Do ‘pay for performance’ pricing models work?

Recently, GSABusiness covered public relations and advertising in a down economy in their regular podcast, “What’s All the Hype?” Publisher Francis Allgood interviewed Marsha Friedman of Event Management Services in Tampa, Fla. about how companies can maximize publicity opportunities when the economy is in a funk.

You can listen to the podcast here (it’s not long): http://gsabusiness.com/images/podcasts/Podcast%2007_30_08.mp3

Here’s a question I wanted to pose to the group that arose after I listened to Marsha talk about the business model she’s used since she started her PR business in 1990: Does pay for performance pricing work?

Marsha claims traditional retainer models are outdated and don’t give clients what they really want, which is ROI. She states her ‘pay for performance’ model means she only receives payment for media coverage she helps generate for clients (she didn’t discuss if she implemented other PR tactics, such as speakers’ bureaus, event planning, etc. or how she’s paid for those projects).

I think it’s important to distinguish that Marsha never claims to guarantee media coverage, rather that she’s only paid for media coverage she helps to place for her clients.

I’ve always told clients to be wary of any PR person or firm who claims to guarantee media coverage, since ultimately it’s up to the editor or producer to decide what’s newsworthy and what’s not for their audience. And ‘pay for performance’ pricing models have always seemed a little foreign to me, since how do you account for the media outreach you do that doesn’t result in a bonafide media placement? What about all the media calls, e-mails, research, etc. you do that may not lead to a story (but you still did the work, nonetheless)?

But I’ve always challenged myself to be open to new ways of thinking and as a (relatively) new business owner, I’m always interested in learning about successful business models.

What do you think about pay for performance pricing plans? Does your firm implement one? How does it work?

Or, are you sticking with the traditional retainer-based agreement that Marsha claims 95% of PR agencies still use? Do you think retainers are outdated, or is there still a place for them in this changing business landscape?

Listen to the podcast when you get a chance, and weigh in here with your insight. I’d love to learn some new ideas from the group.

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8 Comments

  1. Great post Liza….

    I love the idea of pay for performance. I am a real estate broker and my industry has been using it for years…maybe forever. People pay us for a result, not for effort. I know that few people would be willing to pay a REALTOR thousands of dollars for the time and effort they put into trying to sell a home even though they didnt actually sell it!

    I am definitely not picking on the PR industry, but I dont understood why the consumer hasnt forced more businesses to operate under a pay for performance model. The plus side is that a business can normally charge far more for their service when they tie a particular result in with payment.

  2. That’s a great point, Rick. I think, though, because there’s such a fine line between paying for performance and guaranteeing results, it could a huge ethical sticking point for our industry. I’d love to hear from some PR pros who use the pay for pricing model to see how they clarify that point with their clients. Thanks for weighing in.

  3. Liza and I just had a pretty lengthy phone conversation to continue this topic. We’d definitely love to hear from others who have incorporated a pay for performance structure in PR plans to learn from their experiences.

    The bottom line is that Liza and I are both open to new ideas and new ways of doing things, especially when it comes to a rapidly-changing industry that now includes micro-blogs, podcasts, WOMM, etc. to disseminate your message and further your brand.

    Realizing that there isn’t one right way to do something, I would be totally open to working with a client based on pay for performance methods if it was the right situation for both parties – and expectations were clearly stated. Any well-defined PR plan should already have clear goals, objectives, strategies, tactics and measurable ways of evaluating activities and results. So if you get paid for your performace and meet these expectations there isn’t harm in that. Everyone wins, right?

    With that being said, public relations needs to be looked at differently than advertising, simply because they are two different disciplines they work well together in an integrated campaign to raise awareness – and while there is often confusion about the two, they are not the same.

    I wouldn’t want to mislead a client and have them expect to have their message disseminated verbatim in papers, on T.V. or over the air waves, because that is an advertisement. Incorporating public relations activities to educate appropriate audiences and influence opinions and behaviors is a powerful tool and deserves to be respected in its own right. It’s hard to put a price on third-party credibility.

    Feel free to chime in, folks!

  4. Wow… some powerful stuff! I will go as far to say that “many” agency models are outdated. I think taking it to a strictly pay for performance model would hurt the PR industry, in some ways. A lot of effort goes into a true PR persons performance of writing, editing, distributing, following up etc… that should be compensated for, besides, all we have is our time. I think it might be interesting to bill for the writing and time spent working on the particular PR project, maybe less than you normally would – and allow some pay for performance compensation scale on top of that. That seems like a win-win for everyone involved.

    As Kim said, you can never guarentee media placement – and anyone who does guarentee it, you should steer clear of. In some cases, say for example, a new hire release… you can within reason assume that business and trade publications will pick it up and run a quick blurb in the “moving up” section etc. Covering a huge event though is all dependent on what is happening in the news that day. Best case scenario is that the koala at the local zoo has indigestion and your story is a little more interesting. Worst case scenario is that there is a fifty car pile-up on 85 and Elvis was in one of them. Unless Elvis walked away from that accident and ends up sipping an ice cold tea in your office, you can kiss your media coverage good-bye.

  5. Ha! Thanks for bringing an Elvis reference to life here on the blog. That is a first, but should definitely not be the last! I agree. While reading your post, Bo, I also just had a thought. The pure essence of public relations is building relationships with audiences (internal and external) that can help you succeed.

    Say you send a news release out – or you pitch an idea (relating to an editor’s beat and on topic, of course) – or send an online press kit complete with industry links and information on your client…Maybe that doesn’t result in an immediate feature, story or brief…but it could keep your client top of mind the next time an editor has an assignment. Relationships take time to create – and I think public relations professionals should be compensated for those intangible qualities they can bring to the table.

  6. I personally hate retainers. While I don’t have a PR background, I have a lot of experience in the web and have spent time at a marketing agency. My experience is that retainers will end up upsetting one or both parties. The only time both sides win is when the agency spends EXACTLY the amount of time budgeted for the period, and that almost never happens. Go over your time budget and you get frustrated, go under your time budget and the client is ready to pull the plug.

    In his book, Secrets of the Millionaire Mind, Harv Eker writes, “Rich people prefer to get paid based on the results they produce, if not totally, then at least partially… Poor people trade their time for money. The problem with this strategy is that your time is limited.” (page 124-5)

    I agree with Eker, if you simply get paid for time (i.e. retainer or hourly projects) then you will constantly struggle to stay afloat and you’ll work yourself to death. You only have so much time, so there is a ceiling on the amount of money you can make.

    I know I’m getting philosophical here, but unfortunately I don’t have specific answers for PR. Obviously you can’t guarantee results, but as they say, without risk there is no reward. You might come out on the short end on some projects, but if you believe in yourself and the work you do, the potential is limitless if you get paid for your results than your time.

  7. Well said, Brian. You are right in the fact that retainers tend to benefit either one party or the other, and it’s easy to get in the trap of doing work just to fill the retainer – and not trying to focus on activities that are strategically in line with an organization’s goals. And it’s also easy to get comfortable in collecting the retainer each month, without really trying to challenge yourself to get amazing results.

    Sometimes you do have to take a risk – and it’s risky to put yourself out there and be evaluated just on results and not all the work that goes into getting those results.

    But like I mentioned before, I definitely would be open to approaching a situation where I got paid on placement, coverage, etc. but we would also have to spell it out pretty clearly what was expected of the plan/activities. Thanks for your comment!

  8. Those are good points, Brian, and thanks for your response. I think we all agree that there’s no ‘magic bullet’ in how PR charges for their services. Hopefully through dialogue like this we can continue to look for new solutions that are a win-win for everyone.


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