Consultancy fees and billable hours are always areas that remain somewhat a mystery given there aren't that many hard and fast rules to billing a client. At times, the race to acquire new clients can lead to unfortunate price wars during pitches. Meanwhile, during this uncertain time, some clients and agencies are also relooking at how they can make the maximum bang for the buck to ensure business sustainability.
Focusing on the PR agency scene, Roy Lan, regional marketing communications manager for ASICS, told Marketing that there are no hard and fast rules when it comes to ascertaining a suitable rate as there are myriad of determining factors to consider. “By and large, a good gauge would be to look at it from a manpower perspective based on the ideal scope of work you would want the agency to undertake; as you would be billed for the service hours each member of the team would need to put in for the project/contract term,” Lan explained. He added that it also depends on the seniority each member of the team is put on the account as rightly mentioned.
While Lan is not aware of a governing body that oversees the issue of billing rates in the PR industry, one advice he gives is to call for an open RFP pitch with a detailed brief delineating the key communication objectives, proposed scope of work and budget to get a better sense of what an agency can deliver based on a given budget. This is usually done before shortlisting one that can meet both the objectives and budget.
“Companies are given the autonomy and freewill to make their own decisions, and if an agency's rates are not justified, there are other agencies to turn to. It is like the concept of the invisible hand in economics - when an agency's rates do not commensurate with their value proposition, they will either be forced to do so, or risk ending up in the ditch. It is a matter of demand and supply,” he explained.
The cheapest also does not necessarily mean the best value, and the higher price does not necessarily mean better quality, Mawarni Adam, head of brand, marketing, communications and CX at Berjaya Sompo Insurance, said. According to her, appointing a PR agency is a delicate undertaking as it is an extension to the voice of the company.
We come to an agreement based on the scope of work, timeline and the intended effect or impact that we want to achieve from the initiative, while also using available rates that we can attain from similar agencies as benchmark to help us reach a decision," she said. The company also considers a few other factors such as industry experience, relevant accolades, partnership chemistry, vision alignment, methodology that are to the point and no fluff, quick turnaround time with precision and quality, transparency and pro-active approach to problem solving and solution finding.
"When we put all of these together, for us, the amount billed will then be justifiable, albeit it may be slightly higher than the usual standard," Adam added.
Co-founder and principal of R3, Shufen Goh, said any service provider that is charging on man hours, such as PR agencies, has to work out hourly rates that covers salary costs of people, overheads and a profit margin. Associations can provide some guidance on market rates but there is a limitation to that governance in a free market, she said.
"Why should an award winning agency with strong credentials be charging the same price as an average agency?" she said. According to Goh, most of R3's clients on a labour-based remuneration model with their agencies seek benchmarks from R3 to ascertain fairness and competitiveness. Beyond rates per se, Goh said it assesses the planned hours and resource allocation by seniority against the nature of the scope of work, to get a holistic picture on value of fee.
Meanwhile, Lee Nugent, chairman of the Public Relations and Communications Association (PRCA) Southeast Asia and regional director, Asia Pacific at Archetype, told Marketing that it is not the role of a third party, outside of general national business laws and regulations, to determine whether or not charges are too much or too little in this case – especially if costs and projected outcomes are agreed upfront. “Every consultancy will have its own charging model. Some will base fees on an equation that involves mix of factors such as employment costs, ongoing consultancy operating costs, and desired profit margin – as well as the consultant’s seniority, experience and specialty,” he said.
According to Nugent, this will often result in an hourly rate, which is used to calculate the overall cost of servicing a set scope of work. However, while pretty common, this is only one model. He said that other agencies take a different approach and will charge some or all of their fees based on a value-led approach. This approach refers to the value of the piece of work to the client, which the agency will then charge a proportion of that value. Nugent explained that there are also a variety of models that take a results-based approach.
The fairest and most appropriate of such results-based models allow the client to pay less if results are not as agreed upfront, but also allows the consultancy to charge more if the pre-agreed outcomes are exceeded.
At the end of the day, the pricing should be agreed upon by both parties in advance of any work commencing along with mutual agreement on defines a successful outcome. If this is done, Nugent said both sides can - using mutually-endorsed criteria - determine whether or not the relationship was of value. “If either side believes the relationship did not deliver value, and there were no mitigating reasons outside the control of agency and/or client, then they should think long and hard about continuing to work together,” he added.
Agency leads weigh in on billing formula
Similarly, speaking to Marketing on the condition of anonymity, a senior executive of a PR agency with a presence in Southeast Asia, said some agencies also implement a blended rate. Based on the brief, the agency will judge the amount of time required of the managing director, manager and associate, for example, before coming up with a rate for that.
Additionally, there is also a crisis rate for clients, where an additional premium will be billed to clients since the agency is required to be on standby round the clock.
When it comes to an output-based model, the senior executive used the press release as an example. The press release is first done by the associate who takes an hour before it is sent to the manager who takes half an hour to vet and edit. In the end, the final production cost of the press release will be an amalgamation of the number of time various levels within that specific agency cost structure will produce, the senior executive told Marketing.
He added that compared to the US, budgets in Asia tend to be smaller. “Not many agencies can effectively serve up time sheets that would stand proper scrutiny. In all fairness, unlike the US where the industry has been around much longer and there is general consensus in terms of how long it takes to write a press release, in markets such as Asia, some of these precedents are not necessarily set,” he said.
Meanwhile, another senior executive who leads a network agency in Singapore said billing rates are usually decided upon based on a profit target in mind. In this case, agencies are usually looking for a double-digit margin. Along with the profit target comes paid salaries and overhead costs. According to him, the equation would generally be people comprising 60% of your cost, while operational elements and profit margin form 30% and 10% respectively.
How much you charge is also completely in relation to how much you pay people. If clients want you to do real-time visuals and turn them around a three-day job in four hours, you charge them a rush fee.
According to him, most agencies are running between 5% to 10% profit margin. Anything more than a 20% margin will make the agency look non-price competitive. Also, it also goes without saying that there will be a premium imposed on the standard rate during a crisis, the senior executive said.
“Traditional communications is about people services and client management. You do not really make much money out of the senior people but the junior individuals and those at entry levels are paid an hourly rate for client consulting and service,” he explained. He added that when it comes to billing rates, the market is the primary determinant and there is no governing body for it.
“US rates are generally higher than Asia Pacific rates but it depends on the maturity of the market too,” he said.
Also weighing in on the conversation was another senior executive of a Malaysian firm, who said while the base rate always remains, the profit margins might differ. Compare a million dollar client to a RM3,000 client, for example, the agency might charge a 7% margin compared to the usual 10%.
According to the senior executive, the margin comprises the volume of business as well as how long the agency has worked with the client.
“Sometimes, those rates are worked in on a global level, they are part of a service level agreement. The rates could be slightly different compared to new clients,” she explained. She added that the agency also looks at the working history with the client. If a client is known to nitpick or requires plenty of handholding, the agency will work that into the cost.