Richard GoldsteinRichard Goldstein

In January I discussed the practice of managing for prosperity, in a column that discussed some of the lessons taught to me by Al Croft. 

By way of review, some of the fundamental factors that you need to consider to be successful in managing a PR firm is as follows:

• Write a business plan if you don’t already have one. If you need help with this, let me know.

• Develop a short and long-term budget. I can assist you with this as well.

• Properly plan for staff needs.

• Develop a marketing plan. If one is in place, have you implemented the plan and is it working?

• Develop and promote a unique strategic position.

• Aim for 80 percent to 85 percent staff utilization.

• Monitor write-offs. Do not carry work-in-process if it can’t be billed. You’re just fooling yourself.

• Track client profitability. What good is a “marquee” client if you lose money every hour you work on a project?  This is not to say that having the marquee client even at a loss is not worth it. My point is you need to evaluate the relationship and decide if it is worth keeping the client.

• Monitor individual staff productivity.

• Monitor overall agency profitability. You should do this each month. If you are not satisfied with your overall profitability take out the shovel!

• Determine your billing rates based on your agency labor, overhead and desired profitability goals. I will write further on this in the next few months.

• Make sure your rates are competitive. Never give a fee estimate until you fully understand the value your agency brings to the client!

A few keys to profitability

Assuming you have or will develop a business plan, consider developing a marketing niche or strategic position. An example of this may be digital services. Describe what your firm is, what you want and the markets you currently serve and those that offer opportunities.

Analyze current capabilities and those you will need to move into new markets. By the way, you may decide that in order to be successful, you will need to acquire new talent by acquiring another agency. I have written in the past about the concept of a “Bolt-on acquisition.”  Delineate strengths and corporate culture, the things that make your firm unique and memorable! Ask yourself, would I hire me?

Productivity

A problem often experienced by small and medium-sized agencies is low productivity: billing less than 85 percent of available time to clients. High productivity (not over servicing) depends on attracting and maintaining excellent staff that have high values and morals, and an environment that motivates staff by building intellectual capital. OK, is this your agency?

I have to tell you, money alone will not do it. Cash is the goal at the end of the day. However, you cannot get it without great staff. Staff is one of the most important — if not the most important — asset you have. If your agency can’t build staff intellectual capital, they will leave regardless of what money you offer them. Employees need to understand, be recognized for and be proud of their contribution to your firm’s success. They need to develop a strong sense of their own self-worth.

It’s your responsibility as management to educate staff about the agency workload and to train them to balance (manage) their own productivity by getting help in handling peak loads or asking for additional work when their own load is about to drop off. They can’t be afraid to say “I’m light on work.” A high level of staff interdependence is essential to overall high productivity. Allow staff that is not busy to work on other projects. Don’t worry about the hours or realization. Remember you’re building staff intellectual capital!

Setting billing rates

Your agency needs a system for measuring profitability and productivity. Many smaller agencies come up with numerous reasons why they don’t need a time and billing system. In my view, a time and billing system is a cost accounting tool. It helps you measure both individual profitability and client profitability. It is not necessarily a billing tool.

Unless your client has agreed to pay you by the hour, your client could care less about whether you have a time and billing system. The recording of time should not be the basis for billing a client unless that is the agreement. You need to know if you made or lost money on a client and why.

There’s a school of thought out there that advocates that there’s no need to keep track of time at all! Those that advocate this approach say manage by the income statement. If your margins are where you want them to be, this is all that counts! This is true. However, my answer to those that advocate eliminating the time and billing is you lose the ability to understand how you arrived at the margin!

According to Rick Gould, it’s important to be flexible in tailoring your fees to the client and the assignment, whether it is crisis management, product launch, ongoing brand awareness or something else. The basic goal is to provide your clients with services and, in return, to bill and collect for these services. To do this, there are a variety of both time-honored and innovative mechanisms and a great many issues to consider. I’ll discuss this in greater detail next month.

According to Gould, billing rates are now averaging $480 per hour for CEOs of agencies with a $25 million or more in net revenues, with rates somewhat higher in the Washington D.C. area. The rate for smaller agencies is $317 per hour.  Agency VPs average $270 per hour. It’s important to establish billing rates for all your staff!

According to the 2015 billing rate survey conducted by Gould — I’ll let you know the 2016 results as soon as they are available — firms are increasing rates. According to Gould, this is due in his opinion, to an improved economy and is consistent with growth of the PR industry in both net revenues and operating profit.

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Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.