PR Agencies Continue Downward Trend In Profitability

2013 was a disappointing year for PR agency profitability. Looking at the last several years of the GouldPartners annual Best Practices Benchmarking Survey/Report, Operating Profit was as follows:

• 19.7% in 2007 (Pre- recession) 
• 15.6% in 2008
• 13.5% in 2009
•  15.6% in 2010
• 18.6% in 2011
• 18.8% in 2012
• 15.8% in 2013

In 2013

• Firms under $3 Mill at 15.3%, down from 18.7% 
•  Firms $3 Mill to $10 Mill netted at 14.8%, down from 18.2% 
•  Firms in excess of $10 Mill up to $25 Mill netted at 18.6%, down from 19.2% 
•  Firms in excess of $25 Mill netted at 17.9%, down from 21.4%

One of the most promising findings of the survey is that what I label as “Model Firms”, the dozen agencies consistently meeting or exceeding the model performance criteria, continue to remain far above average performance.

These firms averaged an operating profit in excess of 20%, due to the their ability to hold professional staff salaries to under 40% of net revenues., total labor costs at 50% & operating expenses at no more than 25%.

Other factors 

• Revenue per professional staff was at $200,710, down from $210, 539 last year.
•  Firms in excess of $10 Mill in net revenues averaged $221,000. 
• For the second year in a row the PR agency field did not increase their hourly rates in 2012. 
• Productivity, measured by percent of available client hours to total available hours (consistently around 1,700) has been consistently below 90%, a goal reached by almost every firm achieving 20%+ profitability.

The bottom line

Labor costs increased, billing rates were flat and increased costs were not passed on to clients. The 3% drop in profitability is all in the labor cost.