On Sunday, Vanessa Houlder wrote a fantastic piece in Lex Opinion - FT about the future of the billable hour for law firms.

PR agencies seem to be sleep-walking into the same trap that's already snared law firms - with little contingency in place for when the penny starts to drop and clients ask why they’re being billed 30 hours a month to research and draft pitches to journalists when the work can be done by software in a few seconds. 

Moving away from the billable hour is incredibly painful for agencies - it’s almost impossible to do without experiencing a reduction somewhere in top-line revenues. While margins will increase, it’s difficult to reconcile an overall decline in demand for billable hours that agencies have relied on for recurring revenue for the past 70 years. It’s upon the billable hour that the business model rests. 

Why PR agencies bill by the hour

PR agencies determine what level of seniority to hire for based on client needs and potential billing rates. Then, they focus on getting the most billable work from each employee's time. This approach affects both who they hire and how they manage staff workloads to optimise revenue. 

The elephant in the room is this one: when agencies work with clients, they often don’t know if something they propose is going to work or not. You create a media strategy based on your experience and knowledge, and then you execute it to the best of your team’s abilities. Neither you, nor the team will know if it’s going to be successful until the campaign ends - but you’ll put the time into doing it either way.

And so you can't charge any less than billable hours worked by your team. You can't go to outcome-based billing unless you have the data, tools and systems in place that allow you to predict the outcome with a level of certainty. Or the automated workflows that mean you know you're going to spend less time servicing those clients anyway, reducing your resourcing risk.

Why agencies don't collect data on efficiency of spend

One of the biggest sticking points I have with agencies - something I could never understand when I worked for them - was why they don’t collect data that shows how efficient team members are with their time. And I don’t mean having them filling timesheets, another PR agency nightmare that deserves a separate article, which indicates absolutely nothing and makes PR people want to poke themselves in the eye on a weekly basis.

I mean collecting data like teams and individuals’ journalist response rates and media coverage rates, speed of storyline generation: because if you’re not tracking those, you don’t know that you’re consistently pitching the right journalists. It takes time to personalise pitches to journalists, and if you're not measuring how effective you are pitching them but you’re charging companies for that time anyway, you’re overcharging them.

The billable hour has created misaligned incentives between agencies and their clients for decades. When you’re billing by the hour, you’re focused on allocating the hours, not on maximising the output.

What billing models can we expect to see PR agencies adopt next?

In my mind, not having a success-based element in your billing is a red flag. It means you either don’t back yourself to achieve results, or that you’re not focused on being as efficient as possible with your time.

It’s like having a new member of the sales team that opts for the highest static salary and no commission-based earnings. It signals they don’t back themselves to have a significant impact on the business’ bottom line.

When I gave a presentation in February to one of the world’s largest PR Agency associations on what the future of PR looks like - and included what we had already built, many in the room were genuinely shocked to see in action what they thought would only exist in 3 years time.

And when I compare the legal industry and the PR industry, I see change coming faster to ours. MVPR's technology has its limitations, but we can already do in 15hrs what an agency billing by the hour does in 80, and we are right at the beginning of this journey - we have so much still to build. 

The challenges of AI hallucinations that continue to give law firms an edge, carry lower consequences in PR and are much easier to guard against given the limited nuances that exist in plain language vs legal language. 

AI is going to affect 95% of PR services in the next 2-3 years, and it is inevitably going to disrupt rate cards and hourly billing. The question is - will PR agencies have the agility to integrate AI and automation that meets the growing demand from clients for outcome-based pricing fast enough.