Payment by Results? Know what you’re getting into first

For decades the business model of PR firms has been based on charging monthly retainers and fixed project fees. Occasionally someone comes along with a different, Payment by Results (PBR) model, usually accompanied by the lofty claim that they’re disrupting the change-resistant agency world – one that’s long overdue an injection of innovation. Sometimes they’ll even wheel out a client who says something like “yeah, why should we pay a PR firm fees with no guaranteed result?” Despite this, PBR hasn’t really found any traction, and it’s worthwhile exploring why.

If you’re not accustomed to working with PR firms, you might wonder what’s wrong with the idea of paying only for results. After all, when you pay your accountants or most other suppliers, you know what you’re going to get for your money. But think for a moment about your lawyer and you can start to see the difference. Lawyers cannot guarantee an outcome any more than a doctor can – or a PR consultant for that matter. All they can do is their very best, based on professional judgement and experience.

Does that mean you shouldn’t pay them if the result isn’t the one you want? Well, in the case of lawyers, yes actually. No-win, no-fee deals have been offered by legal firms for years. Take a closer look though and you’ll see how those deals are structured to reward lawyers handsomely when they do win. These inflated success fees more than outweigh those lost for taking on any cases they lose – and they’re highly discriminating in the cases they’ll accept on such terms.

Back in the PR world, PBR is undoubtedly a compelling proposition. For the client it looks like a win: win, and for the agency peddling it, the offer makes for a great, differentiated sales pitch. But these sales pitches present a trap for the unwary. Clients who give scant attention to the contract can easily end up paying more than they would have done under a more conventional agreement.

If the result you’re paying for happens to be media coverage, what if you greatly underestimate the amount of media interest your company will generate? I’ve had first-hand experience of something unforeseen happening that massively increased media interest in a story I was managing. If that happens to you under a PBR deal, you may suddenly find yourself becoming very unpopular with your finance director.

I can only think of one situation where PBR might be worth considering from the client’s perspective. Where the result is very clearly-defined and the agency has a reasonably high confidence level in its ability to achieve it, then PBR could present a good deal. Whether it actually turns out that way will largely depend on the negotiating skills and risk appetite of each party when drawing up the terms. Over in the public sector, various levels of government are attempting to introduce PBR in the belief that it will lead to greater efficiencies and better services.

One person who knows more than most about management, systems and service efficiencies in the public sector is Professor John Seddon. He’s convinced that PBR is so fundamentally flawed because it drives the wrong behaviour that he’s produced a short animated video to explain why. Take a look and see if you agree that much of what he says applies equally to other situations – like hiring PR firms, for example.

 

 

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