Benchmarking Study Supports Profitability Theory

By Rick Gould, CPA, J.D.

“Firms that implement changes based on current benchmarks ultimately realize increased profitability and success.”

The above statement has been our mantra since the last major PR economic downturn in the years following September 11, 2001. That recession, coupled with the Tech boom/implosion, inspired us to become scientific in an industry that is the furthest from an exact science.

The 2009 Best Practices Benchmarking Study, based on 2008 results, with 21 critical categories illustrates a glaring distinction between firms of all sizes, regions and specialties and what we call the “Model Firms.”

The study consists of four revenue categories, nine regions plus Canada and thirteen specialties. A total of 106 leading firms across 27 categories participated, a noteworthy sample.

A significant decrease in Operating Profit was consistent in all categories.

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So… are the days of 25-30% profitability over? Are the days of CEO’s and Executives earning substantial salaries and still having reserves to invest in quality staff, space and technology over?

We say the answer is “NO”.

In contrast, the twelve “Model Firms” firms that diligently manage by benchmarks averaged operating profit of 24.4%. Five of the firms generated operating profit in excess of 25%.

How do they do this, you ask?

They do it by averaging 49.3% in Total Labor Cost, Base Account Salaries of 37.5% and total Operating Expenses of 26.2%. Their Total Costs are 75.5% of Net Revenues.

We have followed these Model Firms for many years.

• They all monitor their stats monthly
• They carefully control their labor costs, keeping it under 50%
• They closely watch all components of operating expenses, totaling no more than 27%
• They create accountabilities and goals that tied to the benchmarks in our studies

Our Benchmark Report has been sent to all 106 firms that participated in the survey. It will be released to non-participating firms and the public July 1st. Feel free to e-mail if you would like us to send a copy directly to you at that time. [email protected]