Our alternative fee model has been part of Clear’s DNA ever since we launched the agency last January, but we haven’t been diligent enough in talking about it publicly.
That isn’t because we’re cagey about the model: it’s because the model is complex. So here’s an explainer.
Clear’s alternative fee model is not a pay-for-placement model. Those are bad, and we won’t do them.
A pay-for-placement model creates a huge incentive for the agency to go off-message and say dumb stuff on behalf of the client. And if only the “good” coverage pays out — well, who decides what’s good? They also invariably lead to infighting, as the client tries to tighten the scope of what the PR agency can say and the agency realizes they can book revenue by pitching concepts that are easy to place instead of helpful for the client’s business.
Just agree on what will help the client’s business and then only say or do those things. It’s easier.
So that’s what our model isn’t. Here’s what it is.
Our alternative fee model begins with setting objective and concrete goals. They either have to happen or have to not happen — no wiggle room. We also establish how much that should cost under a traditional retainer model.
Then, we cut a certain percent off our normal fees and set those funds aside in a risk pool.
Finally, we agree to a risk multiple that corresponds to how difficult the goals are.
If we miss the goals, no further fees are paid. If we hit them, then we secure the revenue we’d put at risk, plus its multiple.
Here’s a straightforward example:
Goal: Secure an exclusive on the client's news in the client's industry media and then pursue downstream coverage.
Regular fees: $10,000
Fee discount: $7,500
Adjusted retainer fees: $2,500
Risk multiple: 1.5
Fees for meeting goals: $13,750
The goal here is to leverage a client’s news on an exclusive basis, which we almost always do when we have it.
In this hypothetical scenario, we’re almost certain we can execute on this mandate — we’ve done it many times before, and any PR pro should be able to turn an exclusive on something that’s really newsworthy into beneficial coverage — but say the client has been burned by an agency before and wants to hedge its bets.
We drastically reduce the fixed fee and apply a multiple of 1.5. The reduction gives the client downside protection, and the multiple rewards us for accommodating their needs. The model nets us a few thousand extra bucks for doing exactly what we said we could do.
But now apply the model on a larger scale — say, with a company that needs an agency of record to navigate a highly competitive landscape. Since PR can play the lead in finding and seizing an advantageous competitive position for clients, this is a realistic scenario:
Goal: Increase the client’s sales by 15% over the next year by finding and seizing a new, advantageous place in its market as its PR agency of record.
Regular fees: $120,000
Fee discount: $50,000
Adjusted retainer fees: $70,000
Risk multiple: 3
Fees for meeting goals: $220,000
Now, 15% is itself not an awfully ambitious growth target. But, in this scenario, there are variables that affect growth -- like who’s doing the selling -- that PR has no control over, and we’ve taken a big haircut on our fees already. This program is on the risky side, which is why the multiple is higher than our last example.
If this hypothetical company thinks that the main obstacle to the growth it wants to see is what third parties are saying about it, then it should change those conversations. Say it did $5m in sales during the previous year. A 15% increase would net $750,000 in revenue, and hitting the target should be good-enough evidence that the agency executed on its mandate.
Therefore, the client would spend just 13% of its net profit on the services that created those profits, and the agency would book a cool $100k in additional fees. Both parties win.
The underlying logic of this offering is to absorb calculated risks when our clients would, for whatever reason, rather not. Under the traditional agency/client relationship, the client bears all meaningful risk associated with being sold programs that underperform.
This is just how the PR industry has evolved over time, and agencies of all sizes have grown fat and happy under the notion that clients should carry all the risk and they should carry none.
There are ways to distribute this risk across both parties to their mutual benefit, and this is one of them.