Platform: Achieving that old back-in-the-black magic - Looking objectively at how staff and accounts are handled can dramatically reduce profit margin erosion, says Bob Willott

PR consultancies may be enjoying improved levels of income, but will their profit margins ever recover to those achieved in the 1980s?

PR consultancies may be enjoying improved levels of income, but

will their profit margins ever recover to those achieved in the

1980s?



The signs are not encouraging as consultancies are having to work much

harder for every pound of profit.



But there are some notable exceptions. It seems that consultancies

specialising in the medical, financial and hi-tech markets often achieve

a profit margin on gross income well above the traditional norm of 15

per cent. By contrast the average margin achieved by the top 20 UK

consultancies is now little more than 11 per cent.



According to those in the PR business, some of the biggest obstacles to

better profitability are all too obvious. First, too much ad hoc advice

is given for nothing - ’and those who are giving the advice for nothing

tend to be very senior people’ commented one consultant.



At the other extreme, it is claimed that the industry is packed full of

relatively young and inexperienced personnel whose ambition for reward

and promotion is not matched by the value they add to client

relationships.



Weaker managements accede to those ambitions - increasingly so as the

market has picked up - with a resultant increase in staff costs.



Where clients refuse to pay for those inflated egos, either the

consultancy’s profit margin is eroded or the client moves elsewhere, and

the same thing will happen again. Staff costs now account for over 50

per cent of PR consultancies’ gross income.



Another reason advanced for the increased cost of servicing clients is

the growth in international business. That adds to the overall cost of

administering the accounts, but few overseas affiliates are prepared to

bear a fair share of it.



There are also stories of work allocated to an overseas associate based

on cost estimates which prove wildly wrong after the event.



Another cause of margin erosion is poor management of time. Some

consultancies demand that their staff spend a very high proportion of

their time on client chargeable work, thereby making a virtue of hours

logged on their timesheets rather than profit earned for the

consultancy. Small wonder much of that time proves irrecoverable.



But the most widely acknowledged cause of margin erosion has been the

decline of the larger retainer relationship and the reluctance of

clients to pay ’by the hour’ except for certain types of work like

crisis management or a takeover bid.



So what can be done? Here are ten profit pointers worth thinking

about:



- Seek opportunities to expand into, or focus on, those specialised

markets or expertise where profit margins are above average.



- Hire, keep and exploit exceptional personnel and charge a premium for

them.



- Improve the monitoring and management of resources so that action can

be taken to restore profit while a project is still in progress.



- Choose the right clients (the profitable ones) and don’t be afraid to

decline or fire the rest.



- Ensure all personnel understand how profits are made and lost.



- Work out the most efficient way of managing the engagement before

quoting.



- Get the financial basis right at the outset (or on renewal).



Put the right people on the job and manage them.



- Tell clients when they get good value - they don’t always realise

it.



- Make sure your staff have confidence in the service being

delivered.



- Bill frequently and in advance where possible.



Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in