If It Moves, Bill It!

[About bloomin' time. I know, I know. Sorry. Busy trying to find a job and stuff.]

This is the subject which (if I was still actually employed) could get me fired. In a way, I guess it already did – when I became “the man who knew too much” at one firm.

Irregular, creative, or downright unethical billing practices are the dirty secret in too many PR agencies. Some of them don’t even realise they’re doing it – or they just don’t recognize that what they’re doing would, at best, raise serious questions were their clients to find out.

I should point out, before wading in too deep, that there are many clean, open, transparent agencies – agencies run by people with both the ethical intelligence and the business sense to understand the importance of setting and enforcing rules around what you can and cannot bill. These agencies deserve to succeed.

Sadly, I’ve also learned that the opposite situation is more often the case. There are very few hard set rules in the agency business about what constitutes acceptable billing practice. In extreme cases, the standard seems to be: if you’re even thinking about the client, you should bill it. If I thought this approach was even remotely fair, I’d be able to bill an extra fifteen minutes every morning in the shower, as my mind gears up to go to work for the clients.

To try to characterise the worst kind of billing machine, let’s start with a few horror stories I’ve collected over the years.

In one agency I knew, a senior executive who spent a good part of every day playing solitaire at her desk would routinely add an hour of time every month to each of the firm’s client accounts – whether or not she’d actually contributed anything of value. This was described, when challenged, as “conventional executive oversight”.

A senior VP at another agency was in the habit of lunching with close reporter friends a few times a month. Nothing at all wrong with that, of course – perfectly normal relationship maintenance. What I didn’t like was that he’d typically bill both the time and the full cost of the lunch to each of three or four different big budget clients. Again – understandable, perhaps, if each client was actually discussed in the course of the lunch.

But a much more acceptable approach would have been to split the fee and expense evenly between the clients; not charge each one for the full amount. It would have been even nicer if the clients had actually been made aware of the lunches, and given some kind of feedback or other value from the discussions.

I heard tell of a top guy at another firm who wined and dined a key client at his private club in an effort to “save” the account that was about to go into review. He got so sauced that he ended up regaling the client with an “amusing” anecdote about the time he ran a big event involving three different companies, and was able to bill his full time to each of the partners involved in the project. Strangely enough, he didn’t manage to hang onto the account.

The worst example I know of, however, happened a few years ago at an agency that was experiencing something of a downturn. They had some great clients with healthy budgets, but were hopelessly unbalanced in both the workload and resources they applied to these accounts.

This led to a situation where a couple of very busy clients were constantly being over-serviced, with hours of time that just couldn’t reasonably be billed. Meanwhile, two of their other, long-standing clients, had fat monthly retainers that were considerably higher than the amount of hours actually being applied by their account teams every month.

The General Manager of the agency at the time had a fanatical aversion to writing off unbillable time. In her monthly reporting to head office, she never wanted to have to explain why some clients always saw way more hours than could actually be billed, while money was being left on the table with other accounts.

The real problem here was an endemic inability to manage individual staff workloads and balance the overall traffic of the agency. Rather than address the root issue, however, the GM discovered the cunning and devious trick of simply moving time around between accounts. If too many hours were billed to a particular client in one month – no problem! Just recode them into one of the client bills that was a little lighter on time.

Here's how the scheme worked:

At the end of every month, she'd review the "WIPs" ("Work In Progress" reports - basically a dump of all the time entered into the system, sorted by client account, for each month).

Let's say Client A only had a budget to cover 20 hours of billable time a month, but the team had recorded 36 hours of work. This typically happened with the clients the teams really liked working on - they'd just rack up the billable hours without ever thinking of the consequences. No one at the agency seemed to have any experience of budget and expectations management.

Client B, meanwhile, had enough budget for 80 hours of work, but the account team had only entered 60 hours that month.

Easy! The GM would just carve 16 hours of time off the top of Client A's bill and reassign it to Client B.

The fact that the billing records in the system were left unchanged clearly wasn't considered a problem. The client wasn't going to find out anyway (or so she thought). This meant that Client B was being charged for stuff that had absolutely nothing to do with their business, and for the time of account staff who, in most cases, didn't even work on the client's team.

I guess the GM’s attitude was just “what the hell!” It wasn’t like the agency actually provided any transparency in its billing, anyway – how would the clients ever find out?

