Who says PR agencies are feeling the heat of the current economic downturn? No one from StevensGouldPincus at least, judging from the consultancy's recently released Best
Practices Benchmarking Survey.
The survey, which polled more than 100 firms based on their 2007 metrics, paints a positive picture of the PR profession, revealing strong numbers pertaining to revenue-per-
professionals, fee minimums and billable account hours.
"I believe we are in a recession, but the PR industry has done terrifically against [other industries]," says Rick Gould, managing partner of StevensGouldPincus. "I attribute its
ability to hold the line to the fact that CEOs have gotten so much smarter about making their firms more recession-proof. They've learned how to more tightly manage."
Watching The Clock
The numbers themselves tell this story. For starters, billability--or, as the report calls it, "utilization"--skyrocketed from 84% in 2006 to 90% in 2007. This represents what
percentage of an agency's time is billable to clients.
"These results point to the management of account teams," Gould says. "It's a great accomplishment, and it's from tighter management and budgeting time."
Stronger, more streamlined management was a theme throughout the study's findings, and Gould suggests that it has contributed to a number of the areas that experienced
growth.
"The other thing management is now focusing on is the benchmark of revenue per professional," he says. "The goal should be $200,000 per professional for firms under $10 million
[in overall revenue]. For firms over $10 million, it should be $250,000."
While Gould does acknowledge that the former benchmark can be difficult to meet consistently, overall revenue per professional is a key indicator of the productivity of
professional staff. And, as for billable hours themselves, the benchmark survey reports that 1,700 hours annually should be the goal for each account executive not involved with new
business pitching.
However, this number is significantly reduced as you work your way up the ladder; the report recommends setting realistic expectations for each level of staff, as a CEO's
baseline might be 500 hours (given that CEOs spend more time on strategic oversight, new business development and relationship building), and that of a VP could be 1,000 (execs at
the VP level are often focused on new business pitching and proposal-writing).
(For more insight into billing rates and billable-hour breakdowns, see PRN 08-13-07, "Commoditization of PR: Redefining the Standard Agency Billing Rates.")
Worth Their Weight In Fees
A boost in billing rates also suggests that the industry--and the management within it--is going strong.
"Firms are finally charging what they are worth," Gould says. "They're positioning themselves differently, not as publicists but as strategic counselors."
Other evidence of this: As fees increase, the number of clients each firm retains drops--a good sign, according to Gould.
"CEOs [of PR agencies] are smarter and more aggressive about how they charge, and they're turning down clients, which is great," he says. "You make money by being selective with
who your clients are."
However, with all the talk of billable hours and rising fees, Gould does point out that the management of cash flow has been--and needs to continue to be--a higher priority.
"You can have great billing [fees], but if you don't collect them, you're not going to stay in business," he says. "There is a difference between billable hours and money in the
bank."
Best Practices
Based on the benchmark report's findings, the following are additional best practices to help your agency endure the economic downturn:
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Retain fewer clients, and charge the ones you have more money.
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Be selective about the clients you take on; if they don't match your model, refer them to another firm.
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Remember that after salaries, rent is your highest overhead cost; however, it should never cost more than 7% of annual revenue.
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Set benchmarks for annual billable account hours based on the level of the staff, with account executives being required to rack up the most.
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Keep write-downs to a minimum. Maintain a monthly retainer, but establish in the initial contract that you can charge for additional hours worked.
According to Gould, "The firms that do these things and really manage by benchmarking can still reach 30% [profit], even in a recession." PRN
CONTACT:
Rick Gould, [email protected]