Paul Roetzer of PR2020 joins us for the first episode of season 2 of Inbound Now!
Paul the founder and CEO of PR 20/20. He started the agency in November 2005 with a vision to evolve the PR industry, after seven years at a traditional PR firm. He is the author of The Marketing Agency Blueprint, a fantastic book on how to build a hybrid marketing agency.
In this episode we chat about:
The RFP model hasn't been very kind to agencies over the years, in essence, it's a great way for clients to get a range of free ideas from perspective agencies bidding on the business, while at the end o the day the client usually takes those ideas and goes with the agency who is a friend of theirs.
There is really no reason these days to have a secretive pricing structure. Who are you trying to fool?
Displaying prices clearly on the site is an extremely powerful way to qualify leads and cut to through the clutter.
Having the retainer-based pricing has helped PR2020 move upstream with clients and to move away from lower grossing project based work.
Hybrid agencies are diversifying their revenue streams to put in more money and scale at a higher rate.
Paul is a part of the HubSpot Var program that allows him to get a piece of recurring revenue for everyone that comes on board.
PR2020 allow sells an online academy webinar training series as another outlet for incoming cash.
Qualities of Hybrid Agencies:
Hiring people with multiple faceted is critical today.
Writing is at the core of the marketing skillset and being skilled at content creation sets people apart.
I would add from my own personal experience, knowing basic HTML and CSS can be very useful and can help kill bottle necks you have with slow/super busy designers.
Make sure the company eats its own dog food.
Don't take the age-old excuse of "we are too busy with client work to take care of our own site."
Questions to ask your prospective agency:
Hire intrinsically motivated people who buy into your vision for your company, who are detail-oriented, who care about clients, and understand the space will help you win.
Paul's blog is a huge component of his inbound marketing strategy. Not only is it used for traffic and inbound links but also to add value to existing clients and educate them on the space.
If you don't have a healthy dose of fear, you aren't pushing yourself hard enough.
You can connect with Paul and the PR2020 team at their site: www.pr2020.com, Inbound Marketing Agency, and over on their blog.
Make sure to follow Paul: https://twitter.com/#!/paulroetzer
David: All right, I am recording. Awesome. All right, cool. So, Paul, welcome to the show! So, who are you, and what do you do?
Paul: Paul Roetzer, founder and CEO of PR 20/20, and author of "The Marketing Agency Blueprint."
David: Awesome. I got a chance to read "The Marketing Agency Blueprint." I thought it was a fantastic book, and I had a ton of questions on exactly how you've implemented this structure in your business and kind of the things that you've learned along the way. So let's dive into it. So, the book is really about how traditional marketing agencies are kind of--the model is not really working as well as it used to be, and you're talking about flipping the model on its head. Can you talk a little bit more about that?
Paul: Yeah, I mean, my background was from a traditional PR agency. So I spent--I interned in college at a traditional agency, and then I spent about five and a half years at an agency. And we did, it wasn't just PR, but at the time, we're talking 2000 to 2005 range, so we were doing a lot of strategic planning, brand marketing, we dabbled in advertising a little bit, but mostly it was PR. But at the time, I was kind of observing what was going on in the way that agency was run, and it was run off of the Burson-Marsteller model, which for people who aren't familiar, Burson-Marsteller was, and probably still is, one of the larger agencies in the world. But that's where my boss had come from, so we were running off of, like the 1980s operating manual for Burson-Marsteller, basically. So, as I was growing up, while we were a great firm, and I still admire what that agency I came from does, there were just a ton of inefficiencies. So I always struggled with the billable hours, I always struggled with, "How do we differentiate ourselves from other firms? Where does new business come from?" We would have these hour quotas, where you'd have to be five or seven hours a day billable, but I never knew where the work would come from, and at the end of the day all that really matters was the client got the invoice at the end of the month that hit hour quotas. And there wasn't really that much consideration given to, what did we do for them in that time? So yeah, we hit our hour quotas, but, did we actually produce bottom-line results, and did we make enough impact on their business? So, early in my career, started looking around, thinking, "Wow, this doesn't really make sense. Is this really how the industry works? Because it seems very agency-centered, and very inefficient."
David: Right, right. And in the book, you say that these new, kind of hybrid, agencies are built on efficiency and productivity, kind of shifting away from the billable hours model. So, why are project-based fees and value-based fees better for both parties involved; the client and the agency?
