PR profit margins now the best in marcoms sector thanks to employment efficiencies

The profitability of the UK's 40 biggest PR firms is now higher than for PR's counterparts in five other marcoms sectors for the first time, according to new research from accounting firm Kingston Smith.

(Credit: Howard Lake via Flickr)
(Credit: Howard Lake via Flickr)

The firm's latest Marketing Monitor looks at the accounts for the country's 40 biggest PR firms via Companies House, as well as the 30 biggest agencies in branding and design, digital, and media buying, the top 40 marketing and sales promotion agencies and the top 50 ad firms.

It shows those PR firms achieving average operating profit margin – calculated by dividing total operating profit for those 40 firms by their total gross profit – of 13 per cent. This is an improvement on 10.9 per cent, the lowest figure in a decade, seen this time last year, and nearing the figure of more than 14 per cent achieved by the same group of companies in 2010 and 2011.

"This increase has been driven by increased improvement in efficiency in terms of employment costs," the report says. The employment cost to gross income ratio has dropped below 62 per cent for the first time since 2013.

While PR employment costs per head, at £66,133, were high compared with other sectors, its average gross income per head was also much higher than other sectors, at £107,261 – the only sector other than advertising where it was greater than £100,000.

The report says: "Overall, the PR sector continues to show healthy margins. It achieves this through its senior staff relationships, meaning that they fare well in procurement discussions, and due to the fact that in the main, and more often than in other sectors, PR consultancies tend to specialise in a particular industry, enabling them to demand higher margins for the increased value they add."

That PR has taken the mantle of most profitable marcoms sector was also due to media buying agencies – the previous wearer of that crown – experiencing a decline in margin from more than 15 per cent to just 12.7 per cent in the past month.

"The latest reported results for media buyers reflect a sector that is continuing to adapt to the evolution of the media buying market away from traditional strategies into the digital world," the report says, noting that media agencies' employment costs to income ratios now average more than 60 per cent, having been closer to 50 per cent in previous years.

Of the 40 PR agencies monitored, nine filed new results since the start of 2016, with five of those reporting growth in operating margins and four reporting a decline.

Of those growing operating margins, Porter Novelli's was the greatest, having cut costs following an operating loss in the year before. Meanwhile, Frank's operating margins were cut the most but it still has the third highest margins in the top 40.

Across all sectors studied, the report says that the slight increase in gross income was overshadowed by a continued squeezing of operating margin.

"The UK marketing services industry is famously robust against wider macroeconomic issues, but only time will tell how the industry deals with such unprecedented levels of uncertainty," it says.

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