U.S. PR agency profitability numbers reveal a steady rebound from last year’s rate, signifying an upturn in industry growth after a few years of diminished results. Participating firms reported an average of 18 percent of net revenues in 2017, according to the latest Benchmarking survey from PR-focused M&A and management consulting firm Gould+Partners.
According to the survey, firms with under $3 million in revenue netted 18.9 percent. Firms in excess of $3 million up to $10 million netted 17.3 percent, while firms in excess of $10 million up to $25 million netted 20.9 percent, said Rick Gould, CPA, J.D., managing partner of the New York City-based org specializing in the communications and creative services sectors. Meanwhile, shops in excess of $25 million netted 14.7 percent, indicative of flat organic growth of the larger firms.
“One of the most significant findings of the survey is that, among G+P ‘invited firms,’ the agencies consistently meeting or exceeding the G+P model performance target criteria continue to remain profitable during slow or recessionary periods,” Gould said, in a news release.
“In 2017, as in previous years, these firms 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,” he added. “This should be the goal for all firms. Any decrease in operating profit was totally attributable to an increase in labor cost without a corresponding increase in fees.”
Other noteworthy findings in the study include:
- Revenue per professional staff was $239,917, up from $211,995 in 2016.
- Total overhead averaged 24.4 percent, 1.5 percent lower than the previous year (25.9 percent)
- Staff turnover for the year averaged 24.7 percent versus 22.1 percent last year.
- Firms under $3 million in net revenues averaged 29.7, an increase in staff turnover over last year (27.7 percent).
“The key to 20-percent operating profit is tightly managing labor costs—account salaries, bonuses, freelance costs and benefits,” said Gould. “Operating expenses/overhead is consistently around 25 percent. So to attain 20 percent profitability, total labor cost needs to be no more than 55 percent. The only group hitting the mark was the over $10 Million to $25 million in net revenue (54.6 percent)”
A total of 37 prominent best of class, quality firms were invited to participate this year, and 35 firms participated.