Paul: I mean, to me, the billable hours, again, it goes back to the whole idea of it's the simplest solution for the agency. If we do an hour of work, we bill the client an hour of time. Now that hour, if you're doing administrative work, or if you're doing high- level strategic planning is basically equal in billable hour model. Does it really make sense to be charging the client the same amount of time for sending emails back and forth or building a crisis communications plan? They're very different values, and the client should have a different perceived value and therefore be willing to pay different amounts. So, part of it is just the overall perception of the value of what you're delivering, and the other is because we multitask, because as humans, as professionals, we have very limited ability to actually focus on singular tasks for extended periods of time, how is it logical to be constantly billing clients or constantly on the clock for a client when in reality, you're probably not actually focused on that client or that project for an hour straight ever.
So to me, it just came back to the agency--the burden should be on the agency to be as productive and efficient as possible. And the more you can define a scope and set a standard price or a service package under a set monthly fee, and then, deliver what you're promising to do that actually returns results for them-- it's just a much better relationship, more transparent, everyone knows what they're getting, and you rarely run into instances where you get to the invoice at the end of the month, and the client is like "What in the world did you do for this hundred hours?" because you're very transparent all along with what you're doing and what results you're hoping to generate for them by doing it.
David: Right, right. And with the projects that you're doing, are you still measuring, "Okay, this project is going to take us this many hours"? It still comes back to hours on your guys' side, right? But you kind of lump it in together. Is that kind of a trial and error process for you guys?
Paul: Yeah, absolutely. We track everything probably more so than agencies that use billable hours. We are fanatical about how we track and report our time, because we're measuring the efficiency rate. So we're still trying to generate a specific dollar amount for every hour of work we do, because at the end of the day, that's what we have to create as an agency. But, we're constantly looking at how efficiently can we turn one hour of work into that certain revenue amount. We have to look at those things because it helps us evolve pricing. So we may put a set price out in the market, and realize, wow, that was way off. So let's say blog post writing, as an example. We may think it'll take two hours per blog post, but after we do ten of them realize that it actually takes 3.5. So we had a set fee maybe, for those blog posts, but now we can adjust that set fee moving forward because we know the actual amount of time it may take to write something. So we track everything and then adjust pricing as we're going, based on historical performance.
David: Gotcha, gotcha. So it's an iterative process.
Paul: Yeah.
David: Okay, cool. So, and you talk a lot about in the book, kind of an a la carte pricing model. How did you guys really decide on your pricing? Again, is it an iterative model where you price something at some point, and then you go back and fix it? Because pricing is like one of the hardest things a business can do, right? So how did you guys really wrap your head around that?
Paul: Honestly, I spent, I one time estimated, six hundred hours creating our original service guide. So this goes back to 2005, right before I started the company. That was like, the majority of the time I spent building our model was trying to build that standard service guide that had one-hundred and two services, three levels of each service, basically. So we're talking about three-hundred plus different pricing variables. And so, that was basically me guessing. I literally sat down and said "How long would it take to write a brochure? How long would it take to write an article? To do a press release? To develop a communications plan?" And I guessed at pretty much everything, based on my five years of experience, and based on what I thought was possible. And then, we literally just iterated non- stop since then. And because we track everything, we have six-plus years of data now to tell us how long each task or each project takes, and then we can adjust our pricing based on that information. So, the one thing we did early on that was somewhat unusual in the industry was published our pricing. We literally did have that a la carte menu to start, where people could go and see exactly what we were charging for each project. So, the market, other people, other agencies, could look at that and come up with their own pricing, but we had definitely changed it regularly over time.
David: Right, right. So, displaying your pricing online, I mean, did you guys see that as a huge benefit and you guys as more of a transparent agency? Or, what was kind of the thought process behind that? Because a lot of people are scared--I mean, it is on a per-project basis for most people, and displaying the price scares people away sometimes.
Paul: Yeah, in the early days, when I first did it, when I finished the pricing guide, I launched the company November of '05, I published the service guide in January of '06. And I hesitated for about a month, debating, was I out of my mind to actually put the pricing online? And then I just thought, the benefits we would gain from doing it were far greater than continuing to hide pricing. So we thought the more transparent, the more trust we would build, the better chance we'd have. Plus, what ended up being one of the greatest benefits to it, was it pre-qualified leads. So people who went to our site and knew exactly what we were charging wouldn't waste our time building proposals and then get our costs and say, "Oh, you guys are our of our league, we're not going to pay for that." So by publishing our pricing, we in essence continually attracted the types of companies we want to work with. So, two years ago our enterprise package was I think $2,000 a month--today it's $12,000 a month. So we've continually moved upstream, and by having our service pricing on our site, we've intentionally moved away from the lower level service packages, which we've struggled to make a profit on. And we've also moved away from project-based work, which we struggled to make a profit on. So, we use that transparency and pricing to attract the type and the quality of prospects we want for our business.
