Overservicing: A Death by a Thousand Cuts

Why Overservicing is Dangerous in 2022

The U.S. job market is scorching hot in 2022. While more than 161 million people are working, 15.7 million jobs remain open. This data means that roughly one out of every 10 seats in your office is likely vacant and the competition to fill them is steep. As job seekers relish in seemingly limitless opportunities, businesses find themselves on a fruitless hunt for talent. And even when they do find ideal candidates, they better be willing to pay more as wage pressure builds against the backdrop of an economy wracked by inflation.

These factors challenge businesses as they struggle to right-size their workforces, offer competitive pay, and strategically increase service prices. Considering the landscape, it will be critical for firms to maintain tight oversight on costs to ensure expenditures don’t exceed planned budgets. Business as usual, just got a lot more complicated.

PR firms are especially vulnerable because they tend to overservice. According to a recent study of more than 400 PR professionals by Ginger Research and PRCA, 90% of agencies polled routinely overservice client accounts. As rumors of recession pick up steam, this begs the question, why would any business work for free?

Understanding the Retainer Model

There are many reasons why overservicing is an epidemic in the PR space, but one cause is their pricing systems. PR firms commonly use retainer models, which means that the client pays for a defined scope of work with not-to-exceed limits. But the challenge with these models is that they introduce a wide amount of variability.

For example, perhaps you have a client with a monthly retainer budget of $10,000. In January, they are opening up a new brick and mortar. It’s a big launch that requires media, print, and a social strategy. Instead of working your standard 50 hours per month you’ve now spent 75 hours to meet launch demands.

Now you’ve blown your budget for January by 50% by giving that client an unintended coupon for half off your services. The complication now is how to gain back those hours to be made whole. Can you dedicate only 25 hours to the client in February? Likely not. This is why the retainer pricing model can very often lead to overservicing. If the work is not precisely scoped out at the beginning of the project, it can quickly lead to disaster.

Reasons Why PR Firms Overservice

So if PR firms know that unintended overservicing is a one-way ticket to lower profit margins, why does it continue to happen? The following are seven reasons why overservicing is so rampant in the PR space:

1
Overpromising by a Country Mile

Yes, it’s exciting to land a big fish account. But if you’re not being truthful about your capacity limits, it becomes an account ripe for overservicing. It’s always better to underpromise and overdeliver. The danger is when you overpromise, you also indirectly offer to overservice. Moreover, you risk your firm’s reputation by committing to projects that you don’t necessarily have the resources to complete. Before closing on new deals, scope the work properly. Reference historical project completion data for a similarly scoped project and verify you have the right resources with the right capacity.

2
Preventing Client Churn

Nothing elicits fear in the PR space like churn. The very word conjures an image of a record player screeching to a halt as the needle scratches against vinyl. Reporting that your client has left the firm is not news you want to deliver. When you lose customers, it reduces growth rates, opens the possibility of layoffs, and represents the failure to meet your business goals. It means that your sales and marketing teams must work harder to find new clients, and all that careful nurturing work was for naught. Because humans inherently want to perform well, churn is a major reason firms overservice. If you just worked longer, harder, better, you may believe you can keep that client happy.

3
Gaining Prestige

Occasionally, prominent clients are taken on not because they are particularly profitable, but because they drive new business. Essentially, they are name droppers. While outliers, these accounts tend to be intentionally overserviced simply because of their prestige. Doing so can give the firm added clout and augment its reputation. But make sure this type of overservicing aligns with the firm’s strategic objectives. Routinely perform a large-scale analysis of your project portfolios. Decide which clients can fit into this designation, knowing that your bottom line won’t take a hit in the long run.

4
Running Blind

Perhaps the biggest problem with overservicing is that you don’t know it’s happening until it’s too late. Without keeping a close eye on project hours, costs get out of control quickly. And because retainers serve as a ceiling on money coming in, you must understand when your team is overservicing in real-time so you can make adjustments. Moreover, the move to hybrid and remote work has resulted in less transparency around the day-to-day. Remind your employees to track every project hour, so you have the information needed to make real-time adjustments.

5
Impressing New Clients

It’s easy to overservice when the relationship is new and everyone wants to put their best foot forward. If you’ve just closed on a new account, it’s normal to want that relationship to start smoothly. New clients require onboarding and your team will likely spend more time educating themselves about your client’s particular pain points. And while some extra hours are expected and built into the plan, it’s important to track this time so you can ensure every hour is accounted for. When you have that time entry data, you can make sure that your team is adhering to the planned amount of work.

