PR firm managers always are looking to see how their costs stack up against the norm in the business. Data from a new poll by the Counselors Academy of the Public Relations Society of America sheds some light on these figures.
PR firms are spending nearly half of their net fee income on salaries, according to findings a just-released from a poll of firms.
The approximately 90 counselors responding to the poll said second to salary outlay, overhead and administrative costs accounted for about 20 percent of their expenses, with the remaining going to bonuses, profit sharing and health insurance (15 percent total), and office rent (7 percent).
The counselors who participated in the July/August 1996 issue of The Counselor's newsletter's fax-back poll represented small to medium-sized firms whose yearly fee revenues range from under $100,000 to over $3 million, for the most part.
Changes in the Industry
The four firms we spoke to about the poll said most of the data was on target with their own. Each explained its take on expenses, most of which go to salaries and overhead/administration (technology included).
Bruce Rubin, chairman of Rubin, Barney and Birger, a PR firm in Miami, says that both salaries and overhead are considerably higher for his firm than five years ago. Rubin says, "if you're over 40 in this business, then you can remember typewriters. Now we have to make a commitment to technology, which is a recurring cost." The firm grossed about $3 million last year and has 35 employees.
Rubin also noted the change in client-firm dynamic, with fewer clients with higher billings. Where firms used to have "lots and lots of clients with little retainers, this is a whole new, hard way, to do business now."
John DeFrancesco, of DeFrancesco/Goodfriend Public Relations in Chicago, says that the biggest change he's seen in the past three years has been the rapid growth rate of salaries. The firm's salary expenditures total about 72 percent of net income.
Cutting Expenses
Nat Read, who owns the PR firm Nat Read Communications in Pasadena, Calif., had six employees up until last year. He says that in order to make more of a profit, he needed to downsize, eliminating everyone but himself.
When he had six employees and a net revenue of about $500,000 a year, Read watched the budget very closely and didn't overextend himself financially. For instance, he didn't install the best of the best computers for each employee, didn't give them all Internet and other special program access, only had one printer, and didn't give performance-based bonuses. He took a fresh look at the entire expense sheet every six months, and cut unnecessary magazine subscriptions or organization memberships.
The office was in a nice location, but was by no means lavish. For others managing a firm of six to 10 people, Read says, be cautious about the lease you sign. He had, for example, planned for more growth than the firm experienced, and was left with an oversized office.
Salaries are a problem waiting to happen, Read says. With a long-term employee, he notes, "a salary can grow out of a realistic range very quickly."
A big problem for small, start-up companies is leaving room for unforeseen administrative expenses, says Andrew Lavin, owner of A. Lavin Communications, New York. About 30 percent of his net fee income goes towards salaries, for himself and another employee. Then comes overhead/administrative expenses and then rent.
When it coes to managing money, Lavin says he waits to buy supplies until it's absolutely necessary, takes advantage of phone discounts, and uses credit cards instead of checks (time-saver and less need for a bookkeeper.) The combination of billing all clients 30 days before their payments are due, and asking for a cash advance of $500-$1,000 "gives you better cash flow and shows how professionally the client is going to approach the relationship."
DeFrancesco/Goodfriend, an 11-year-old firm, employs eight people, and brings in about $700,000 a year. But it has never borrowed a dime, never leased a piece of equipment or furniture and operates purely on cash flow. This is how DeFrancesco explains its steady, growing success.
For this reason, the firm must work diligently to collect money owed to them and control its growth rate, which translates into: stay small, keep overhead low. There's no room in the budget for entertainment, such as luncheons, and any excess cash that's not given to partners or employees goes towards monthly investments that are distributed at the end of the year. Because in PR, like any business, every little bit helps. (PRSA, 212/995-2230; Rubin, Barney, 305/448-7450; DeFrancesco/Goodfriend, 312/644-4409; Read Communications, 818/578-0705; A. Lavin, 212/354-2266)