Why has mainstream PR stopped growing?


Link: ANALYST EQUITY: Why has mainstream PR stopped growing?

Duncan Chapple has posted re: UK PR industry performance in 2006. His post worth repeating here:

The PR industry has stopped growing. The annual PR Consultants
Analysis, which reviews the top 1000 PR consultancies, is an annual
study whose 2006 findings
were also depressing. The 2007 report states that average sales growth
has fallen to zero. Pre-tax margins are remain around 4%.

Roughly
two companies in five experienced falling sales last year. One quarter
are in serious financial difficulty. On average, firms in the
poorest-performing quartile suffered a 25% fall in sales, while their
invoices took on average 79 days to be paid.

According to
Christopher Evans, the senior analyst on the Plimsoll report, "the next
six months will be a time for tough decisions and painful measures as
their managers attempt to put them back on a firm financial footing."
PR agencies are often short on financial prudence and use discredited metrics. However, it is PR’s trivial reputationweak brand alignment that undermines it. That also partly explains why many AR managers avoid the PR label.

As regular readers will know, I’m in agreement with Duncan’s analysis. The trends that have been discussed here over the last 18 months aren’t going to go away. A vicious circle of dwindling senior expertise and lack of investment in training (which leads to the situation Charles Arthur and others encounter daily); a seeming inability of PR to be able to measure and demonstrate its business value; an almost pathological contempt for good financial management; I could go on.

So, Duncan’s point – why has mainstream PR stopped growing? Because on the whole PR companies are still offering mainstream PR services – which is now a highly commoditized market. In fact, much of the basic mechanics of PR can easily be carried out by clients themselves.  And more and more are cottoning on to this.
(Imagine: armed with a few subscriptions to some basic PR support services such as Sourcewire, virtually any company can have a basic PR operation ready to roll for a few grand. They simply want to add the relevant expertise to the process (which no  doubt explains the rise in project based PR).

I do believe that clients are very willing to pay for real expertise and experience – but that really is a scarce commodity – hence the rapid rise in senior people going freelance or starting small shops – with no desire to grow to become a 100 person agency in 2 years. Because what’s the point? If your pre-tax margin is 4pc then even with a topline in the millions that represents a paltry return – and where’s the exit?  As ever, there are exceptions, but on the whole, you aren’t going to earn your millions working for a large PR firm. However, I’d suggest that senior PR folk can earn what any normal person would describe as a very healthy living by offering their services in small, highly focussed packages. Add in the sense of control, lifestyle flexibility, closer client relationship, etc, you can see why people are doing it.

Would be good to see some kind of more detail analysis of the freelance/small shop end of the market – I suspect there may be a happier story here than the one Duncan describes….

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Comments

  1. Hi Andrew,

    Thanks for the mention: your post has been picked up more widely than my orginal article!!

    Yes, you are quite right. The smaller PR firms’ financial performance is much better than that of the others. Larger PR firms manage themselves for revenue, rather than profit, so they aim to undercut their competition more often than they aim to generate more value.

    Of course, smaller firms are forced to keep a keen eye on costs and cash-flow as well as profit, and they do a much better job for investors. However, revenue per employee fluctuates greatly amongst smaller firms, both upwards and downwards.

    Happy new year,

    Duncan.

    Like

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