Monday, August 24, 2009

In Search of an Alternative to the Billable Hour

Over the past year, due to the recession, there have been a number of articles in the Wall St. Journal and New York Times about the billable hour, the standard metric used by law firms (and PR agencies) by which they bill their clients.

The latest ran on the front page of today's Wall St. Journal, "'Billable Hour' Under Attack: In Recession, Companies Push Law Firms for Flat-Fee Contracts." Companies like AmeicanExpress and Pfizer are requesting their outside law firms to offer flat-fee contracts instead of billed-by-the-hour contracts.

There are some clients who want flat-fee contracts from their PR agencies.

I certainly understand clients' desire to reduce invoices they receive. But moving to a flat-free model would require changes on both sides.

First, PR agencies would need to develop more accurate estimates for the work being requested, and provide more specifics of what fits into the scope of work. Second, agencies need to reduce the level of mission creep -- because agencies often end up taking on additional responsibilities for the same budget.

A friend who is a commercial contractor says that they write up work orders every time a new request comes in on a project. And they don't do the work until the client approves the work order.

Under a flat-fee contract, agencies would have to submit and get approval for work orders in order to take on additional requests. This might slow down work but also not achieve the intended goal: Instead of a flat-fee invoice, clients could see a lot of add-on invoices.

Also, as the Journal article points out, flat-fee contracts don't work well when clients and firms are dealing with complex issues.

Look, I think there are a number of reasons a flat-fee contract would be better. But I also see a number of reasons why the billable hour makes sense for both client and agency. After all, when it comes to media relations, trying to reach reporters and bloggers, efficiency isn't always what you want or can deliver. What you want is to generate interest and ultimately coverage, and that can take time to develop, even with reporters you know.

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