By Rick Gould, CPA, JD
Reaching one million dollars in net revenues is a major milestone in the growth and profitability of a PR firm. What happens, in my observation, is that when a PR firm owner surpasses one million in net revenues their attitude changes. Their confidence builds. Their value builds. It puts them in a different class, a different grouping: The Million Dollar Milestone. But two million is even better, although both milestones come with very similar perceptions and challenges.
What I observed in the past five months at the four conferences I have been a speaker at (Counselors Academy in New Orleans, PR Boutiques International in NYC, Canadian Council of PR Firms in Toronto and, most recently, Worldcom Group in Vancouver) is that the majority of the member firms in these groups are under two million in net revenues. Opportunity exists for these firms to get to two million and beyond.
Getting to two million is a major challenge, though. When a firm is less than one million it typically includes an owner and 4-5 account executives. The owner could be earning good money – as high as 40% – but the “value” of the firm is low because the firm is missing key value-building elements. When you are ready to sell your firm, any buyer will want you to have a #2, a Senior V.P., that can bring in business and manage staff. You will need a second in command to realize increased value. You need a #2 that is highly incentivized, possibly even with actual stock or phantom stock, or with whatever it takes to keep the #2 around for the term of your earn-out/buyout after a sale.
When you make a commitment to grow from one million to the two million dollar revenue milestone you are really building an infrastructure and a brand. Building effective staff at different levels- account coordinators to account execs, to account supervisors, account managers, to VP‘s- create a real pyramid that is powerful and attractive. It creates the foundation for growth and profitability, which boosts the ultimate value of your firm.
Another obstacle to reaching revenue milestones is growth gridlock. You can’t seem to grow beyond where you are. More focused management and administration is likely needed but you probably don’t want to spend the dollars for a top administrator or V.P. or part-time CFO. So you attempt to do it yourself. As a result, your marketing efforts decline, your new business pipeline erodes and your business stagnates. Stuck at the Million Dollar Milestone. And it may stay there for years, which may not be a level that can weather changing market conditions in the future.
At that point, you may decide to bite the bullet and take less salary. Or bring in a junior partner who buys-in for cash. Or give up equity to an investor so you can afford to hire the right people.
If you push through to the two million milestone without well thought-out plans for value-adding business elements, you will most likely get stuck again. Except now you have larger clients who are more demanding and require quicker, better service from higher quality staff. You need to invest again in your infrastructure, and you must keep doing that at each Million Dollar Milestone if you want to achieve continuous growth. It is necessary; it is a must-do. And, logically, it is imperative that you raise your fees and billing rates to keep pace with leading model benchmark firms. This is the ultimate secret to generating the funds to support Million Dollar Milestones.