When effort and impact are mismatched: Why agencies always make money – even without success

The reach illusion: Why likes and clippings are not real business results

Output instead of outcome: How the PR industry's compensation system prevents real success

Communication projects often shine with creative perfection and technical skill – but when it comes to their measurable contribution to business success, many companies are disillusioned. As budgets shrink and the pressure on marketing and PR departments to justify their efforts steadily increases, a deep-seated structural problem is revealed: The communications industry is traditionally paid for its output (hours worked, content produced), but not for the actual outcome (measurable changes in behavior or attitudes among the target audience). This systematic gap between budget and impact is no accident, but rather the result of flawed economic incentives. The following article analyzes the classic principal-agent problem in PR, explains why blind faith in metrics such as reach and visibility leads to a strategic dead end, and demonstrates why a radical readjustment of compensation models is unavoidable in the age of artificial intelligence.

Why communication projects can excel technically and fail strategically

The agency trap: Why you pay for beautiful presentations but see no results

Projects rarely fail loudly. They die quietly – in status reports no one reads, in budget meetings where communication is the first item to be cut, and in follow-up reviews that no one consistently conducts. The real drama unfolds not in the big collapse, but in the gradual drifting apart of two worlds: the world of what is funded and commissioned, and the world of what is actually supposed to be achieved. This gap between budget and impact is no accident. It is structurally inherent – ​​and economically explainable.

The imbalance begins before the first briefing

Before a single concept is developed, before a single sentence is written, the fundamental imbalance in many communication projects has already arisen. It emerges the moment budget and strategic objectives are defined separately, rather than together. Budgets are set by finance departments, goals are formulated by marketing managers, and measures are developed by agencies – often sequentially, rarely in genuine interaction.

The fundamental problem of budget planning in communications has been known for decades. There is a basic contradiction between so-called impact-based and non-impact-based budgeting methods. Impact-based methods attempt to model a response function – that is, to establish the causal relationship between the allocated communications budget and a measurable degree of goal attainment. Non-impact-based methods, on the other hand, which still dominate in practice, are simply based on the previous year's budget, revenue share, or what the competition is supposedly spending.

The consequence of this practice is that companies don't know whether their communication budget is appropriate—neither too much nor too little—because the connection between the capital invested and the desired impact has never been explicitly established. A communication strategy that isn't linked to clear, measurable goals and whose impact hasn't been modeled ex ante isn't a strategy. It's wishful thinking.

The structural dilemma of every service relationship

The relationship between a client and a communications agency is a classic example of what institutional economics calls the principal-agent problem. The client—the principal—commissions an agent to perform a service that they cannot fully assess themselves. The agent possesses a knowledge advantage that allows them to exploit leeway to their own benefit, without the client readily recognizing it.

This structural problem is particularly pronounced in PR and communications consulting. The connection between a communications consultant's performance and actual business results is hardly directly observable for the client. External factors such as media landscapes, market changes, or social sentiment influence the outcome in a way that the consultant can always use as an argument – ​​in both directions: as an excuse for a lack of success, and as confirmation of their own performance when it is successful. This situation, referred to in the literature as "moral hazard," means in practice that the consultant can obscure their workload and true priorities because the client simply lacks the information that would allow for a valid assessment.

Added to this is the problem of "adverse selection"—the negative selection process before a contract is signed. Before working together, the client can only partially assess the agency's professional qualifications, actual willingness to perform, and strategic direction. Pitch presentations show what an agency wants to demonstrate—not necessarily what it routinely and reliably delivers. The result: The market doesn't necessarily reward the best agencies, but rather the most persuasive salespeople.

The real driving force: The fee comes before the effect

It would be unfair and simply wrong to collectively attribute malicious intent to communication service providers. The problem lies deeper and is systemic in nature. The compensation structure of the agency market is designed in such a way that the agency is primarily paid for service delivery – that is, for the so-called output – not for the effect achieved on the client, the outcome.

This distinction is anything but semantic. An output is something directly deliverable: the press release, the social media campaign, the brochure, the event. An outcome, on the other hand, is the measurable effect of these measures on the target group – changed attitudes, gained trust, increased brand awareness, influenced purchasing decisions. The transition between these levels is complex, time-delayed, and dependent on numerous external variables. This is precisely why it is so difficult to measure – and precisely why the industry systematically ignores it.

When an agency bills based on hours worked or agreed-upon flat fees, its primary business objective is fulfilled as soon as the agreed-upon services are provided—not only when a measurable effect has occurred for the client. This creates a fundamental conflict of objectives: The agency has no structural incentive to critically examine the impact of its work because its remuneration is not tied to it. This is not a case of malice, but rather rational behavior within a flawed incentive system.

