Opinion: Leader - Profit margins put pressure on indies

Data released this week by marketing services specialist accountancy firm Willott Kingston Smith suggests that the size and agility of small independent PR companies is lending them a competitive edge over quoted group-owned networks.

It says, based on an exhaustive analysis of available Companies House information over the past couple of years, that income remained stable among the independent sector, thereby outperforming the owned groups that collectively shared a 14 per cent drop in income.

Should industry observers be surprised by these numbers? No - but it would be hasty to assume there are no lessons independents can learn from larger competitors. The productivity gap between owned and independent firms, for example, stands at about 25 per cent - gross income per head at an independent is roughly £64,000, while at the owned groups it is closer to £80,000.

And on the issue of profitability, there is evidence that will make independents variously wince in sympathy with fellow travellers, or blush with shame.

Despite the owned groups spending 20 per cent more on their people (an average staff cost of £48,000 per head against just £40,000 for independents) they make a margin comfortably in excess of the independents'. Twelve per cent may not seem huge as an industry average operating profit margin (even if it does span those doing 35 per cent and those losing money) but it looks better than the seven per cent independents hit.

Collectively, there are lessons that both groups should take on board.

The conclusion WKS reaches will not bring great cheer to staff at any agencies, but it says that 'employment costs still remained higher within the PR sector, with the result that operating profit margins were lower, on average, than other disciplines'.

The final advice is unambiguous: PR firms must aim to restore margin to an acceptable 15 per cent by reducing employment costs per head or improving income. For the long-term financial health of firms in this sector - be they owner-managed or City-accountable - there is no other solution likely to succeed.

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