But I did find out.

I always check the detailed timesheet reports for my clients, line by line – or have a close, trusted staff member (someone with an even better knowledge of the client account) pre-check them for me. I started to see a pattern of weirdness after only two months at the firm.

Together with a colleague, we launched a quiet little internal investigation. We approached the GM and called her on it. She pushed back, hard. So we blew the whistle with head office.

This kicked off a 2-month long nightmare with the CFO, CEO, external auditors, lawyers, and various functionaries and hangers on from head office crawling all over the accounting department of the agency for the best part of the summer. Turned out (surprise surprise!) she'd been doing it for years - and coaching one of her protégés to do it too.

The GM lost her job, of course, and the agency lost some clients when they had to ‘fess up and pay back tens of thousands dollars for bad bills.

The joke’s ultimately on me though. I was canned four short months later, without cause or explanation offered. The consensus among my friends is that I simply made certain higher-ups feel too uncomfortable to keep around. Who knows. I’m happier out of it anyway. From what I’ve heard, from the few people I know who still work there, the somewhat “unconventional” billing methods are still being used.

These are fairly extreme examples, but they’re all indicative of a general problem that is all too common in the PR business. The issue is that PR firms (and many other kinds of consulting organization) are just dreadfully opaque in their client accounting.

The last firm I worked at, to their credit, had a policy of submitting comprehensive timesheet records with every invoice – detailing everything that had been done by the staff working on the account in the previous month. Sadly, this level of disclosure would be considered anathema at most agencies.

One particular PR industry executive, an agency founder I have a great deal of respect for, once told me that she would never hand over her timesheet records to a client, as a matter of absolutely inflexible policy. That’s pretty much the norm, from what I’ve seen.

Retainer-based clients are often the worst affected by this approach. If you’re paying a fixed monthly fee for an assortment of agency services, and you’re not getting complete, detailed activity reports with your invoice – it’s probably time to renegotiate your agency contract.

Some billing transgressions are so simple, so widespread, and so commonplace that they’ve become a standing joke in the business. I’ve had clients comment to me after lunch – “why don’t you get this – you’re just going to bill me for it anyway.”

One (short-lived) head of IR at a dotcom company I represented even encouraged this (it’s not always the agency types that are deadly). He quietly (but very directly) suggested we should go for a slap-up feed at Ben Benson’s fantastic New York steak house, complete with a $500 bottle of plonk, and that I should just roll it into our monthly bill so that neither of us had to worry about the expense account embarrassment. As the CEO and CFO were good friends of mine, but the IR guy paid my agency’s bills, you might imagine this to have created quite a complicated moral quandary. But I’m afraid I tend to have a fairly simple outlook on these things. I shopped him.

Think about it, next time you’re at lunch or dinner with your PR firm. Why is your rep so happy to pick up the tab? Is it just because their liberal expense account budget encourages them to treat their valued clients? Or is it, more likely, because they know they can just bill it back to you, complete with a healthy markup? And who, exactly, do you think is paying for the cost of that guy’s Blackberry?

It’s not impolite to ask your agency these things, by the way. Really. For the sake of your business, you should ask.

The crux of the problem is that the billing model at the heart of most PR firms is, quite simply, broken. It encourages sweatshop economics. In most cases, it’s a poor way of expressing the real value provided, and the model is simply rife with opportunities for number fudging, bill padding and general opacity.

As an aside, time-based billing is an area where, depending on the mindset of the agency, technology may actually make things even worse. Most time billing systems in use nowadays include a desktop timer function – a simple stopwatch tool designed to harvest time expended on behalf of clients. The idea is that agency staff can simply click a button to start the clock ticking every time they’re working on something for a specific client. Saves the staff having to remember what they did during the day or previous week and bang in their timesheet information in batches. In practice, desktop timers can be another source of billing abuse.

Again, as with all of my comments here, I don’t intend to suggest that such abuse is the norm – but it’s certainly more common than you might think.

Say you’re in the middle of drafting a news release for Client X. You’ve got the timer running in the background, adding up the minutes while you sit there searching for the perfect synonym for “innovative” (give up – there are no such things as synonyms. Nuance is all. Don’t get me started.).

