Many PR agencies reach out to PR advisors to learn what is necessary to reach the next level in PR. In my view, preparing and implementing a strategic business plan is the key to reaching the next level. While elements of the plan may differ by agency, I believe there are certain areas that must be considered in order to be successful. What is the next level? For some it is reaching the $1.0 million revenue mark, for others it is $2.0 million or even over $5.0 million.

The Million Dollar Milestone

According to Rick Gould of StevensGouldPincus, reaching $1.0 million in net revenues is a major milestone in the growth and profitability of a PR firm. According to Gould, when a PR firm owner surpasses $1.0 million in net revenues their attitude changes. Their confidence builds. It puts them in a different class, a different grouping: The Million Dollar Milestone.

The $2.0 Million Dollar Mark

Getting to $2.0 million is a challenge. According to Gould, when you decide to move from $1.0 million to $2.0 million you are building an infrastructure and brand. Building an effective staff at different levels create a real pyramid that is powerful and attractive, which boosts the ultimate power of your firm. A one person shop with some account executives and no number two person as an example, will limit the value of your firm. You also need to consider putting in place more focused management and administration. Rather than moving in this direction, you do it yourself - mistake! Wearing every hat there is to wear will only bog you and the firm down.

So You Hit the $2.0 Million Mark

Here we go again. If you lack well thought out plans, the strategic plan I mentioned, you will most probably get stuck. If you have not figured it out, the higher you go the more infrastructure you need. Additionally, you will need to bench mark your competition at each level to understand what the best practices are at each level. If you are not willing to do this, it is best to consider a merger. I myself made a decision to merge for two reasons. (By the way, money was not the driver!) I was looking for “in place” infrastructure “ that I did not have to build and pay for; and, opportunities for my best employees to grow and prosper. If your firm is “stuck,” believe me you will lose your best talent to larger and more structured firms.

Here We Go

I found a column in the December 2012 issue of The CPA Journal written by Greg Crabtree, a management consultant. I also wrote a client newsletter on this subject. Here are some ideas from both.

1. Drive to 15% pretax profit by the time the business reaches $1 million in revenue. Caution: growing fast and unprofitable is a sure bet to bankruptcy or in the hands of a buyer who will pick up your broken pieces for a song.

2. In calculating the 15% profit, the owner needs to take a “market based wage.”

3. Strive to build the cash balance to two months profit without drawing on a line of credit (that is if you can get one).

4. Once you reach the 15% mark, the owner can make the next key hire and allow the profit to drop to no less than 10%. Hold salaries constant until the firm again reaches the 15% mark. Hire one or two key hires and repeat the process. You may not be able to fund the business growth completely from existing cash, so consider a line of credit not to exceed 50% of accounts receivable.

5. Once a 15% profitability is reached and maintained for three to six months, the owner may not need to reinvest profits and may decide to go on a “spending spree.” Be careful! Do not let poor judgment put you behind the “eight ball.”

Some Nuggets From Me

1. Write a mission statement and really believe it. Live it, not just frame it! Do not know how to do this? Gong on the websites of some of your competition and read their mission statement.

2. Understand the difference between “selling and “marketing.” Marketing gets you in the door, but selling closes the door. Know how to sell!! Teach your staff how to sell “professional services.” It is not the same as selling a car.

3. Get an initial financial check up to establish a benchmark for you firm. Follow this up quarterly.

4. Make sure your employee benefits package and incentive compensation program is competitive with your competition.

5. Make sure your accounting and time keeping system is solid and provides you the information you need to run your firm.

6. Institute a continuous improvement management philosophy. (More on this in a future column.)

Pay Attention to Basics

So you have grown your agency from a small “mom and pop” operation to a $2.0 million revenue firm, but your profits are dismal. According to Al Croft, publisher of Management Strategies for Public Relations Firms, dismal profits are usually caused by agency principals not paying attention to one or more or all of some basic economic factors:

1. Hourly rates are too low;

2. Staff utilization rates that are below industry standards;

3. Inaccurate or no time keeping;

4. No tracking individual client profitability, or

5. Over-servicing clients, which can usually be pinned on either improper budgeting or good intentions leading to more time invested in the client’s behalf than he or she is paying for. This, in turn, leads to one or more of the most profit-pruning actions of all - write-offs!

If you ignore or mishandle just one of these factors, it will show up in an unhealthy way on your bottom line.