More than 200 senior PROs gathered at the Paddington Hilton in London last week to witness the unveiling of the Public Relations Consultants Association's (PRCA) annual Benchmarking Survey on the financial health of PR agencies and their prospects for future success.
It goes with the territory that PR consultants will put the best spin on so-so financial news, but the mood among delegates - and the conclusions of the presentations - were notably more upbeat than in previous years.
But it was the advice handed down by senior figures such as Omnicom's Diversified Agency Services president and CEO Europe Anthony Wreford and Results Business Consulting managing director Jim Surguy that generated the bulk of the talking points among delegates.
Loud and clear the counsel came: prioritise creativity, negotiate better deals with clients - and cut back on overservicing.
More positive outlook
The Benchmarking stats, presented by Lexis CEO Hugh Birley and Carrot Communications MD Richard Houghton, echoed the broadly positive findings of PRWeek's own Top 150, published three weeks ago (PRWeek, 23 April), which showed that 70 per cent of the top 150 agencies recorded fee income growth during 2003.
Perhaps the most gratefully received news in the PRCA's own research was that agencies' operating margins (net pre-tax profits as a percentage of total net income) grew, on average, from 12 per cent to 14 per cent between 2002 and 2003.
In stark contrast to 2002, when the tough economic climate meant agency bosses gave a priority to merely holding on to existing clients, client retention was an issue less likely to be keeping agency bosses awake during 2003, according to the PRCA.
There was little change between 2002 and 2003 in respect of the percentage of business on a retainer, rather than a project, basis - 80 per cent against 25 per cent in 2002, 77 per cent against 25 per cent in 2003 (some percentages added up to more than 100).
But threats to profits are coming increasingly from clients diverting budgets into other marketing disciplines and the costs associated with pitching for new PR business.
Wreford's analysis of the impact of the recession on different PR sectors echoed anecdotal and financial evidence that has already been reported, but is worth repeating.
Those working in markets such as mergers and acquisitions (City PR), technology, FMCG and tourism have had a tough time, according to Wreford.
But on the upside, those engaged in healthcare and public sector work, plus retail, should possess what Wreford described as a 'recession-proof' client base.
Of all the speakers, it was arguably Wreford who provided the most radical assessment of what agencies must do to remain successful.
He claimed there were 'fantastic opportunities' for PR agencies to expand into areas such as cause-related marketing, adding that the trend for recruiting planners with a background in advertising will continue.
To illustrate his argument that PR agencies should diversify their offerings, he proposed that only around 40 per cent of staff at the 'PR agency of the future' should be traditional media relations/PR consultants (see box).
Staff with experience in fields such as management consultancy and cause-related marketing should be recruited in order to better enable PR agencies to have a less myopic outlook, Wreford argued.
Holmes Group president and chief executive Paul Holmes concurred with the prevailing sentiment, telling the audience: 'Non-traditional hires have to be part of our growth strategy going forward.'
To illustrate how PR agencies need to become more flexible, Surguy pointed to the fact that lottery firm Camelot opted to hire start-up agency Paratus Communications, which operates by using a regional network of freelances (PRWeek, 19 March), on fees of £250,000 to handle its regional consumer PR ahead of a more traditional agency.
Surguy said: 'PR is very insular in my view. (Agencies) can't afford to say "it's not our area" any more.'
PR agencies that employ 'good negotiators' - who can get the best deals from marketing directors or procurement professionals - are better positioned to prosper, Wreford argued. 'By and large we are really bad at negotiating,' he said.
More generally, Wreford criticised PR agencies for 'self-inflicted problems', such as a failure to understand clients' corporate politics.
On the other hand, as he pointed out, PR agencies can do little about economy-wide issues such as recession and the trend towards short-term planning of many of their clients.
A positive finding from the PRCA's research was that there has been a surge from 42 per cent (2002) to 63 per cent (2003) in the number of agencies 'likely' to be recruiting senior staff.
But Wreford warned: 'During the dotcom boom we lowered our recruitment standards. Some clients haven't forgotten that.'
The need for better negotiators
In respect of staff training, Wreford returned to his theme of better negotiation skills, advising that more PR agencies should send staff on negotiating courses, even ahead of standard PR training courses, such as presentation skills.
On the subject of staff, one of the main recommendations by Birley and Houghton was that reducing over-servicing - by consensus, a perennial problem in the industry - from an average of 26 per cent appears to be one of the most obvious ways in which agencies could boost the morale of their personnel.
Bill Jones, founder and now non-executive chairman of consumer PR agency Lexis PR, claimed that the past couple of years have been 'bloodier for some than others', but that 'maybe - just maybe - we're turning the corner'.
The mood of cautious optimism among speakers and delegates last week certainly contrasted to last year, when Focus PR managing director Hilary Meacham said that more agencies expected things to get worse rather than better.
It is fair to say that, 12 months down the line, the opposite seems now to be true.
WREFORD'S MODEL PR AGENCY
- 40 per cent traditional PR consultants
- 20 per cent PR consultants with client-side experience
- 20 per cent drawn from other comms disciplines (such as media
planning, cause-related marketing)
- 20 per cent 'magic dust' (such as management consultants, creatives)