The average profitability of PR agencies in the U.S. was 16.3 percent of their net revenues in 2018, down from 18 percent a year prior, according to an annual survey conducted by PR merger and acquisition consultancy Gould+Partners.
Gould+Partners’ annual Benchmarking report, which analyzes the key factors affecting PR firm profitability, found that PR firms accounting for between $10 and $25 million in net revenues reported higher profitability than agencies of larger or smaller size, at 18.8 percent. This figure, however, still represents a 2.1 percent dip from the 20.9 percent profitability recorded last year for firms of this size.
By contrast, PR agencies in excess of $25 million in revenue netted 15.7 percent profitability (an increase from last year's 14.7 percent), while firms boasting between $3 million and $10 million netted 12.3 percent (down from last year's 17.3 percent). Firms with under $3 million in revenue netted the lowest average profitability, 14.9 percent, accounting for a four-percent decline from last year's 18.9 percent.
Overall, the 1.7 percent dip in average profitability among U.S. PR firms was still better than the 15.2 percent reported in 2016, but at 16.3 percent, remains below the 20 percent that Gould+Partners managing partner Rick Gould recommends as a minimum profitability goal.
“The 16.3 percent profitability, down from 18 percent a year ago, is a disappointing signal that PR firms are struggling in their goal of 20 percent operating profit,” Gould told O’Dwyer’s. “And the reason is in the labor cost, not in the overhead. Labor costs keep rising without a corresponding increase in retainers and billing rates. The result is the lower profitability.”
Total overhead in 2018 was about one percent higher than the year prior, 25.4 percent compared to 24.4 percent, according to the report.
The survey also discovered that revenue per professional staff member was $253,054 in 2018, up more than $13,000 from 2017’s $239,917. And agency staff turnover was also slightly lower last year, averaging 22.9 percent compared to 24.7 percent in 2017.
Gould+Partners’ 2019 Benchmarking survey was based on responses from 41 “prominent, best of class” North American PR agencies. The survey was conducted in April and May.