There are many benchmarks in the PR industry. One benchmark that is critical to the success of a PR firm, however, is Revenue Per Professional (RPP).
Right now, before you do anything else, take a minute and look at your RPP versus other PR firms in your fee range. RPP is the average income generated per professional; the people on your staff whose time you bill to clients and whom you depend on for the financial health of your firm. Generally, if your overhead and other costs are controlled, the higher income your firm generates per professional, the higher your operating profits.
Rick Gould wrote in the second edition of his book The Ultimate PR Agency Management Handbook, “One long-standing industry benchmark should be generating $165,000-$175,000 in fee billing each year, for each employee (note: all employees). This is an average figure that takes into account your agency’s billable as well as non-billable staff. Very profitable PR firms are often able to drive the average up to the $200,000 range. In reality, there is no reason not to shoot for a higher average, as the target provides both considerable motivation, and highly tangible markers of exactly how much revenue a healthy agency should enjoy.”
Rick goes on to say — and I agree — that an even more important benchmark is revenue per full time equivalent employee. This range could be between $185,000 and $235,000, depending on size, location and specialty of the agency.
So where are we today? According to Rick’s “PR Industry 2015 Best Practices Benchmarking Report" (based on 2014 results), Revenue Per Staff for 2014 was $182,206. This is revenue per total number of staff regardless of whether they are account or administrative. RPP was $214,111. Firms with net revenues in excess of $25 million averaged $213,801. Firms in D.C. averaged $246,390. In the Midwest, $248,875.
This benchmark is a key indicator of productivity for professional staff. If professional salaries and agency overhead are effectively managed, the resulting benchmark (professional salaries/revenue and overhead/revenue) should be an indicator of overall agency profitability.
If the RPP amount is high — in excess of $200,000 — but professional account salaries are also high — in excess of 44% —it is possible to have high revenue per professional with only moderate profitability.
So what does this all mean? Why is RPP so important? RPP asks two important questions: how productive/billable are/were your account staff? In other words, how efficiently were your professionals utilized? Are your billing rates as high as they should or could be? Do you even know how to properly determine your agency billing rates?
If your revenue last year was about $3.0 million, and you had 15 billable professionals (you should consider freelance as professionals for this purpose), your average RPP is $200,000. This is less than the industry average of approximately $208,000 for an agency this size. In effect, $120,000 of revenue was left on the table based on the Gould report RPP statistic. However, in my view, a good deal more was lost. According to Rick, the average billable hours for a staff person involved in client matters should be 1,700 hours, less for the key officers and professionals who pitch new work. On average I use 1,500 hours per professional to take the other factors into consideration. (1,500 hours assumes an 89% utilization rate, the average for the industry according to the Gould report). Therefore, the agency in my example generates 22,500 billable hours. If I divide this by the $3.0 million revenue generated, I arrive at an average billing rate of $133 per hour.
Take your profitability temperature
One of the first things I look at when I first meet an agency is their rate per hour. Going back to the previous example, assume the agency above generates 23,150 hours (14 professional employees working approximately 1,600 hours and the CEO/COO working 750 hours on client matters). Dividing this by the revenue of $3.0 million, the average billing rate per hour is $130, not great by any standard. Something here just does not make sense! This is even more critical when I am told the agency has an average billing rate per hour of $185. Believe me I have seen this to be $75 for many agencies.
Some management considerations from the past
It is critical that your professional staff understands the meaning of account management. Account management is bringing the firm’s management, professional and creative services to bear against a client’s problems and opportunities so that you serve the client with maximum effectiveness, while also generating income and profits.
Your staff needs to understand that managing these dual responsibilities will not only lead to professional success but can be personally gratifying as well.
Management sometimes complain that frequently account professionals seem to forget who they are working for. They do a great job of serving the client but neglect the agency’s need to make a profit. Your younger employees, and yes, even your veterans, need to recognize early on that they cannot invest more hours on behalf of a client than the client is willing to pay for. Most want to do the best job for their client, and that often creates a tendency to over service that often leads to over-budget or write-off situations. A lesson in account management can go a long way to increase RPP!
Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.