The industry's findings confirm this structural analysis: According to recent research, 96 percent of PR departments primarily measure outputs and reach, while less than half consider actual business effects such as new customers or revenue growth. Furthermore, 31 percent of communications managers have recently experienced budget cuts, with the lack of demonstrable added value from their work being cited as the main reason. The industry is thus diligently producing key performance indicators (KPIs) that it can track itself, while systematically neglecting the KPIs that the client actually needs.

Visibility is not a business result

A particularly persistent misconception in the communications industry is equating visibility with impact. Reach, clippings, impressions, share of voice – these metrics are seductive because they are easy to collect, visualize, and present impressively in client meetings. They suggest activity and engagement, but say nothing about whether this activity has actually contributed to the business objective.

The DPRG/ICV Impact Level Model and the internationally recognized Barcelona Principles have been attempting to correct this category error for more than a decade and a half. Both models explicitly distinguish between the immediate output of a communication measure, the media-mediated outgrowth, the actual outcome for the recipient, and the long-term outflow for the company. Nevertheless, the sobering conclusion of current studies is that the acceptance of these models remains limited in practice. Communication has a long-term impact on reputation and relationships – yet in many companies, it is measured by quarterly figures. The result is a schizophrenic situation: the logic of impact is long-term, the logic of measurement is short-term, and the logic of compensation is even more short-term.

A well-executed press conference, an elegant corporate video, a well-planned influencer collaboration – all of these can be technically flawless and conceptually sound, yet fail to measurably contribute to the company's objectives. The beautifully decorated table that leaves you wanting more – this isn't a criticism of the craftsmanship, but rather an assessment of the strategic framework. Anyone who buys communication without first defining which behavior or attitude should change in which target group will end up with a beautiful product but no foreseeable return.

Planning optimism as a structural contributing factor

The problem of a lack of results orientation is exacerbated by another well-researched mechanism: planning optimism. On both the client and agency sides, the systematic overestimation of their own capabilities and the underestimation of risks, time expenditure, and complexity is one of the most frequent reasons why projects exceed budgets and timeframes or fail to achieve their objectives.

A widely cited study by the Hertie School of Governance examined 170 major projects in Germany since 1960 and found that public projects, on average, cost 73 percent more than planned. This effect is particularly pronounced in IT projects, which average 394 percent budget overruns. The study attributes these miscalculations, among other things, to deficiencies in the decision-making and planning process, as well as to the tendency of decision-makers to be optimistic and overestimate their own abilities. These findings apply not only to public infrastructure projects but to projects in general – and communication projects are no exception.

Overconfidence bias describes the tendency of decision-makers to overestimate their own estimation accuracy. A study by the German Association for Project Management showed that project managers massively overestimate their estimation confidence: In two-point estimates, the actual values ​​fell within the estimated interval in only 26.5 percent of cases – even though a confidence level of 80 percent was targeted. This heightened self-confidence leads to reduced risk awareness, which in turn results in unrealistic schedules, tight budgets, and inflated expectations of success. When project managers and consultants operate together in an optimistic bubble, failure is not a question of if, but when.

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What is truly valued in the market

There is a little-discussed but economically relevant dimension to this problem: the discrepancy between what the agency market appears to reward and what it structurally drives. On the surface, the industry communicates impact, strategy, and measurable added value. In practice, while over 75 percent of all new agency contracts stipulate performance-based compensation, surveys of agency heads indicate that the actual percentage dependent on key performance indicators (KPIs) amounts to only about five to six percent of the total fee.

This is economically revealing. The lion's share of the agency's compensation is guaranteed income – regardless of whether the measures are effective or not. The small, actually performance-based portion is low enough not to pose a substantial risk to the agency. The compensation system is thus designed in such a way that it doesn't solve the principal-agent problem, but merely addresses it superficially. It creates the appearance of performance orientation without providing its economic substance.

This finding is supported by the history of agency compensation. For a long time, commission-based models dominated, in which agencies received a fixed percentage – typically 15 percent – ​​of the booked media volume. This model had a fatal inherent logic: the agency earned more if it booked more media volume – regardless of whether this volume was sensible or efficient for the client. The classic conflict of interest model par excellence. The shift away from pure commission-based models to fees was therefore a step in the right direction. But flat fees and hourly rates also fail to solve the fundamental problem because they reward performance, not impact.

The measurement gap and its economic consequences

Anyone who delves deeper into why communications departments and their service providers cling so stubbornly to output metrics will encounter a serious methodological problem: impact is difficult to measure. And what cannot be measured cannot be demanded, negotiated, or compensated. This creates a market failure mechanism: the market for communications services systematically rewards what is easily measurable—clippings, reach, posting frequency—and neglects what is difficult to measure—attitude changes, trust building, long-term brand resonance.

Only 30.5 percent of communications managers even measure whether they are achieving their set goals. This isn't indifference, but rather a reflection of the real methodological difficulties. PR has a time lag, its effects are cumulative, and it's often not clearly distinguishable from other influencing factors. Establishing a causal link between a press campaign and a sales target is methodologically complex and requires a data infrastructure that most medium-sized companies, and even many large corporations, lack.

