PR agency profitability in North America spiked from a 2009 four-year low of 13.5% of revenues to an average of 18.6% in 2011 (see chart), according to the annual StevensGouldPincus Best Practices Benchmarking Survey results released in June 2012.
Averaged from a total of 105 PR agencies in the U.S. and Canada, the 18.6% number compares with 15.6% in 2010, 13.5% in 2009 and 15.6% in 2008. “In pre-recession 2007, revenues averaged 19.7%,” says Rick Gould, managing partner at StevensGouldPincus, a N.Y.-based merger and management firm specializing in the communications field.
Small Agencies Top 20% in Revenue |
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| Total Labor | Operating Expenses/ Overhead | Operating Profit | ||
| Size (by revenue) | # | |||
| <$3 Mill | 21 | 57.2% | 22.3% | 20.5% |
| >$3 Million to $10 Million | 56 | 56.5% | 26.1% | 17.4% |
| >$10 Million to $25 Million | 21 | 56.6% | 26.6% | 16.8% |
| >$25 Million | 7 | 53.4% | 27.4% | 19.2% |
| All | 105 | 55.9% | 25.5% | 18.6% |
| Regions | ||||
| 1. NY & NJ | 25 | 54.0% | 27.4% | 18.6% |
| 2. D.C. & Suburbs | 9 | 59.3% | 27.0% | 13.7% |
| 3. NE | 7 | 57.6% | 24.2% | 18.2% |
| 4. SE | 7 | 52.5% | 24.4% | 23.1% |
| 5. Midwest | 16 | 57.0% | 25.0% | 18.0% |
| 6. SW | 6 | 54.9% | 24.8% | 20.3% |
| 7. Southern CA | 5 | 55.1% | 33.5% | 11.4% |
| 8. Northern CA | 7 | 62.4% | 23.4% | 14.2% |
| 9. NW | 2 | 48.4% | 23.5% | 28.1% |
| 10. Canada | 21 | 54.7% | 23.9% | 21.4% |
| All | 105 | 55.9% | 25.5% | 18.6% |
BELT-TIGHTENING WORKS
With an improvement in average revenues of 5.1% since 2009, things are looking up in the agency world, with smaller agencies—less than $3 million in revenue—doing much better than in the past, says Gould. “These agencies got very nervous in the recession and started managing costs and expenses more tightly,” he says. “When worried, profitability tends to go up.” Other noteworthy findings of the study include:
• The average monthly minimum fee stipulated by agencies was $9,867; up from the $8,385 in 2010, reflecting a rebound from the past couple of years. This benchmark varied widely between sizes of firms. Firms between $10 and $25 million in revenues averaged $9,291, and firms in excess of $25 million averaged $15,340, a 20% increase from the previous year.
• Revenue per professional staff was up to $209,945 from $205,941 last year. Firms in excess of $10 million in net revenues averaged in excess of $238,000, consistent with 2010.
• Total overhead averaged 25.5% a drop of almost 3%, indicative of tighter managing of costs.
• Staff turnover for the year averaged 22.5%, slightly lower than in 2010.
There were other positive findings in the survey, says Gould. One is rent and utilities, which at 6.6% is down from 7.1% in 2010. “This is generally the largest overhead item for all agencies,” says Gould. In addition, operating profit stands at 18.6%, up from 15.6% in 2010 and 13.5% in 2009.
But there are warning signs from the study, says Gould. Agencies must work harder to get their labor percentage (56.0%) down. “Model firms keep it as low as 50%,” he says.
MORE THAN NUMBERS
Martin Waxman, senior counselor at Thornley Fallis Communications and chair of the 2012 PRSA Counselors Academy Conference, says these numbers are a good sign. “After the recession and the slow recovery, it’s encouraging for agency owners/managers to see numbers like these with profitability up, overhead down and staff turnover pretty steady,” he says. However, Waxman says that industry averages can only tell part of the story. “We’re in a relationship business and, while numbers are very important, they’re one part of the equation and shouldn’t be looked at in isolation,” he says.
Still agency owners should be heartened by the news. StevensGouldPincus will release its Billing & Utilization Report on June 25.
CONTACT:
Rick Gould, rgould@stevensgouldpincus.com; Martin Waxman, waxman@thornleyfallis.ca.
Follow Scott Van Camp: @svancamp01
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