CONTRACT CRACKDOWN
Tired of Paying Exorbitant Fees, Clients Force PR Firms to Change Terms
By JENNIFER BELLANTONIO
Let’s face it: Money talks.
In choppy economic times, that’s even more so, says Joan Gladstone, president of Laguna Beach-based Gladstone International.
When Gladstone opened her public relations firm in 1989, she said she was among a “minority” that charged clients on a project basis, versus a monthly retainer or even a yearly contract.
Gladstone did it to separate her firm from the pack and allow her clients “flexibility,” she said.
She’s no longer alone.
“More PR firms have since shifted to project agreements,” Gladstone said. “Clients are reluctant to commit to monthly or annual retainers. They want the flexibility to increase or decrease the level of service. They want to know exactly what they’re paying for.”
The sluggish economy of the past few years has forced public relations firms to rethink their business and how they charge for their services.
Gone are the days of signing blanket annual contracts or blindly collecting fat monthly retainers.
These days, more PR firms are showing their own flexibility in switching to charging project fees,with hopes of it leading to more work.
“Clients seem to be most comfortable starting with project work and growing into ‘agency of record’ status,” said Stacey Doherty, public relations director for Santa Ana-based DGWB Advertising. “This gives them time to become familiar with our team and experience the quality of work we provide.”
Same goes for Irvine-based Morgan Marketing & Public Relations.
Principal Melinda Morgan said most new clients want to start out with projects, which she’s happy to do.
“It helps to track budget and results, before moving on to the next project,” she said.
Budget-conscious clients have spent the past few years watching every dime. In many cases, they’ve trimmed back or cut public relations or advertising work.
Now that the economy is showing signs of life, many are looking to reinvest.
But clients have new demands.
“Clients are very open and sensitive about their ROI (return on investment),” said Jennifer McLean, vice president of public relations at Irvine-based O’Leary and Partners. “Every marketing investment is under much more scrutiny than in past years.”
There’s reason, according to Lisa Zwick, senior vice president and managing director of Irvine-based Golin/Harris International.
“Back in the heyday, when budgets were high and tech firms were begging PR firms to take their business, many of them got shoddy service and not much return,” Zwick said.
One public relations firm is facing its own PR battle in the Southland.
The Los Angeles city attorney is investigating Fleishman-Hillard Inc., claiming the PR firm inflated billings on a contract with the Los Angeles Department of Water and Power.
The Los Angeles Times reported that St. Louis-based Fleishman was charging the department $180 an hour to clip newspapers and send stories to employees, among other charges believed to be exorbitant.
Fleishman said the firm doesn’t tolerate unethical behavior and has replaced the head of its Los Angeles office.
Most clients now on the hunt for a PR firm “are much more savvy and are looking for a business partner,not a clip producer,” Zwick said.
They also demand that PR firms provide more information during initial reviews for “even smaller pieces of business,” she said.
There’s another emerging trend.
Companies’ financial departments are getting more involved in negotiating agency contracts, said Jim Delulio, president of Huntington Beach-based PR Talent.
“This requires agencies to be a lot more transparent in how they determine hourly rates, profit margins and mark-up,” Delulio said.
Delulio said these changes have played out because during the “dot-com era, lots of agencies inflated their rates and demanded exorbitant monthly retainers.”
“Many clients felt taken advantage of,” he said, “and are now seeking to take a stronger role in negotiating their PR contracts and demanding a specific return on investment.”
That pressure has prompted PR firms to fine-tune their tracking and accounting systems, according to Chris Perez, senior vice president of Euro RSCG Magnet in Corona.
Publicly traded PR firms, which must report their earnings quarterly, have an added layer of scrutiny thanks to the 2-year-old Sarbanes-Oxley legislation, which was enacted in the wake of Enron Corp. and other corporate scandals.
Many firms have installed much stricter internal accounting and reporting policies, Perez said.
Perez, meanwhile, said he’s seen the effects of the Fleishman debacle.
“L.A. Mayor Hahn in May 2004 ordered all city departments to terminate PR contracts,” he said. “This ‘snap decision’ obviously hurts all PR firms doing business with the city and it is an ominous omen, to say the least.”
