U.S. public relations agency profitability dropped to a four-year low of 13.5 percent of revenues, according to firms responding to the annual benchmarking survey conducted by consulting firm StevensGouldPincus.
A record total of 111 agencies reported declining average profit margins, which compare with a 15.6 percent margin in 2008 and a 19.7 percent margin in 2007, according to Rick Gould, a managing partner of the New York- based merger and management consulting firm, which specializes in the communications field.
Although the overall average profitability was 13.5 percent the average was brought down by the firms with net revenues under $3 million. The operating profit net for this category was 10.4 percent. The firms in excess of $3 million up to $10 million netted 14.8 percent; those in excess of $10 million up to $25 million netted a very respectable 17.0 percent; and those in excess of $25 million netted 15.0 percent.
“One of the most significant findings of the survey,” says Gould, “is that the SGP ‘Model Firms,’ the 15 agencies consistently meeting or exceeding the SGP model performance target criteria, continue to remain far above average during these recessionary times. In 2009, they averaged an operating profit margin of 25.3 percent, partly due to their ability to hold professional staff salaries to 37.4 percent of revenues, total labor cost at 49.6 percent and operating expenses at 25.1 percent. This should be the goals for all firms.”
Other noteworthy findings include:
- The average monthly minimum fee stipulated by agencies was $9,808, down from the $10,332 reported a year ago, and reflecting further economic pressures of the times including client losses and budget cuts. This benchmark varied widely between Washington D.C., agencies at $12,500 and Southwest at $5,955.
- Revenue per professional staff remained fairly constant at $197,714, down from $210,746 last year. The range was a high of $223,206 in Washington D.C., and $170,306 in the Southwest.
- Total overhead averaged 29.1 percent but ranged widely from 37.3 percent in Southern California to a lean 22.7 percent in the Northwest.
- Staff turnover for the year averaged 23.3 percent and ranged from 32.1 percent in Canada to 27.3 percent in the Northwest to a low of 16.4 percent in the Midwest region.
According to Gould: “i am convinced after over 20 years of tracking benchmarks in the PR industry that the key to profitability is revenue per professional. Of the 15 firms we have tracked as ‘Model Firms,’ only two have averaged under $200,000 per professional staff. This is the key to maximize profitability and it is simple to moniter. Other benchmarks are important but the key is this very valid and proven direct labor ratio.”