Last week’s PR Week carried its annual top 150 agency rankings. Much was made of the fact that agencies that had been excluded for the past 3 years due to SarbOx had been reinstated – though not based on real figures, but on estimates based on a PR Week created methodology. It also made great play of the fact that 90pc of the top 150 had seen fee income rises year on year – “testament to an ever-more mature and reassuringly vibrant profession.”
However, is it really time to break out the champagne?
Only a week before, PR Week ran a feature which showed that agency bosses’ biggest concerns were lack of good people, overservicing/unprofitable clients and the cost of pitching.
So - is the PR Week league table really a true measure of who is succeeding in the PR agency world? And is the current rise in fee income a dead cat bounce, concealing a rather more volatile and unsustainable infrastructure?
I may sound like a cracked record, but surely net worth and profitability are the real measure of sucesss, not top line fee income – turnover is vanity, profit is sanity and all that. In an earlier post, I referred to Duncan Chapple’s Plimsoll-report gleaned observations that most agencies' pre-tax margins are a miserable 3.6%. Twenty percent of agencies price below cost. A further 44% of PR companies barely break even. The remaining one-third of agencies deliver real value, but their profitability is also threatened by consultancies that price below cost.
For my own interest, I looked at the net worth/profitability figures for a couple of well known agencies. It seemed to bear out the Plimsoll research. One agency that has seen fee income rise to £2m appears to have a net worth of a mere £2K. Another agency of similar size is shouldering nearly £500K in debt - and overheads (namely salaries) eat up everything else. On a PR Week interpretation, this would presumably be seen as a successful agency. But if I were an accountant, I’d be worried. It wouldn’t take much (such as losing a couple of big clients), to see these agencies in trouble. In fact even the agencies that appear to have the healthiest net worth are barely over the £100K mark. As a crude measure, this is the amount of cash they have in the bank – losing clients, not getting paid on time, etc would impact even these apparently healthy companies – because wages have to get paid even if your clients aren’t reimbursing you. And if you have 30+ employees then you could be in trouble very quickly.
It would be an interesting exercise to see total the net worth of the top 150 to see what the overall value of the biggest agencies really are. Because it relates back to the issues raised in the previous week’s issue.
Why are good people hard to find? I’d suggest that what is meant by good in this context is people who have the necessary skills to meet the demands of clients. Red Consultancy CEO Mike Morgan argued that the PR industry is victim of a generational shift – namely that senior, experienced PR people are baby boomers, whereas the new crop of PRs don’t see it as a long term career – hence the churn and the widening gap between the grey hairs at the top and the inexperienced at the bottom.
However, is experience needed in a world that is rapidly bearing no links or resemblance to the past?
Experience counts when you have dealt with a situtation successfully in the past and can apply that to a similar case in the present. Our PR/Web 2.0 present bears no relation to any previous era. So brains rather than grey hair is needed to deal with this new and chaotic present. But brains cost. Thus agencies are caught in the bind between trying to improve profitablilty, contain costs and yet deliver the innovative and creative solutions that clients demand – and get them to pay for it.
So – would it be possible to put together a league table based on net worth/profitability? Given that this information is obtainable from Companies House, then for a little extra time and cost, the answer has to be yes.
PR – who said it was easy?
very useful; few surveys get down to the reality
Posted by: Rob Artisan | April 23, 2007 at 08:58 AM