EDITORIAL: Restraint now is worth the future

Willott Kingston Smith's survey into the state of the marketing

services sector, published this week, is a useful barometer of the

agency world's health. And despite the fact that the period it covers

was the boom of 2000, it is a welcome antidote to the anecdotal evidence

of job cuts and recession gripping consultancies.

The most heartening sign is of consultancies taking profitability more

seriously than before. Average operating profit margins are now nudging

14 per cent, close to what the WKS consultants say is the optimum for

balancing staff satisfaction with shareholder value.

Most agencies still fall short of the ideal level of staff cost to gross

income - 50 per cent, if overheads and profit targets are to be covered.

WKS estimates that to provide a return to investors and pay your team

enough for them not to leave, agency heads need to spend half their

income on staff. The current average agency rate is nearer 54 per cent

and will need to drop if companies are to be saved.

As managers make staff redundant in an effort to align costs with

declining income levels, those left behind also have a role to play in

maintaining their employer's profitability. It may not feel this way

yet, but pay restraint now will save excessive jobs being lost as the

economic downturn continues through to at least the end of the second

quarter of 2002. It will also help save all but the worst run companies

from going out of business.

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