Ruth Allchurch, Managing Director, Cirkle believes agencies are simple businesses that are well understood by clients. Here she explains why innovative business models threaten clarity and risk confusion.
Profile: consumer brand public relations agency
Insight: procurement-led client relationships leave limited opportunity for business model innovation
In an increasingly cost conscious, post-recession landscape, clients are consistently looking for efficiencies, economies of scale and value for money with their third party partners.
The role of procurement within businesses is increasing and they are flexing their muscles more within the public relations agency market.
Straightforward businesses
Agencies need to maintain profit margins in order to survive and there needs to be science and rigor applied to managing each one and its people. This is where, in my opinion, maintaining a healthy 55% staff cost/income ratio is critical and where charging an hourly rate can be enormously beneficial as it is an effective way to keep track of client spend and man hours within the agency.
Clients know exactly what they are getting for their investment in terms of time and the agency knows exactly how to track capacity within the team, if the fee estimate is right from the off.
The traditional agency model of charging by the hour has allowed for and continues to allow for accurate costings and budgets to be presented to clients in a language that they understand. Clients can compare and contrast agencies before they appoint who they want to work with based on cost alone.
But this is a dangerous strategy, no? Surely one hour spent on coming up with a killer strategy or brilliant creative idea is not the same as one hour spent selling in a press release – or is it? How can we estimate effectively for the creative process? Immediately this throws up a flaw within the traditional model. Should we be vetted on cost alone?
Standing up for value
It is far too tempting for clients to hone in on our rate cards and be clouded by what they perceive to be better value than another agency. There’s a need for a wider context and I believe this requires confidence to stand up for our discipline and educate clients on the power and real value of public relations.
Some very profitable and successful public relations agencies have taken the bold step to move away from selling time to charging for insights and ideas.
So, is that working? Well they are making a profit so it must be, surely? But I don’t believe it is that clear cut.
The first issue is how on earth can we monetise a creative process where the output is so subjective? It shows confidence and puts a different value lens on our industry, which I’m 100% in support of.
However, only certain clients are going to buy this approach. I’m not convinced that procurement are ready to embrace this approach from agencies due to its ambiguity and lack of transparency. I also feel that it is inherently risky for agencies, not least because a client can always change the goalposts and require endless re-writes if they so desire. The impact on profitability could be fatal.
I think the model will change over time as it needs to. We should constantly innovate and push the boundaries as an industry and our pricing structure is no exception. Neither approach is foolproof but we need to find the confidence to approach our discipline from two perspectives – both value and time.