6
Lacking Discipline

Work smarter, not harder is a trite saying but applies. Employees need to have self-awareness around whether the hours they are putting in are yielding a return on investment. You’ve hired trusted, ambitious employees who want to knock every account out of the park. But sometimes, it’s necessary to pull back strategically. Once you’ve reached a certain number of project hours, understand that any extra time dedicated is now free work. Moreover, when you are overservicing one client, is another taking that hit? Invest your time wisely.

7
Focusing on the Short Term

PR is an intense and challenging industry that requires long hours. Associate roles tend to have high utilization rates because they spend most of their work hours directly interfacing with clients. With that comes the tendency to work at more of a granular level just to keep up with the day-to-day. Make sure project hours are scrutinized over varying periods of time. Overservicing can often be overlooked in the short term; afterall, the work still needs to get done. But don’t forget to take the long view on those project hours. You may be shocked to discover just how many hours you’ve given away for free over time.

The Antidote to Overservicing

Now that you understand why your employees are over-servicing clients, it’s time to figure out some strategies that can help you get them back on track. The following are seven strategies for mitigating overservicing in the PR world:

1
Deploy Your Workforce Strategically

Each employee who services a client will have a unique hourly rate in PR firms. For example, an account manager, executive, and coordinator may work together to service the same client, but each will charge differently for their time. This is an important consideration when it comes down to allocation. Understand the skill sets available to you and allocate each employee to the appropriate task. You don’t want to pay a senior executive to perform the work that a coordinator can do. Next, confirm those employees actually have the necessary capacity to complete their assignments. When the right employees are paired to the right tasks with the right bandwidth, they are much more apt to work the correct amount of hours instead of overservicing.

2
Ensure Accurate Project Costing

Just because employees are salaried doesn’t mean you shouldn’t closely monitor their project hours. PR firms should be routinely calculating the percentage of time each employee spends on every project and comparing that to the cost of their salaried hour. For example, if a salaried senior executive account manager makes $4,000 per pay period and works 80 hours during that time, the cost of her salaried hour would be $50. If that same employee worked 100 hours per pay period her salaried hour would be $40. Correctly calculating the cost of every project hour is the only way you can accurately track your total project costs. And when you know how project costs are tracking against their retainers in real-time, you are much more informed to make business decisions that prevent overservicing.

3
Leverage Unique Pricing Models

PR leaders often need to create unique billing models for every person, client, project, or task associated with the work. This allows them to take on a wider variety of projects, as they can quickly configure models that will make their work as profitable as possible. Work can be charged back to retainers at each of these customized rates. But make sure you are also comparing those numbers to cost rates. Should overservicing start to ramp up, you’ll want to run this calculation routinely to ensure you stay in the black.

4
Establish Utilization Visibility

Billable utilization is the percentage of time spent on billable projects vs. the total time worked. For organizations to understand their current utilization rates, it’s critically important to track both billable and non-billable time. That way, you gain a clear understanding of where the firm’s time is spent and how many project hours are charged to a retainer. Optimal utilization rates indicate that your staff is working the correct amount of hours on their projects.

5
Conduct Routine Profitability Analyses

Not every project available is worth pursuing; some will have a higher profitability index than others. Once your project costs and billings are accurately determined, you can better understand your profitability rates. Monitor this progress closely and follow up with any activities logged in time entry systems that may look like overservicing. Consider shifting priority once you know which accounts are the most valuable to your business.

6
Implement a Time Tracking Policy

PR Firms need to log every working hour (billable or not) to understand the health and sustainability of their business. When leaders enforce time tracking policies, they gain a deep understanding of employee utilization and capacity. Armed with this knowledge, your organization can predict when and if a project goes over budget and make informed decisions around overservicing.

7
Use Resource Planning

Resource management is the efficient and effective deployment of an organization's resources when they are needed. PR firms are notorious for being reluctant to turn down work, but right-sizing accounts to match available resources and capacity rates are essential to success. Project managers need to forecast and schedule upcoming initiatives accurately, and they can’t do so without understanding capacity limits. The best way to limit unintended overservicing is by committing to the daily work of optimizing resource management.

The Power of Right-Sizing

PR firms will likely always overservice client accounts to some extent, but when not done strategically, it can lead to financial disaster. Mitigate this problem by establishing clear expectations and diligently tracking work hours. When managers right-size the initiatives to match the resources and capacity rates of the firm, they can more easily achieve their objectives.