David: Cool. So it's a great way to vet leads and also to . . . I just lost my train of thought.
Paul: It actually makes the business development process can be ten times more efficient when you standardize all your pricing, so when someone wants something, say a website design, you already know the scope of a website project and what you're going to charge, so we can convert a $10,000 a month account in five hours or less because we have completely standardized everything we do, and then you just customize the positioning of it and how you're structuring that package, but there are no question marks as to what things cost. So, it's wildly efficient for us to do new business development as well, in addition to the transparency clients benefit from.
David: Okay, gotcha. It kind of gets rid of the RFP kind of agency model, right? It kind of, I mean, are you guys doing a lot of RFPs, or it kind of eliminates that?
Paul: Never done RFPs, we have probably done maybe two in the entire existence of the agency, and they were in both cases most likely because we were brought in by another partner. We would never take an RFP as a business development opportunity. We literally just turn them away if they come in.
David: Gotcha. Yeah, it seems like a tremendous waste of time for both parties, well I guess not on the client's side, but on the agency's side, kind of building that plan and maybe getting the business, it seems like an inefficient model for sure.
Paul: Well, plus, my feeling on RFPs has always been it's stealing creative. You get six agencies to throw their ideas at you and pick the ones you want, and then pick the agency you were probably going to pick before the process started because it's a friend of yours. The whole system to me has always been broken, and that's why we just never got into it, I've had so many bad experiences--in the five and a half years I was at a traditional agency, the experiences we went through there were enough for my career--I was done going through RFPs.
David: Gotcha, cool. So, what is it a hybrid agency--what exactly constitutes a hybrid agency? Talking about the broken model and now what's the new model of hybrid, what does that mean?
Paul: The main thing to me, in the book we talk about the three catalysts that are really affecting the adjustments and the evolution of the agency. And the first one is change velocity, which basically means everything's happening so quickly, technology's changing so fast, that it directly affects the types of services you can offer, the systems you can use to run your agency-- everything moves so quickly, so that when you look at the type of agency that needs to exist to advance within that type of system, there's four things that it comes down to, and the first one is tech-savvy. Because if you're not paying attention to how quickly things are changing, and what technology there is, then you can't adapt fast enough and bring value to your clients and adjust your agency. The second is the integrated services, which we'll probably touch on a little bit more, but you can't do services in silo anymore, you can't just be a web developer because search and social and content affect the quality of a website now. So you have to look at either, be able to plan on an integrated basis, or offer everything in-house through one agency. A versatile talent, because to be able to have integrated services you have to have talent that can work across multiple marketing disciplines, and the last one is diversified revenue, to where you're not just reliant on service revenue anymore, you're looking at things like how do you make money through publishing, with online education and information products, through software licensing, through commissions and affiliate programs, there's all these other revenue channels, so you're not strictly trying to hit a ten percent profit margin on services. You can make potentially greater than that because you can have high margin revenue in other areas.
David: Right, right. So I recently caught an interview with you and Mitch Joel on one of my favorite podcasts, Six Pixels of Separation, where you were talking about how you believe the future of the industry are these hybrids with the diversified revenue streams. How are you guys, what are your different revenue streams that you built at PR 20/20?
Paul: One is, one of the early ones we started experimenting with, and this kind of started leading me down this path, was the HubSpot VAR program. So as the HubSpot VAR, as you'd bring a new business into HubSpot, you basically get a commission for life on those licenses. So that was one, and what's happening is there's a whole ecosystem of those types of companies developing that are starting to look on, "How do we build through agency networks?" So you have opportunities to have these third-party software that you can actually use to advance these types of services you deliver, but at the same time you can actually make money on commissions. Obviously, the book was a separate revenue stream for us, so I didn't do the book as a stand-alone author-- everything funnels back through the agency. So if there's any royalties on the book deal or anything that comes along with the book, including speaking engagements and things like that, all that revenue funnels back through the agency. So you build the personal brands of the people within the company, and then you have the potential to expand the type of revenue they can bring in. And then online education, we launched the marketing agency Insider as part of the book, to complement the book, and with that we have the online academy, where we did the Blueprint series with a five-part webinar event in February that HubSpot actually sponsored. And that was a separate thing. We charged $495 a piece to register for that, so that's created additional revenue streams. We're using that as basically a beta test to see can we take that model and apply it to PR 20/20, and start looking at expanding into online education as an agency.
David: Gotcha, cool. So, you started in 2005 with, it was just you and a partner, right?
