Danny Rogers: Employment costs threaten agency profits

At this time of year management consultancy Kingston Smith W1 produces an annual survey of the financial performance of PR consultancies. Although this covers the previous calendar year - in this case the year-ending December 2010 - and comes six months after PRWeek's own Top 150 PR Consultancies report, it nevertheless provides valuable insight.

Danny Rogers: Employment costs threaten agency profits
Danny Rogers: Employment costs threaten agency profits

Kingston Smith's survey is taken largely from Companies House data, and therefore includes director-level remuneration and profitability figures for the 40 biggest PR consultancies in this country. What bosses earn is always intriguing, but the latter is of most concern in this year's report.

Although the aggregate gross income of the top 40 UK PR consultancies grew by five per cent during 2010, more than half (22) actually reported a drop in gross income. And, more strikingly, more than half showed a decrease in operating profit.

This was largely down to the fact that the aggregate increase in employment costs for these PR agencies was 9.29 per cent, almost twice the level of aggregate income growth. In other words their wage bills were growing faster than client fees.

This seems surprising at a time of increasing unemployment in the wider economy and when cost control seems to be the order of the day. But we should remember that this wage cost rise was for 2010; a year which saw a noticeably better business climate than in 2009. And crucially, it probably felt better than it does today.

Kingston Smith is in effect warning that many PR consultancies have become too sanguine about their wage bills.
Of course all this may have re-adjusted during 2011. Since the summer, UK businesses have been hit by the euro crisis and a new wave of economic pessimism. But equally, revenues are also likely to have taken a hit, which means that wage bills may still represent too large a proportion of agency outgoings.

In an interesting parallel to the glamorous world of Premier League football, the proportion of employment costs to gross income in British PR agencies is now the highest ever reported, standing at 62.3 per cent. Thankfully, this is still short of Premier League clubs: in 2010 the proportion of their income spent on wages hit a record 68 per cent, according to Deloitte.

Both football clubs and PR bosses need to adapt to the ongoing pressure of the financial environment, taking cost control seriously, and making their star performers even more productive.

Also read: Kingston Smith W1 report finds PR profit margins lowest for seven years

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Latest Articles

John Lewis to tell brand story with "tasteful" 150th anniversary celebrations

John Lewis to tell brand story with "tasteful" 150th anniversary celebrations

Department store John Lewis is to use its 150th anniversary this year to talk about its history, which "not enough people know about", according to director of communications Peter Cross.

Labour hires Obama election strategist David Axelrod to fight General Election

Labour hires Obama election strategist David Axelrod to fight General Election

The man who helped Barack Obama win the 2008 and 2012 US presidential elections is to work for Labour along with members of his team.

Sky adds Fever PR to its roster after splitting with Cake

Sky adds Fever PR to its roster after splitting with Cake

Pay-TV giant Sky has added Fever PR to its agency line-up for a wide-ranging brief covering products and services.

Max Clifford trial jury to continue deliberations after Easter break

Max Clifford trial jury to continue deliberations after Easter break

The jury in the trial of celebrity publicist Max Clifford has been sent home for Easter and will reconvene on Tuesday for further deliberations about its verdicts on 11 charges of indecent assault.

Home Office brings in Munro & Forster to campaign against FGM

Home Office brings in Munro & Forster to campaign against FGM

The Home Office has tasked Munro & Forster (M&F) with supporting its campaign to eradicate female genital mutilation (FGM) as part of a wider retained brief.