Fixed fee contracts hit profit rates

PR agency profitability was static in 2000 despite a surge in new

economy business, the PRCA Benchmarking survey reveals.



The PRCA surveyed more than 100 of the association's members on HR

issues, financial records and in-depth interviews with agency MDs and

CEOs.



The results suggest that 'fixed fee' contracts - where the entire agency

revenue from a given client is agreed in advance - are less profitable

than contracts which allow for flexibility in the invoiced fee take.



Firms with more than 50 per cent of clients on a flat fee deal are five

times more likely to be operating on margins below ten per cent.



Conversely, firms that refuse to make such deals are eight times more

likely to work on margins above 20 per cent. The body's members average

14 per cent of fees in pre-tax profits, a figure which has remained

constant for the last two years.



The results, presented to the PRCA conference this week, also show that

a number of advances have been made in the HR functions of member

firms.



Staff turnover rates have dropped ten per cent to less than a third over

the last year, the research found.



Average spending on training and development within consultancies has

crept up to around two per cent of total net fee income.



And there has been what PRCA sources claim is a welcome increase in

staff perks such as 'duvet days', contributory pension schemes,

healthcare cover and the amount of an employee's salary paid in bonus

form.



Leader, p10.



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