Agencies urged to get in shape

Economic crisis Direct plan of action needed to prepare for effects of downturn, say industry bosses

Survival: Agencies have been advised to be ruthless on costs
Survival: Agencies have been advised to be ruthless on costs

The PR industry must not get complacent and agencies should take direct action to prepare for the looming economic downturn, senior industry figures warned this week.

The warnings from agency bosses followed Tuesday’s announcement of a set of strong financial results for technology and consumer PR group Next Fifteen (see figures below).

But the group, which owns Bite, Inferno and Text100, has pledged to take a conservative approach to running the business going forward.

CEO Tim Dyson said Next Fifteen would: be picky about which new clients it takes on; look carefully at real estate leasing costs; and actively manage staff expenditure as a percentage of revenue.

He stressed the importance of getting clients to embrace tools to measure the effectiveness of PR campaigns. ‘If the PR industry gets hit hard by this recession it is because we haven’t done a good enough job getting our clients to really embrace measurement tools,’ said Dyson.

Meanwhile, Edelman European CEO David Brain warned of ‘choppier waters’ ahead, but said the industry was better placed than in 2001.

He pointed to the importance of PR firms winning big business off global ad agencies, the quality of digital offers, opening up new revenue streams and the diversification of business.

‘The downturn has not hit the industry yet, but we are beginning to see longer lead times from pitches to the signing of contracts,’ he said. ‘It is just starting to feel like the beginning of the slowdown.’

A downturn in client PR spend may already be happening, according to the latest Bellwether Report.
The survey, by the Institute of Practitioners in Advertising, found that Q3 annual marketing budgets were revised down to the greatest extent ever recorded in the survey’s nine-year history. Hardest hit were budgets in the ‘all other’ category, which includes PR.

In another report, industry analysts Plimsoll Publishing noted that many smaller agencies were considering selling to larger rivals.

 

How I see it

David Brain
CEO, Edelman Europe

‘Get your business in shape. If you’re not making the right profit, take the hard decisions now, because they will be harder the longer you leave them.’ Brain advises agencies to discount by sector and rebuild the cost base from scratch – and to concentrate on relationships with existing clients, while ‘shooting dead’ small clients with low margins.

Tim Dyson
CEO, Next Fifteen

‘We’re going to be managing our agency very conservatively… The growth of social media will open up a lot of opportunities for PR versus other marketing disciplines. It’s up to the PR industry to embrace it – it’s an area that’s up for grabs right now.’

6.5%
Next Fifteen revenues up 6.5% to £63.1m in 2007-08

7.7%
Next Fifteen pre-tax profit up 7.7% to £5.52m

£3.4m
Net cash at year end up –
with a net debt of £0.1m

35%
Percentage of revenue from Next Fifteen’s top ten clients

47.7%
Next Fifteen rise in profits for EMEA (excluding UK)

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