PBR is risky but worthwhile
A view from Claire Beale

PBR is risky but worthwhile

Small agencies need to take risks.

"Totally shafted" was how one chief of a small-ish ad agency told me he felt when he heard last month that his biggest client wasn’t "in a position" to fulfil the terms of their payment-by-results advertising contract. The agency’s summer party went ahead, but it was a close-run thing. And no, the marketer in question wasn’t invited.

You might imagine that this is just the nature of the game – you sign a PBR contract and, if the results ain’t up to scratch, you can whistle for your payment. Fair enough. Except that in this case the results were up to scratch. Over scratch.

I’m taking the agency chief’s word for it but he’s clear his team delivered on all points. In fact, the client doesn’t disagree. The problem is not that the agency missed its targets. It’s just that the marketer can’t (won’t?) release the funds to pay the performance-related bonus but promises to try as soon as they can .

Of course, if it actually were a bonus, none of this might matter much; it would smart but it wouldn’t seriously matter. The basic fee would have covered the work and the bonus would have been a nice-to-have. But the PBR element of the contract was not really a bonus, it was the bit that made the ridiculously low (procurement-squeezed) fee viable.

Obviously, taking on business like this is a real risk. But when you’re a small agency, you need to take risks, particularly if you’re confident you will do a brilliant job. Still, you need to really trust the marketers you are working with. You need to trust that this will be a proper partnership – two ambitious companies working tightly together to build both businesses. The agency’s success is inextricably linked with that of its client. If the client turns out to be – let’s be polite – indisposed to meet its share of the bargain, feeling "totally shafted" seems like a very reasonable and rather controlled response by the agency.

Yet despite this being far from a one-off example of PBR abuse, agencies clearly lament the decline of PBR contracts that has been highlighted by ISBA’s latest Paying for Advertising report. Anyone who works for an agency knows too well that being paid by clients for hours worked is a wholly unsatisfactory model. On the other hand, PBR, as an element on top of a fair fee, rewards effective strategic and creative excellence and drives efficiencies for both sides.

PBR also encourages greater transparency and ensures clients are more aware of their agency’s financial pressures. And, perhaps most importantly, it fosters longer-term relationships built on trust and mutual success/reward rather than low-price commoditised transactions. For all those reasons, it’s worth the pain of identifying and measuring "results". And for all those reasons, the marketer who shafted the small agency deserves to be publicly vilified. Now, who are they?