Great PR firms set themselves aside from mediocre ones through one key financial metric: profitability. High profitability means things are running well - clients are happy, employees are performing, retention is strong and the ratio of staff expenses to fee income is healthy. PR firms with 10-15% profitability are doing okay. Those with 20% profitability are very healthy. And the fortunate few who make it to 25% or higher profitability are killing it.
For these firms, each dollar the firm collects in fees can be broken down by 50 cents going towards labor, 25 cents going towards overhead, and the remaining 25 cents being profit. Firms with this level of profitability do so well because they can invest significant money back in the business to grow, improve technology, roll out new services, expand geographies, and hire the best talent. This investment reinforces their advantage and the cycle continues, allowing the firm to further set itself apart from competition and strengthen its core.
I sold my firm, Cutler PR, one year ago and so I am quite familiar with the immense importance of profitability in PR agency M&A discussions.
Firms with 25% or higher profitability are much more likely to get acquired for healthy sums of money. So, for all of these reasons, and more, increasing profitability of your PR agency is probably the most important thing you can do as a senior executive or owner of the firm. There are few things, though, that agencies can actually do to increase their profitability. One important measure that can be taken is investing in tools and technology that improve productivity.
A majority of PR firms find that the most unpredictable and challenging service they offer is media relations. It is therefore particularly in this area - earned media - that new and innovative technologies can help firms make a significant difference in their profitability.
Propel, the earned media productivity platform, for example, allows firms to increase their client load by 10-15% without hiring additional resources. This is possible due to the automation, workflow management and efficiency that the Propel platform brings to teams and individuals. You can simply accomplish more in less time and with less hands on board.
Because 50 cents of every revenue dollar goes towards labor costs for most firms, being able to increase client load by 10-15% means increasing annual profit of their media relations revenue center by 5-7.5%. Propel additionally helps firms increase client retention by 2-4% annually, which boosts profitability further. If media relations is the full focus of your firm, using a platform like Propel can increase profitability by anywhere from 5-10% annually. If media relations accounts for half of your firm’s billable services, that means 2.5-5% higher profitability per year. These increases in profit can be a total game changer and take a firm from mediocrity to excellence.
Investing in any technology has some upfront education and learning curve. The payoff, though is remarkable. To learn more about Propel, the earned media productivity platform, and how it can be transformative for your firm’s profitability, please schedule a demo by clicking here..