Is less more when it comes to agency P&Ls?

It's that time of year again when the PRWeek team immerses itself completely in the world of PR agencies as we prepare our annual Agency Business Report, which will be published on May 1.

It's that time of year again when the PRWeek team immerses itself completely in the world of PR agencies as we prepare our annual Agency Business Report, which will be published on May 1.

Every year presents different trends depending on macro issues such as the state of the overall US and global economies and micro issues relating specifically to our (your) world, such as the evolving media mix of PESO, integration, the rise of awareness in the C-suite of the importance of corporate reputation, and content generation.

I won't spoil the surprise by going into detail on those issues here, but there is one theme that has emerged more often this year in my conversations with agencies, possibly for no particular reason, but it is worthy of note.

It is particularly prevalent when you visit mid-sized agencies, especially independents, but sometimes those that are part of the smaller holding companies. “We operate with one P&L,” they proudly state, the implication being that this is a superior operating model than the regional budget-based structure favored by the large agency networks and holding companies.

The latter structure is flawed say the mid-sized shops, as it emphasizes a system that doesn't operate in the best interests of clients. Rather, it pits different regional offices against each other and ties such things as staff bonuses and resources to separate revenue and profit lines. This is where, if you're not careful, you get the unedifying prospect of regional offices forcing in extraneous “hours” of “work” at the end of a quarter as they desperately try to reach their financial and bonus targets.

Proponents of one P&L say their system allows them to allocate the best possible talent to each account, wherever they are based physically, and that there are no issues about revenue and where it goes. The agency hits profit goals as an overall company, practice, or person, rather than an individual office or region. It fosters integration and facilitates long-term investment in the business.

It is also an issue that is tied to independence, where the indies say they are better able to invest in talent and team development ahead of the curve, rather than waiting for client work to come in tied to revenues, as there is less pressure on quarterly financial performance from shareholders than at a holding company. Holding company firms say their structure prioritizes efficiency, scale, high profit margins, and a lean-and-mean business model.

There's no right or wrong answer on this one and neither setup is mutually exclusive - it is one of those perennial arguments that will no doubt be repeated ad nauseam.

But there is certainly something compelling for clients about the prospect of getting the best possible team for the job - one that concentrates on producing effective work rather than glancing over its shoulder with the specter of the quarterly regional revenue target in its rearview mirror.

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