Canada is celebrated for many things. Maple Syrup, Niagara Falls, and Wayne Gretzky quickly come to mind. Now you can add profitable PR agencies to the list, particularly when stacked up against their U.S counterparts.
Net revenue for Canadian-based firms grew a total of 21.8 percent in 2016, according to Gould+Partners 2017 PR Firm Net Revenue Growth Report. Including both Canadian firms and U.S. firms, total net revenue grew 4.8 percent, down from 6.6 percent in 2015.
Canadian PR firms also bested U.S. ones regarding profitability: Per Gould+Partners Annual Financial Benchmarking Report, operating profit for Canadian firms in 2016 rose to 23.4 percent, compared with 18.7 percent in 2015. Including both Canadian firms and U.S. firms, PR profitability was essentially flat in 2016 (15.2 percent), compared to 2015 (15.3 percent).
“From both a growth and profitability perspective, the Canadian firms showed laser tight management and focus on client profitability, controlling labor costs and minimizing overservicing, or scope creep,” says Rick Gould, CPA, J.D., managing partner of Gould+Partners.
To be sure, the Canadian PR market is much smaller in scale compared to the U.S. And the competition for budgets is a bit fiercer in the States.
Nevertheless, the fact that Canadian firms’ net revenues and earnings exceed those of U.S. firms got us wondering about what Canadian shops have been doing to generate such positive financial results—and what U.S. PR firm owners struggling with profitability might learn from them.
We reached out to Alison King, president of Toronto-based Media Profile, and Marie-Josée Gagnon, president of Montreal-based Casacom, to get a better sense of Canadian PR firms’ management approach and how they tackle the day-to-day operation.
- King says she doesn’t see significant differences in management style between Canadian PR firms and U.S. firms, but the centralization of corporate offices and PR firms throughout Canada has a major impact on how firms there operate. “Most agencies are based in Toronto and there are ten major cities that most PR firms target across the country,” she says. “This centralization means that agencies must cultivate broad expertise vs. sector specific capabilities.”
- She’s extremely leery about overservicing, which has been plaguing the business. “Overservicing impacts the culture of the agency, our ability to pay people fairly, and impacts how we invest in our firms for the future,” King says. “There have been times we have taken on those types of accounts, but they tend to be in the not-for-profit space or a one-off that is so intriguing we can’t turn it down.”
- King practices openness about the firm’s profitability. From the get-go she’s shared top-line financials, billable hours and their targets as well as specific policies regarding what is (and isn’t) fair game when it comes to client write-offs. “People work hard and no one wants to see their time written off an invoice because projects aren’t being run and staffed properly,” she says. “Being transparent about how overservicing impacts the bottom line has helped us change behavior at all levels.”
- Analyzing monthly financials ratios and reacting when results are not aligned with the firm’s overall financial objectives.
- Discipline the team to follow-up and stay on top of billable hours versus budgeted client hours.
- “Even if I have a strong CFO, I personally check on those things almost daily,” Gagnon says.
- She trains the firm’s senior team members about finance. “We are rigorous in our performance measurement,“ she says. “We watch closely our ratios (including percent of labor, real estate, IT costs and margins compared to the net revenue). Each week, we check our utilization rate as well as our WIP (work in progress) and our revenue forecast.”
- New business development needs to go well, the deliverables need to be excellent, as well as maintaining team spirit, Gagnon says. “We have a weekly meeting where we review our sales pipeline chart,” she adds. “We measure the average time it takes to develop new accounts. We have targets for revenue generated by new clients as well as current clients.”
- Being independent makes the firm more agile in managing the business efficiently.
What is your firm doing to mitigate overservicing and better manage profitability?
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