Why is it that owners of independent PR agencies take more satisfaction in generating great ideas for clients than in making more money for themselves? Where is it written in the PR scriptures that making money is gauche? That you’re more obligated to your clients and employees than to yourself?
Let me shatter a prevailing myth among PR agency owners: It is perfectly permissible to satisfy your clients and make money at the same time. How? By learning how to be a better business person.
As PR professionals, we’ve been trained to do the work—for our clients or for our organizations. We routinely immerse ourselves in providing services and our talents to clients. What gets lost in the shuffle is the management of a business. The shift from being a PR pro to running a business can be difficult. Many who have started agencies have done so to practice their particular brand of PR. They haven’t initially thought of themselves as business owners, entrepreneurs and capitalists. And truth be told, many of them don’t want to be any of those things.
StevensGouldPincus wanted to find out the attitudes of owners of PR agencies toward running their own businesses. So we sent a survey to 50 agency owners. The agencies ranged in size from $300,000 to $10 million—all independents. Here’s some of what we found:
• Seventy-five percent of the responders do not consider themselves rich;
• About 60% say that getting rich is important to them;
• Approximately 90% would start and run a PR firm again if they had it to do over;
• And 75% of the responders accumulated whatever wealth they have from compensation and profits from their PR businesses—25% from their investments.
This suggests to me that greater wealth can be generated from what you do with the profits you take out of your businesses. But first, you must learn how to run your business profitably so you can earn more money than you ever dreamed—and satisfy clients and employees in the process. Here are some basic rules you must learn to run your business like a business:
1. Don’t allow your total payroll to exceed 50% of your revenues. If your agency has net fee income of $500,000, your payroll shouldn’t exceed $250,000. If it’s at $350,000, then that extra $100,000 comes right out of your pocket.
2. Don’t over-service your clients. Using the previous example, if you allow your agency an additional $100,000 of payroll, then you’re indeed over-servicing your clients. All clients are happy to allow you to do more for them than they’re paying for. They’re no dummies. On the other hand, I’ve met few clients who didn’t feel that their PR agencies were entitled to make a fair profit.
3. Do not automatically hire new employees when you generate more business. This is one of the major mistakes PR agency owners make.
4. Focus all your efforts on making a pre-tax profit of 25%—regardless of the size of your agency. Your benchmarking parameters must be as follows: 50% of your gross net fee income in payroll, 25% in overhead and 25% in profits. If you hold to these benchmarking parameters, you will provide the appropriate level of service to your clients, hold your payroll to the correct proportion—and take home considerably more money.
5. Begin to think about increasing that 25% pre-tax profit to 30%. Heresy, you say? Can’t be done? Sacrificing client service? Absolutely not. What this means is that you will place greater value on the services you provide. You will sacrifice less meaningful services to your client and emphasize the most meaningful ones. Remember, PR agencies aren’t assembly lines. We must learn to get paid for value added, not for how many news releases we can crank out.
6. Raise your hourly rates. Go ahead. Take a deep breath and do it going forward. I can assure you that if your clients are thrilled with your work, they will not balk.
These six suggestions are a beginning. They will allow you to rethink your role as an agency owner, to reengineer your business and to help put you on the road to generating greater profits. If you’re frustrated that you have nothing to show financially for your hard work and dedication to clients and employees, take heart.
By changing your mind-set from that of a PR professional to that of a business person, you can allow yourself to have the best of all worlds. PRN
CONTACT:
Art Stevens is managing partner of StevensGouldPincus, merger and management consultants to the commu-nications industry, and past president of PRSA-NY. He can be reached at [email protected].
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