PR Agencies Profitability Flat in 2012

By Rick Gould, CPA, JD

U.S. PR agency profitability increased to 18.8 percent of Net Revenues from 18.6 percent last year.   

A total of 111 prominent agencies based coast to coast and Canada, participating in our annual survey reported that average percent which compares with a 15.6 percent in 2010, 13.5 percent in 2009, 15.6 percent in 2008 and a 19.7 percent margin in pre-recession 2007.

Firms under $3 Million were at 18.7 percent (down from 20.5%). The firms in excess of $3 Million up to $10 Million netted 18.2 percent (up from 17.4%), those in excess of $10 Million up to $25 Million netted 19.2 percent (up from 16.8%) and   those in excess of $25 Million netted 21.4 percent (up from 18.6%), very respectable in challenging economic times. So all categories but the less than $3 Mill improved their bottom line.  There were other indicators as well that “size” matters.

One of the most significant findings of the survey is that what I call the “Model Firms”, the dozen agencies consistently meeting or exceeding the SGP model performance target criteria, continue to remain far above average during these recessionary times. In 2012, as in previous years, they averaged an operating profit margin well in excess of 20 percent, partly due to their ability to hold professional staff salaries to under 40 percent of net revenues, total labor cost at 50 percent and operating expenses at around 25 percent. This should be the goals for all firms.

Revenue per professional staff was up to $210,539 from $209, 945 last year. Firms in excess of $10 million in net revenues averaged in excess of $230,000, consistent with last year. This benchmark is the most significant indicator of profitability. In addition the nation’s PR agency field did not increase their hourly rates in 2012. I believe this uniform minor decrease in billing rates is indicative of a fairly flat economy and is consistent with little growth of the industry in both net revenues and operating profit.

Productivity, measured by billable time utilization, has been far below optimal levels. “The goal for account executives should be at least 90%, a goal reached by almost all firms achieving 20% profitability.”