Industry Voice: Uncertain times no barrier for up-and-coming agencies

It's not overstating the case to suggest that we are currently working through one of the most turbulent and unpredictable times in recent history.

Smaller agencies have returned the strongest growth in the industry, says Francis Ingham
Smaller agencies have returned the strongest growth in the industry, says Francis Ingham

As the challenges of a forthcoming Brexit loom, along with the contiguous fears about loss of growth and stability, every industry including our own is contemplating a bumpy future. That might not be the case, but who knows?

Indeed, in our own quarterly barometer, published in July, when asked to comment on the state of the UK economy in the next 12 months, 63 per cent of respondents opined that the economy could worsen. Only eight per cent of respondents believed the economy would improve over the next 12 months.

Small agencies

Here, though, I would like to focus on the smallest agencies in our industry. The up-and-coming, the micro-consultancies and the hot new firms establishing themselves in today’s competitive marketplace. To make a vulgar analogy, with rocky seas ahead, it’s the smallest boats that could be in most danger of being capsized.

It’s worth taking a moment to look at data to see what it says about our smallest PR and communications agencies. The truth is, they’re a resilient lot.

The PRCA publishes an annual ‘Consultancy Benchmarking’ survey in partnership with accountancy firm Kingston Smith. It revealed that in 2016, the average income growth for the agencies that took part was £4.2m, or six per cent – a significant increase on 2015’s £4m.

But it is the smallest agencies, those with a turnover of up to £250,000, that reported the highest levels of growth across the industry, garnering an average of 28 per cent. By comparison, the networked firms with a turnover of more than £7.5m made five per cent growth. Which is still very positive.

Average operating margins stand at about 14 per cent, but the biggest margins are being won by the smallest sections of the industry. Agencies with a turnover of up to £500,000 have an average 18 per cent margin, and the next bracket up, £500,000 to £1.5m, stands at 19 per cent.

Staff costs

That’s not to say that small agencies don’t have their share of challenges. The average staff costs for agencies up to £500,000 have leapt by a huge 17 per cent in a year, to 61 per cent of their income. In general, staff costs have risen by only four per cent of income, to 55 per cent. The biggest salary increases in the agency world have gone to senior account executives and account managers. It is no coincidence that it is at

those two levels of workforce that we are seeing the highest levels of churn. What I believe these figures reveal is that our industry is currently at peak performance in terms of strong, creative powerhouses growing from nowhere and building into the industry leaders of tomorrow. The major agencies of today got through – and indeed grew through – the turbulence of the last financial crisis. With evidence like this, today’s up-and-comers will do the same, whatever the future holds.

Francis Ingham is director general of the PRCA and ICCO executive director

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