professional rewards.
There are many ways to put and keep things in balance. Most important is building tighter account management processes and controlling the boundaries of the work you do so you avoid scope creep beyond what’s reasonable for what you’re being paid
Three Definitive Solutions
I have watched the same scenario every year since I created the PR agency Best Practices Benchmarking Survey 30 years ago. There are three crucial solutions.
Leaders have to talk to staff to explain the basics – why non-billable time is a big issue, what the percentage is for their level (85 percent, 90 percent), how it affects their compensation and any equity they may have, and how they can help to keep it in check with orderly and prompt time reports, and reviews by managers of staff and team utilization. Training employees as soon as they join the agency is also a great way to introduce both the problem and the solutions. Build ownership in and responsibility for time management and utilization from the get-go.
Outside assistance and technology.
The most successful agencies use time-tracking programs and PR agency management consultants, like our firm, who will assist firms in fighting scope creep and implement a “Build to Sell” program.
Discussions with clients, especially if they are getting a lot of inadvertent free time. Be diplomatic, but firm. Try to renegotiate additional budget. Or ask for a temporary monthly project fee for overservicing until you prepare the next formal budget.
If nothing else this year, agency owners and principals should take concerted action to fix their overservicing challenge once and for all. Your agency’s profitability depends on it, as well as the credibility and integrity of what we do as professional consultants. We never want to be taken for granted. We never want our clients to think we will jump at their every beck and call without being fairly and respectfully compensated for the work involved.
Rick Gould, Managing Partner at Gould+Partners is the author of “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger or Acquisition,” and “The Ultimate PR Agency Financial Management Handbook: How To Manage By The Numbers For Breakthrough Profitability Of 20% Or Greater” (4th Edition)
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