By Rick Gould
In the PR agency business, consider a recessionary period to be any point when your operating profit drops below 20% of the top of the line. It may sound harsh, but there is
absolutely no reason to generate operating profits under this margin.
Based on this, PR agency owners should commit to the practice of managing by benchmarking, a process researched and reported on in StevensGould Pincus' 2008 Best Practices
Benchmarking Survey. By knowing the key benchmarks of "Model Firms" and tracking your firm's monthly results against them, you will understand why your firm may not be performing
to its maximum capacity.
*First, define a "Model Firm": From a financial standpoint, a Model Firm is one that year after year generates operating profits of a minimum of 20% and often in excess of 30%.
Here are some best practices that define Model Firms, and that can be replicated to enhance your operating profits.
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Have a defined financial model and manage by the numbers.
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Define their financial goals and make decisions based on said goals.
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Regularly measure actual operational results with the best practices benchmarks of both peers and model firms.
*Model Firms' executives have one very common mind-set: They are passionate about what they do, and they understand that to provide their clients with extraordinary services,
they need to have a level of profitability in order to:
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Pay top salaries.
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Attract top talent with diversified backgrounds and expertise.
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Provide the most modern and sophisticated technological support.
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Retain expert consultants when needed.
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Provide office space conducive to maximizing potential creativity/strategic thinking.
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Attract clients that appreciate their efforts and will pay the right price.
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Motivate the executive team and the account staff to be productive within the client's budget.
To achieve these objectives, consider the following additional strategies:
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Retainers and the billing model must profitably compensate the agency for its efforts. Annual client budgets need to be broken down by month, anticipating peaks in
service required. Monthly P&L's for each client should be prepared and analyzed by management for the current month and year to date.
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If you note that the time required by qualified staff is over-budgeted, show the client; it is important to do so while the value of your counsel is known and appreciated.
Then show the time projected for each month to end of budget year. Ask the client to revisit the budget and compensate your firm for the excess time.
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Set billing rates based on labor cost of each staffer (salary, bonuses, taxes, benefits, etc.) and the expected billable hours (i.e., 1,700). Use a multiple of 3.5 times
that cost to determine billing rate.
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Your time management software should analyze by month and year to date the targeted billable hours by staff with actual input, accounting for vacations, holidays, seminars
and other time off. Measuring "utilization" is critical, and billable hours should be at least 90% for all account staff who don't have management, new business and administrative
responsibilities.
*The Endgame: The endgame for just about every firm owner is to monetize assets. Although price is not always the most motivating factor in selling one's firm, it is always
among the top three (in addition to culture fit and new challenges).
For an owner to maximize the value of a firm, he/she needs to show consistent operating profit margins and must exhibit a tightly managed a profitable agency.
By managing by the numbers through benchmarking and following the lead of the Model Firms, one is almost assured of achieving profitability.
Editor's Note: To learn more about managing by the numbers, see the full Benchmarking Report, as well as PR News' recent coverage, in "Charting the Industry: Economy Weak;
PR Agencies Not" (PRN 06-30-08). PRN
CONTACT:
Rick Gould is a managing partner at StevensGouldPincus. He can be reached at [email protected].