February 22, 2012

How to Achieve Record-Breaking Returns for Your PR Agency in 2012

By Art Stevens, Managing Partner, StevensGouldPincus

As I gaze into my consultant's crystal ball I foresee 2012 as the year of the PR agency. It will be a year of great growth for agencies throughout the country. My prediction is based on several premises: My ongoing dialogue with agency owners whom we consult with, as well as those we represent for mergers and acquisitions.

Client budgets are stronger in 2012 to date than they've been during the past few years. And economic signs are pointing in the right direction. This is the year when agencies have an unprecedented opportunity to make big numbers: Revenue increases and record breaking profits.

But to take advantage of the tealeaf readings agency owners need to batten down the hatches and adhere to some basic but necessary principles to ensure that by December 31 they will be toasting one of the best years they've ever had. And here's how to do it:

1. Retain those key employees. Don't let them get away. As agencies grow the talent grows short. There's a greater demand on such talent and PR agency account people will be in the driver's seat. Assess which of your key people are most responsible for the success the firm has enjoyed the past few years and make plans to keep them. I've worked with agency owners during the past five years or so to help them retain vital staff members. Among the ways are compensation packages that reward key people for their contributions. Such packages include percentages of profits and revenues, new business wins, client satisfaction and management of account teams.
2. Agency owners are leaning more and more towards granting equity to key employees. Giving equity in the firm or selling it at insider's discount prices is becoming not only more popular but necessary. Owning a piece of the pie is a major attraction to entrepreneurially minded agency executives.
3. A very attractive alternative to giving or selling real equity is the concept of phantom stock. Phantom stock is a percentage of the purchase price of an agency when it is sold. It cannot be exercised as real stock but kicks in only when a firm is sold. If a key employee understands that somewhere along the line the agency owner will sell the business then key employee can do the math. If you own 10 per cent phantom stock and the agency sells for $5 million, that phantom stock will be worth $500,000. Not a bad way of retaining a key employee. But if that key employee leaves the firm before it is sold he forfeits his phantom stock.
4. Aside from the absolute necessity of retaining key employees to help perpetuate an agency's growth there's also the matter of how to make the agency more profitable than it's ever been. Agency profitability will always rise and fall with how time is managed. It's the contention of my partners and I at StevensGouldPincus that every agency should strive to make at least a 25% profit. While it is true that profit margins are often dictated by how much of a base salary and perks an agency owner takes, the fact is that if such salaries are recast to be industry standard then a 25% profit is quite doable. Agency owner's work much too hard to accept anything less. They are in business to make money. And it's more than okay to make money while at the same time turning out exemplary client work.
5. The essence of setting up an effective time management plan is to determine what the billable rates for each account person should be. Once that is done then the agency needs to set up metrics to monitor monthly billable hours. By doing so it will become clear which employees are pulling their weight and which are not? The key is not to over service clients but to provide hours commensurate with their fees.
6. And, finally, don't forget to market your firm. Don't be the shoemaker's children. Do as you preach to your clients. Consider your agency to be yet another client that requires branding, visibility and marketplace reputation. Don't remain a best-kept secret. Be on top of social media and digital opportunities to get the word out. Your competitors are already doing so.

2012 will also become known as the year of break out mergers and acquisitions. The planets are aligned properly for buyers to fill their needs by attracting key sellers. And if you sellers play your cards right by retaining key employees and managing your staff time to produce a large profit — you may be in for a very interesting year.