Benchmarking Report Shows Firm Profitability Declining 

We’ve just released our latest industry benchmarking study, and the overall results aren’t very pretty.

Most troubling: The industry’s overall profitability keeps falling, down to 15.3 percent in 2015, compared with 16.2 percent in 2014 and 15.8 percent in 2013. It was 18.8 percent in 2012. The results are based on 106 firms reporting their numbers.

It’s a testament to the bigger-is-better mantra now pervading the PR landscape: The larger PR firms, or those agencies with excess of $25 million in revenue, were the most profitable in 2015.

Measure for measure.
Measure for measure.

For such firms, for example, total labor costs were nearly 56 percent of overall costs; total overhead costs were nearly 25 percent and total profit was 19 percent—all percentages in keeping with industry benchmarks.

But the numbers were not as rosy for smaller PR firms.

For example, profitability was roughly 18 percent for firms with between $10 million and $25 million in revenue; 14 percent for firms with between $3 million and $10 million and 13 percent for firms with under $3 million in revenue.

At the lower end of the spectrum, how can you grow a PR firm, pay market salaries, upgrade your office and invest in new technology with just 13 percent profit?

Overall, labor costs continue to bog down the PR field.

Total labor cost of 58.5 percent of net revenues is too high for firms striving for 20 percent-plus profitability.

Let’s do some math: Total Operating expenses have consistently been around 26 percent.

So, if 26 percent is the benchmark to generate 20 percent-plus profit, that means labor costs must be no more than 54 percent of total costs.

You might even want to knock labor costs down even a few percentage points further, so you have more wiggle room to attain more profitability.

The benchmark for available client hours per PR account staff not involved with new business and/or management remains at 1700 hours.

How do your numbers stack up against our benchmarks? We’d love to hear from you.

The full report has been sent to all participating firms.