The picture painted by this year’s survey of the financial performance
of the top 20 PR consultancies is of an industry now shrugging off the
legacy of the recession, but still lagging in the marketing services
sector on several key indicators.
Aggregate turnover for PR is up by a disappointing 2.5 per cent (two per
cent last year) compared to 5.8 per cent for advertising.
However, the much larger increase in gross income - 6.4 per cent,
compared to 7.8 per cent for advertising - is a further indication of
the decline in rechargeable, bought-in work and the shift to fee-based
income. It is an encouraging trend in an industry trying to take the
more profitable ground of strategic consultancy rather than the thinner
pickings of PR donkey work.
Operating profit showed a healthy increase of 20.3 per cent, while pre-
tax profits rose by 21.7 per cent, helped by a 13 per cent reduction in
The margins of both operating profit on gross income and turnover are up
- the former (at 11.2 per cent) is now higher than the 11 per cent
achieved before the recession. This compares to 4.9 per cent for
advertising and 9.3 per cent for the marketing services sector as a
whole. Four of the top 20 PR agencies managed to push operating margins
(operating profit as a proportion of gross income) over 20 per cent, a
further eight achieved margins of more than ten per cent.
In general, says the report’s author, specialist accountant Willott
Kingston Smith, PR consultancies are being more successful than others
in the marketing services sector in managing to contain their operating
costs in the face of improving gross income. But before we get too
complacement. The number of consultancies in the top 20 who achieved a
margin of 15 per cent, the benchmark to provide an acceptable return and
fund future growth, is actually down - from six to five. And PR still
lags behind the star performers of the sector: direct marketing and
sales promotion, which combined achieve an operating margin of 14 per
Gross income per head is up only slightly, by one per cent to pounds 62,
792 - seven per cent lower than the average among the top 50 marketing
services group. But it is in the area of employee costs that agencies
must show greatest vigilence. A one per cent rise in employment costs is
hardly out of control. Indeed the ratio of gross income to staff costs
has remained constant (at 1.79:1). Yet it still lags behind advertising
(1.95:1) and the marketing services sector as a whole (1.83:1).
Telephone number salaries for even middle ranking directors of agencies
seems to be be an increasingly common feature. It is dangerous trend and
one the industry has got to watch.