U.S. PR agency profitability was 16.3 percent of net revenues—a sizeable drop from a year ago when agencies reported a percentage of 18.0, according to PR professionals responding to the annual Benchmarking survey conducted by Gould+Partners.
A total of 43 prominent best-of-class, quality firms were invited for the research, and 41 firms participated, according to Rick Gould, CPA, J.D., managing partner of the PR-focused M&A advisory firm that specializes in the communications and creative services sectors.
According to the survey, firms with under $3 million in revenue netted 14.9 percent. Firms in excess of $3 million up to $10 million netted 12.3 percent, while firms in excess of $10 million up to $25 million netted 18.8 percent. Shops in excess of $25 million netted 15.7 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.
He adds, “In 2018, 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. 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.”
“The low profitability of 16.3 percent is far below the optimum profitability goal of at least 20 percent, to enable the firms to invest in quality staff and digital needs, healthcare benefits, as well as a Best Place to Work office environment,” Gould told Bulldog Reporter. “Firms need to carefully manage their labor cost—58.4 percent is too high an average percent. Overhead/operating costs are controllable. Firms are constantly struggling with paying competitive salaries and being able to bill rates high enough to justify those salaries.”
Other noteworthy findings in the study include:
- Revenue per professional staff was $253,054, up from $239, 917 in 2017.
- Total overhead averaged 25.4 percent, 1percenthigher than the previous year (24.4%)
- Staff turnover for the year averaged 22.9 percent versus 24.7 percent last year.
- Firms under $3 million in net revenues averaged 28.7 in turnover, consistent with the past two years.