NEW YORK—US PR agency profitability in 2013 decreased to 15.8 percent of net revenues from 18.8 percent last year, according to those responding to the annual benchmarking survey from management consulting firm SGP Worldwide.
A total of 115 agencies based coast to coast and in Canada reported an average of 15.8 percent profit, which compares with 18.6 percent in 2011, 15.6 percent in 2010, 13.5 percent in 2009, 15.6 percent in 2008 and a 19.7 percent margin in pre-recession 2007, according to Rick Gould, managing partner of the New York-based firm.
Firms under $3 million were at 15.3 percent (down from 18.7 percent). The firms in excess of $3 million up to $10 million netted 14.8 percent (down from 18.2 percent), those in excess of $10 million up to $25 million netted 18.6 percent (down from 19.2 percent) and those in excess of $25 million netted 17.9 percent (down from 21.4 percent). So all categories decreased their bottom line.
“One of the most significant findings of the survey,” says Gould, is that the SGP “model firms”—the dozen agencies consistently meeting or exceeding the SGP model performance target criteria—“continue to remain far above average during slow or recessionary times.” In 2013, as in previous years, they 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 goals for all firms. The decrease in operating profit was totally attributable to an increase in labor cost without a corresponding increase in fees.”
The 11 Canadian firms participating averaged an operating profit of 20.0 percent. None of the US regions topped the 20 percent mark.
Other noteworthy findings:
• Revenue per professional staff was down to $200,710 from $210,539 last year.
• Total overhead averaged 26.0 percent, consistent with 25.9 percent last year and indicative of tighter managing of costs.
• Staff turnover for the year averaged 21.8 percent, 20.6 percent last year.