U.S. PR agencies grew by an average of just 4.8 percent in 2016 — or about $33.7 million — which is down about 1.8 percent from its average growth of 6.6 percent in 2015 and accounts for a 3 percent decline from its 7.8 percent average growth in 2015, according to an annual survey released by PR merger and acquisition consultancy Gould+Partners.
The findings were consistent with two recent reports issued by the merger and management consulting firm: Gould+Partners’ Best Practices Benchmarking Report, released in June, showed that average PR agency operating profit has slipped consistently in recent years to account for a smaller percentage of firms' net revenues, at 15.2 percent in 2016, compared to 15.3 percent in 2015 and 16.2 percent in 2014.
Likewise, Gould+Partners’ Billing Rates & Utilization report, issued in July, showed that average billing rates last year were flat at PR agencies across various agency staff positions.
Net Revenue Growth &
Firms with annual net revenues below $3 million averaged $1.51 million in net revenue growth (or about 7.3 percent) in 2016, according to Gould+Partners’ new survey. Firms with between $3 million and $10 million in annual net revenues fared the worst, dipping about 1.4 percent to an average of $6.02 million in net revenue growth. Firms with between $10 million and $25 million averaged about $14.97 million in revenue growth (or 8.1 percent), and firms boasting more than $25 million in annual net revenues averaged about $162 million in growth (or 4.8 percent).
Industry growth appeared to be strongest in Canada, which boasted average net revenue gains of 21.8 percent, or $15.2 million, in 2016. These findings were also consistent with the June Best Practices Benchmarking Report, which found that, for the fourth year in a row, our northern neighbor firms have been more profitable than their U.S. counterparts, with Canadian agencies participating in that survey averaging an operating profit of 23.4 percent, compared to an average PR agency operating profit of 15.2 in the United States.
Growth was also strong in Northern California (14.7 percent), the U.S. Southeast (6.9 percent) and Washington D.C and its suburbs (5.4 percent). Growth gauged lowest in Southern CA, where average annual net revenues were only .1 percent, or about $8 million.
“PR firm owners need to be more aggressive in running their firms as if they are ready to sell. They will then be much more focused on the top line growth and bottom line profitability,” Gould+Partners managing partner Rick Gould told O’Dwyer’s “The reason that the Canadian firms are averaging both top and bottom line growth is because they are much more focused on tight management, controlling over servicing and managing their labor and rent costs.”
Gould+Partners’ fifth annual Net Revenue Growth Report polled 226 North American PR agencies.