U.S. PR agency profitability in 2016 continued to slip below the rates of the previous few years, according to a new Benchmarking survey conducted by PR consulting firm Gould+Partners, while Canadian firms hit a significantly higher rate on average.
Profitability for U.S. firms was 15.2 percent of net revenues last year, according to PR professionals responding to the annual survey.
A total of 101 agencies—based throughout the United States and Canada—reported the average profit of 15.2 percent last year—that’s compared to 15.3 percent in 2015, 16.2 percent in 2014, 15.8 percent in 2013, and 18.8 percent in 2012, said Rick Gould, managing partner of the New York City-based M&A and management consulting firm, which specializes in the communications and creative services sectors.
The Best Practices Benchmarking Survey is the only best practices benchmarking survey open to all PR firms.
According to the survey, firms with under $3 million in revenue netted 14.3 percent. Firms in excess of $3 million up to $10 million netted 14.6 percent, while firms in excess of $10 million up to $25 million netted 17.4 percent. Shops in excess of $25 million netted 18 percent.
“One of the most significant findings of the survey is that, among G+P ‘Model Firms’—the dozen agencies consistently meeting or exceeding the G+P model performance target criteria—continue to remain profitable during slow or recessionary periods,” said Gould.
“In 2016, 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,” Gould 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.”
Canadian firms were most profitable
The eight Canadian firms participating in the survey averaged an operating profit of 23.4 percent (Canadian firms have consistently exceeded 20 percent). None of the U.S. regions exceeded the 20-percent milestone.
“This is consistent with the results of the special study we did two years ago for the Canadian Council of PR Firms,” Gould said. “The Canadian firms are very well managed, with a sharp eye toward cost controls and profitability analysis.
Other noteworthy findings in the study include:
- Revenue per professional staff was $211,995, down from $212, 796 in 2015.
- Total overhead averaged 25.9 percent, in line with previous years, indicative of tighter managing of costs.
- Staff turnover for the year averaged 22.1 percent, 21.3 percent last year.
- Firms under $3 million in net revenues averaged 27.7 percent turnover, a major reason for slow growth and weak profitability.