Suddenly, Client Y calls with an urgent question – so you click on a new timer to start logging the fees for this call. Of course, in the background, you’re still clicking through thesaurus.com, while you’re half-listening to Client Y’s tale of woe. So you might argue that it’s technically OK to be logging time against two client accounts at the same time. I’d disagree, but I’ll grant that I may be in the minority.

Things really start to get fuzzy when you realise that agency time always works in 15-minute blocks. A four minute chat with your agency rep in which you make polite noises about the weather, last night’s Daily Show, and a quick question about your next scheduled interview, quickly gets rounded up in the billing system to the nearest 15-minute increment. You just paid $75 to discuss Jon Stewart’s rapidly greying temples.

This might all sound like I’m exaggerating, but I have direct experience of agencies that followed exactly this approach. Even the hour of number crunching, cross-checking, and formatting required to produce your monthly invoice is considered billable time in some firms. No wait – it gets better – you’re even being billed for the paper, the envelope, and the stamp required to send it to you. Check out that “admin fee” that gets added to your invoice – you’re even contributing to the cost of the toner cartridge.

If it’s done transparently and openly, then I guess there is a way of justifying these charges. The agency has to cover its costs somehow. But it still seems like another opportunity for padding to me. I worked at one agency where the standard 4.5% admin charge applied to every bill even covered, according to their contracts, “cost of Internet service”. In other words – if they sent you an email, you’d pay for the time required to type it, and the system required to send it. Billing for bits, atoms AND brains – all in one go.

The kind of client-agency relationships this “bill everything” mindset breeds are doomed to failure. Once the client realises that every interaction with their agency will trigger at least a 15-minute charge, communication inevitably dries up. I’ve seen this happen – although, I’ll admit it happened in an agency environment that was pretty much dysfunctional anyway. Again, I’m not suggesting this is anything like the norm, but it does happen.

If the client thinks they’re “on the clock” every time they pick up the phone or send an email, the relationship will fail.

If agency staff think they have to be able to bill every minute, every expense they can, the relationship will fail.

If the relationship, in other words, is not founded on trust, it is bound to fail.

So what’s to be done?

First, I think agencies need to sit down and figure out a set of ground rules for what kind of things are billable and what aren’t. And be realistic. It’s not about recouping as much time and expense as possible – it’s about providing good value to clients for fair compensation, and building long term relationships based on trust. Draw up a set of staff guidelines with specific lists of what they can and can’t bill. Set expectations internally around the amount of time staff should spend billing versus the amount you want them to spend on client investment, personal development, general research, water-cooler chats, lurking on Flickr, etc.

Further, agency account managers and corporate PR folk have a duty to check their bills. Thoroughly. Have an open discussion with your agency about what’s covered and what isn’t. If you can’t figure out what a line item on your invoice means – ask. And make sure they’re not billing you to answer the question.

Big companies, in general, tend to be better at this kind of thing than smaller firms. I recall the set of rules Agilent issued to agencies, covering what kind of expenses and what levels of markup were permissible under their contract – it was three detailed pages, all of which made perfectly good sense.

Another topic worth raising in discussions with your agency is the notion of reasonable value-based billing. This can get slippery pretty quickly, but it’s a conversation you ought to have.

An example - if it takes a junior PR person four hours to complete a task which ought to take an hour, due to their own inexperience – is it fair to bill the full four hours?

On the flipside – if a VP can knock out a really solid news release draft in 45 minutes, should that be worth 45 minutes at the VP’s rate, or should there be a way of charging for the accumulated knowledge, expertise, and writing ability that allows the VP to produce high quality work so fast.

Hmmm... doesn’t the VP’s higher hourly rate theoretically cover this anyway? It’s not something that can be answered with generalisations – you need to talk this through with your specific agency, or your individual clients in detail.

Here’s a couple of the simplest rules of thumb I can offer to start you off:

For agencies – whether you choose to open your books to your clients or not – if a particular line item on the timesheet would be hard for you to justify to a reasonable client, you shouldn’t be billing for it. Period.

For agency clients – if you feel you’re getting anything less than complete transparency in your agency’s bills: talk to them. If you’re uncomfortable with their billing practices: switch.

Part One: The Classic Sweatshop
Part Two: The One Trick Pony
Part Three: The Behemoth
Part Four: The Flack of All Trades
Coming soon - Part Six: The Dream Team