Paul: Yeah, it was me. My partner was basically, put up the debt funding to do it, and then he functions as a CFO.
David: Gotcha, and now you've grown into 11 employees. So like, hiring talent, you touched a little bit on it, and I think you hit a valid point, where you're hiring for multifaceted people that don't just have one skill set. Can you talk a little bit more about that, because I think marketers can't just be marketers anymore, and web developers can't just do web development, they have to kind of expand, kind of put on more than one hat, right?
Paul: Yeah, I think it's one of the biggest issues within the marketing industry as a whole, and not just agencies that's really not being talked about enough. What we've done is we tend to hire people out of journalism school with PR majors. More than half of our employee base are Ohio University grads from their journalism school. And that's where I went, so we knew the type of talent that would come out of there, so it's like an easy place for us to recruit out of. But basically, we know that writing is at the core of a strength for marketers today. Then we look at things like search. And three years ago, doing search might have been a little more complex than it is today, because today it's not really as much about algorithms and changes Google is making as it is creating great content, doing the obvious on-page optimization things, and building links naturally. Well, you don't need to be a ten-year search vet to do that, you can be trained with those elements. Social media is an essential piece, and being savvy online and understanding how to build a personal brand, again, you train people to do that. Analytics becomes essential, but Google offers free training on how to use Google Analytics, HubSpot offers tons of resources on how to understand analytics.
So all these different things that make for a much more versatile marketer, there's resources out there to teach them. So we just built our own internal curriculum, and in a lot of cases through third-party resources to take people who have raw talent in the core competencies and then expand what they're capable of doing through training programs.
David: Gotcha. So, switching gears a little bit, for companies out there watching that maybe considering outsourcing some of their marketing or PR activities, what are some questions that they should ask the prospective agencies they're looking at to kind of vet to see if it's the right fit and if it's kind of a new, hybrid agency that really knows their stuff?
Paul: To me, the easiest way to do it, you don't have to ask questions, just go to their site and see what they do, because historically agencies always took the excuse of "Well, we never have time for ourselves because we're so busy with our clients." It's BS. If you're actually good at what you do, if you're savvy in social media, if you preach the importance of content and blogging, search optimization, analytics--if you're talking about all these things, then you better be doing them, because that's what demonstrates your capability to actually help a client. So I would much rather go to an agency site and see a well- thought out site with calls to action and landing pages, downloadable content like e-books and white papers or infographics, things that tell me they actually understand what they're selling in services around, a great blog, that's what I want to see. I just want to see people who are actually doing it well. And then obviously, you can get into, "Okay, talk to me about my accounting. How would that be structured? How does your project management work? What type of talent do you hire?" I would really drill into the talent behind--I would ask about the retention rates of employees is a huge thing, because the main reason that clients will eventually stay with an agency is because of the people they work with on the account.
And so when you have agencies that constantly have a turnover in their talent, say a year and a half, two years or less is the average turnover, that's a problem. You really want to work with agencies that do a good job of retaining talent--that speaks volumes to their quality as a company.
David: Gotcha, so retaining talent. How do you guys retain talent? What's something that keeps an employee happy and working to their maximum potential?
Paul: We spend a ton of time on culture. I mean, it's one of the biggest things that I've focused on from day one. First, hiring people who want to be a part of something big--bigger than themselves, greater than themselves. They want to build something significant. So, you have to have people who believe they're part of a much larger mission. And so, the type of people you would hire, they're naturally intrinsically motivated people, so we look like, Daniel Pink's Drive, if you read Drive, and then you understand the type of people he's talking about, those are the type of people we look to hire. So you want people who aren't necessarily in it just for the money, they're in it to build a great career. So we look for those type of people for sure, and then, we want people who obviously care about the clients, who are incredibly motivated, who are detail-oriented, and we basically give them the vehicles once they're here, then, to build their own careers. So, a lot of flexibility and freedom in the development of their careers, and make sure we support them, so we take them to conferences, include them in the chance to get out and meet new people and experience new things, and as an agency, we're one hundred percent committed to constantly evolving and innovating, so it's always creating new career opportunities for them, and we always involve them in that process, so it's not me just deciding what's going on as an agency, and saying, "Here's what we're doing," it's us actually sitting people down and saying, "Okay, we're thinking of going this direction, what do you guys want to do?" And we'll build committees to innovate within the agency and within the industry.
David: Okay, cool. So, where do you see PR 20/20 going, moving into the future? What's the vision that you're instilling in your employees?
