Agency profitability in 2008 declined 20% from the year before, reaching a four-year low of 15.6% of revenues, according to the SGP survey. In 2007, agency profitability was 19.7%.
Rick Gould, managing partner at SGP, said he and his colleagues are “concerned it's much worse now” that we're midway through 2009.
“With the recession, it could be 11% or 12%,” he said. “Of the 106 firms that participated, many were breaking even or even lost money.”
While 15.6% isn't a terrible figure given the economic climate and the state of many other industries, Gould notes that the benchmark has been raised over the past few years.
“We raised the standard of profitability in PR,” he said. “Twenty-five or 30% should be the goal. Now we've lowered it again.”
However, one bright spot of the survey findings are the dozen agencies - “model firms,” Gould called them - that are still doing well, reaching 25% profitability.
“These quality firms that really know how to run their businesses can be doing 25% even when the industry is down to 15.6%,” he added.