The "Billable Hour" Could Use Some Public Relations
When I launched my strategic communications firm, DBMediaStrategies, way way back late in the Bush era, I earned the enmity of my colleagues by penning a blog entry called "The Slow Death of the Billable Hour," which blew the lid off the inherent inefficiency, unfairness and client-unfriendliness of the traditional way PR agencies and law firms bill for their services. I cited several tepid, fairly obscure articles at the time that expressed some building client dissatisfaction with the model, mostly in law firms where the practice probably orginated.
Since then, there have been several harder-edge takes in more prominent outlets on why the billable hour should meet its maker. Such as Forbes Magazine's bluntly heded "Kill the Billable Hour," the Wall Street Journal's "Billable Hour Under Attack," and as recently as January in the Washington Post: "Is time running out on the billable hour?" The contemporary stories maintain that the billable hour is losing ground in law firms as clients demand more transparency in billing and costs of the services they buy.
But in public relations firms? As far as I know the billable hour thrives. Though it is indeed under attack. The reasons are obvious. The billable hour is exclusively tied to output - and all the time spent producing it - and not outcomes. In essence, the billable hour model assumes that all agency activity - from account management, writing, consulting, planning, communication, etc. - are of equal value. As Paul Roetzer points out in his book "The Marketing Agency Blueprint, the amount a firm racks up in billable hours "has no direct correlation to the quality or value of the services they provide." Time tracking is nowhere near exact. Agencies bill to the 15-minute or 30-minute increment even if they worked only a few seconds of that segment. Moreover, everyday distractions - email, Internet surfing, phone calls, office chatting, TV, meetings, etc. - lead to even higher costs and lower quality as the PR professional rarely operates at peak efficiency and flow.
Yet the client pays full boat regardless.
Let's look quickly at an example scenario. A company needs a press release to announce its latest innovation. The marketing executives meet with the top people at their PR firm to lay out the issue, who pass on the assignment to a junior member of the firm who takes, perhaps, four or five hours to complete the release. At about $150 and hour, the release should cost about $600-$750. But, wait, you have to build in the PR executive's time, the time spent re-writing and editing the release by the junior member's supervisor and the time spent getting final approval from top executives. That $600 press release ends up costing perhaps a couple thousand dollars and took several days to complete. Yet the final product is no better than one that could have been produced more quickly and efficiently by an experienced PR professional. Thus the extra money the client pays is for time (and time wasted) and not for higher quality.
Why do clients put up with it? As Roetzer notes, the model "works for agencies because billable hours are an imperfect mix of art and science, and as long as the agency produces results, clients are happy." When good results aren't so forthcoming though, the invoices based on billable hours are hyper-scrutinized and carefully reviewed leading to major squabbles and disagreements and distrust as clients begin to get hip to the fact they might be throwing money down the rathole.
I decided to do away with all that when I went into business and went to a flat-fee accounting model. The client and the firm discuss the project or service, come to some agreement about time, budget and deliverables and settle on a flat price. I built in some caveats in case we miscaluclated the time needed or some unanticipated events occurred. But generally, flat fee billing worked well and clients welcomed the transparency.
Now, taking a nod from Roetzer and other mavericks in the PR industry, we're taking the model a step further and adopting a "value-priced" approach in which services are standardized and assigned set prices. Need a press release? We'll tell you what it cost up front. Need media or crisis management? The a la carte price is right there on the menu. No mystery, no disputes, and no mistrust. No wasted time. Under this model, the burden is on me to build systems and processes and deliver the services at the right set price. Will it work? I can't tell you that. I'm sure some in the PR industry will feel there's something low-class about a professional firm laying out its costs like some bargain-basement tag sale. But so be it. Quoting Roetzer again: "Transparency in pricing builds trust, removes friction from the client-agency relationship, and makes it simpler to sell services to the mass market."
Check out DBMediaStrategies' unique client-friendly pricing packages here.
And let me know what you think.