Paul: I think a lot of the book was not about what we've achieved, but what I thought was possible for agencies, and so there's a lot of things I wrote in the book that we don't necessarily excel at. Stuff that we haven't really realized yet. And so, really, once I finished writing the book, which would have been July of 2011, I finished it and it goes through editing, it eventually came out in December of 2011, a lot of that really motivated me to shift what we were doing and what we were trying to achieve. So, we're really now trying to--the tech-savvy thing I think we do pretty well, we're trying to focus on that, integrated services, we're starting to expand some of the services we offer, the talent, we can always do a better job of recruiting, we've done a great job of retaining but I think we can do a better job of, have a deeper pipeline of top talent, and then diversified revenue is probably my biggest focus right now. If we can really achieve that, then you can build a successful, profitable agency.
David: Gotcha, cool. So you wrote an e-book on devising an inbound marketing game plan. Can you share some of the stuff that's worked exceedingly well for you guys at PR 20/20?
Paul: Yeah, I mean, the inbound marketing game plan was kind of my model of what integrated services should look like, and what I thought was possible. The direction we started going with our client- base. So, it's basically web and brand, looking at those as the foundation, and then search, social, content, and PR. And to me, the social and content are really the drivers, so what I think we've done really well is had a strong blog that we don't just use to drive links and traffic, we actually use it to add value to our existing customer base and to prospective clients, and even to our peers in the industry. So I think we've done a really good job with our blog as a base, and we've invested in an editor that's assigned to the blog, everyone on the team contributes to it, so we make that a core piece of our success, and then obviously, enabling our employees to build strong personal brands is a big piece of what we do. That to me is probably the stuff we lay out in the e-book we've actually tried to execute ourselves, I think we've done a pretty good job. We've stumbled at times, but overall I think we've done a good job with it.
David: Gotcha, cool. So chapter nine in the book is all about embracing failure. So kind of the flipside to that coin--since 2005, what did you guys run into that you thought would be a hit, but just kind of fizzled out or what have you?
Paul: I always go back to the first time we rolled out service packages. We introduced the first service packages sometime in early to mid 2008, but we really rolled them out at the first inbound marketing summit in September of '08. Those things were so wildly unprofitable, but it was good, like, we had to take a chance, we had to put them out there and see what worked and what didn't, and we found that they really didn't work at all. But that's fine, and then in 2010, we rolled out the next type of service packages and we started bundling content at some point. Well, bundling content was huge risk. Like, for say 3,000 a month, people get four blog posts, or for 5,000 month they would get four blog posts and a 1,000 words of premium content. Reality was, we had no idea if that was going to work or not, and how to actually price content into them. But we knew we had to do it, we knew we needed content as a piece of it for clients to actually see success, otherwise they wouldn't commit to it, so we put them in there. They weren't profitable, I mean, we have some clients we go back to in 2010, 2009, we look at efficiencies, and they're so poor, but we learned a ton, and we learned how to better price content, and we learned which areas we wanted to focus on and which we didn't, so, our thing is we've always been willing to take a risk, and we've always taken risks on services and pricing, which I think is obviously essential to what we're trying to do.
And then the other one I'd say is like, the marketing agency Insider, I had no idea we'd put that Blueprint series out, if we'd even get one sign-up for it, and we've had probably more than 75 now, people have registered for that series. And we had advice from people whose opinions I greatly respect that told us, "Don't do it, do it for free, it's the only way to go," and we had pretty good reasons why we didn't want to do it for free, and so we took a chance, and then we literally just sat around and said, "All right, let's see if anyone signs up, could be a bomb, but we'll see."
So, I'm just a big believer in you have to take those chances and I know you've talked with Seth Godin before, and Seth's a huge proponent of that kind of thinking, so I've always taken that approach too--if you're not afraid a little bit, if you don't have that little bit of anxiety of whether or not it's going to work, then you're probably not pushing yourself far enough.
David: Yeah, definitely.
Paul: A healthy dose of fear is good.
David: Gotcha, yeah, I commend you guys on charging for that, because yeah, a lot of people would say, "Put it behind a forum, give it away for free," but if it has that value behind it--and it sounds like you've sold a ton of programs, so I mean, if it has that value, don't be afraid to do that, and I commend you for that. So, Paul, where can we find you guys online?
Paul: Well, there's PR2020.com is the agency site, and then marketingagencyinsider.com is the home of the book, and it's also the home of the community we're trying to build around the philosophies in the book, the more open and collaborative agency ecosystem, so that's where we're doing all that, that's where the blog's at and academy's at.
David: Nice, well yeah, thanks for coming on the show, and definitely, everybody watching, check out "The Marketing Agency Blueprint." It's a good read, and I highly recommend it.
Paul: I appreciate it, David.
David: You're welcome.