Added to this is what can be described as institutional conservatism: Evaluation standards such as the Barcelona Principles exist, but are rarely applied – not because they are wrong, but because their implementation requires effort, changes processes, and ultimately threatens the comfort zone of both sides. For the agency, genuine impact measurement means the risk of revealing poor results. For the client, it means that their own objectives must be formulated precisely and bindingly – a challenge for organizations accustomed to vague communication goals.

The damage that is not reflected in the balance sheet

The economic costs of this structural dysfunction are substantial but difficult to quantify – which further exacerbates the problem. Budgets invested in communication measures without any tangible impact are not losses in the accounting sense, as long as the agency's invoice is paid. They appear on the company's balance sheet as regular marketing expenses, not as misinvestments.

The real damage lies in the missed impact – what could have been achieved with the allocated budget if planning, objectives, and compensation structure had been aligned with the actual results. This concept of opportunity cost is difficult to operationalize, but more real than many directly measurable costs. Every company that invests its communication budget in visually appealing but ineffective measures is not only wasting money – it is also wasting time, strategic positioning opportunities, and market share that could have been generated by a results-oriented allocation of resources.

Furthermore, there is an organizational consequence that can be observed in many companies: If communication cannot demonstrate verifiable added value, it loses internal weight. 31 percent of communication managers report budget cuts that are directly attributed to a lack of evidence of impact. This is a self-reinforcing downward spiral: Without a budget, no sound impact measurement systems can be established; without evidence of impact, the budget shrinks further. The end result is a communication department that, while technically sound, has become strategically irrelevant.

Incentive design as a key problem

Looking at the bigger picture, it becomes clear that the solution doesn't primarily lie in better methods, more KPIs, or more sophisticated reporting. The core problem is an incentive design issue – and that can only be solved by a fundamental readjustment of the compensation logic.

As long as agencies are primarily paid for time and services rendered, they have no substantial economic incentive to maximize strategic impact. This isn't due to a lack of professionalism or will—it's because the existing system creates precisely these incentives and no others. Rational actors maximize their benefit within the given constraints—this isn't a criticism, but a fundamental economic observation.

The shift towards results-oriented compensation models is therefore not merely a matter of efficiency, but a structural necessity. Approaches such as value-based pricing, where fees are linked not to time spent but to the proven value delivered to the client, and modern agency scoring models that evaluate performance based on pre-agreed key performance indicators (KPIs) point in the right direction. The challenge lies in operationalization: Which impact indicators are valid enough to serve as a basis for compensation? How are external influencing factors factored out? How is the time horizon defined within which impact is measured?

These are difficult questions, but they are the right questions. As long as they remain unanswered, the communications industry will remain trapped in a situation where good craftsmanship and economic viability are decoupled – and where the budget flows before anyone has seriously asked what it is actually supposed to achieve.

Strategic consequences for clients

For clients who want to break out of this structural trap, this means one thing above all: the obligation to have their own strategic clarity. An agency cannot achieve an impact goal that the client has not clearly defined. The demand for impact orientation must therefore begin with an equally rigorous definition of impact on the client's side.

This requires that communication goals are not formulated in vague terms like visibility, attention, or brand awareness, but rather in measurable changes in behavior and attitudes among defined target groups. It requires that budget decisions and goal setting occur simultaneously—not sequentially—and that the question of demonstrating impact is raised as early as the briefing, not just during campaign evaluation. And it requires that clients are willing to invest in the methodological infrastructure for measuring impact, even if this effort initially seems like overhead. It is not overhead—it is the prerequisite for ensuring that communication budgets are not mere wishes, but investments.

The uncomfortable truth is: those who are not prepared to work towards this clarity get exactly what they deserve – nice work that doesn't feed anyone.

A new balance between performance and impact

The communications industry is at a crossroads. The pressure from digitalization, AI-powered content production, and increasingly data-driven marketing decisions is making the current practice of purely output-based fees increasingly difficult to justify economically. Clients who can see how many texts an AI produces in an hour will be less and less willing to pay for mere time expenditure – and rightly so.

Paradoxically, this creates an opportunity: when output loses value through automation, the outcome takes center stage. The question of what communication truly achieves then becomes not just a methodological challenge, but an existential one for agencies that want to remain relevant in an increasingly digitalized market. Those who continue to primarily deliver beautiful presentations and eloquent reports without generating demonstrable impact will struggle – not due to any malice on the part of the market, but due to its rational economic logic.

The true promise of a professional communication service is not the well-designed output. It is the strategically relevant outcome – the change that takes place in the minds, behavior, and decisions of a defined target group. Everything else is, in the best sense, craftsmanship. Craftsmanship that makes the world a better place – but not necessarily richer.

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