My first memory of agency KPIs was as a newly promoted associate director called into my first management meeting and being quite shocked at the clinical decision making being made in terms of deciding to let people go. It was completely black and white decision making with no sentimentality brought into the conversation.
This brush with commercial decision making based on KPIs left a lasting impression and perhaps made me grow up professionally faster than anything else.
The latest rounds of research showing falling agency profitability (across not just PR but other disciplines) is more interesting than the usual studies I have seen. The key reason agencies are struggling to hit target profitability seems not to be because of rising office rent and rates or indeed depressed client spend, but because agency owners are struggling to keep the wage bill down.
One of the key reasons that wage bills look to be rising is down to agencies bringing in more varied skillsets into the wage bill. Heads of content, heads of production, heads of social media, SEO managers, digital operation managers, heads of planning and heads of paid search.
These are all job titles that you wouldn’t have seen at many ‘PR’ agencies over the last few years but owners feel they need access to these roles to satisfy client expectations of what a modern agency looks like.
The digital landscape requires PR agencies to have more strings to its bow than ever before. If not then you need to partner, lose revenue opportunity or risk losing clients to other agencies that have broader skillsets than your own. These new hires present significant challenges to most PR agency owners.
Knowing how to cost and bill for this new overhead isn’t always clear as these new roles don’t bill in the same way as traditional PR teams tend to. Also, many agencies are investing ahead of the income and perhaps more so than ever before in a desperation to appear relevant in a changing communications world. This is a dangerous game to play and creating the right balance is going to be more challenging than the usual income/staff ratio balancing act.
My prediction is that average agency profits will continue to fall over the next 12 months as agencies make mistakes in understanding how to resource and bill against these new revenue opportunities. Agencies will continue to consolidate to bring these skillsets under the one roof but also more importantly, with income that pays for it from day one.
Jim Hawker is co-founder of Threepipe.