Manage by the Numbers, Not Your Gut

numbers1Is your PR agency a business or more of a lifestyle? Be honest.

Unfortunately, too many PR agency owners and managers would answer that it’s the latter (particularly if you’re overly generous with paying for personal perks out of the company till). And that can be extremely detrimental to the bottom line, not to mention an exit plan and the value of your firm.

“If you’re running your agency like a ‘lifestyle’ business, when it’s time to sell your profitability is going to be lower and your valuation will be lower,” said Rick Gould, managing partner of Gould+Partners. “When agency owners have a lifestyle firm it inevitably backfires when they go to sell, not to mention the negative perception it sends to a prospective buyer.”

PR and ad agency owners must manage by the numbers, manage for growth and manage for profitability. The lifestyle form of management is 180 degrees opposite those goals.

Here are three effective ways to do so, using benchmarks as the rubric:

> Main benchmarks. Use published industry reports to compare your own financials with those in the industry and see how they link (or not) to your agency’s financial practices.

> Labor benchmarks. “Most firms spend too much on labor, and don’t align labor costs with [industry] best practices,” Gould said. “Base labor costs shouldn’t be more than 50 percent of net revenue.”

> Overhead/operational expenses. Total operating expenses—everything excluding labor—shouldn’t be more than 25 percent of net revenue. “If you go with the 50/25 rule for labor and overhead you will be achieving a 25 percent operating profit, which will greatly maximize the value of your firm,” Gould said.

What’s your take on how to best manage PR and ad agencies by the numbers?