Note: this was previously posted at the Old Towers – however, this was one of the posts that led to me moving to Typepad ie lots of people wanted to comment to it but couldn’t – also interesting how widely discussion on this has circulated.
Sarbanes Oxley continues to be used as a reason for not being able to
enter the table – so none of the tech divisions of the big agencies
makes it into the list. However, one notable exception is Firefly –
which is privately held. Firefly has been missing from the list for a
while. Firefly was one of the shining lights of the tech PR sector in
the late 90s – you don’t seem to hear that much about them these days.
Perhaps most interesting is down at the lower end of the table. Wyatt
International claims 50th place on the basis of £12,025 worth of tech
PR fee income – for the entire year. (That wouldn’t have covered some
client’s monthly expenses bill back in the late 90s).
In fact places of 43 – 50 are occupied by companies recording under
100K of fee income for tech. On that basis, many freelance tech PR
consultants would have made the top 50 if they had entered.
I’ve always taken PR Week’s league tables with a pinch of salt. Mainly
on the basis that the focus is on top line revenue rather than on
profitability. What would make the most interesting reading would be
looking at the most profitable agencies. No point in generating £4m in
revenue if your net pre-tax profit is 50p – or you are making a loss.
In terms of margins in the tech PR sector, the figures bandied around
are usually 10 – 12pc net profit (very good) to 5pc (average). So lets
do some maths. If we assume an agency has £2,907,161 top line, then
this would generate around £145,358 net pre-tax profit based on a 5pc
margin. Then take away corporation tax at 19pc (assuming no dividends)
– this leaves around £117K in retained profit. Which when all is said
and done, is not exactly a huge amount. Assume the company has around
50 odd employees – that doesn’t leave a huge pot for directors and
employees bonus (and this would be taxed as well so the amount people
might end up with is even less) – or for re-investing the money back
into the business in terms of business development, etc.
Even though the big agencies are not represented in the table, it
doesn’t take much to figure out that their net profit contributions
back to their respective mother ships can’t be that great.
Now of course, there may well be agencies out there with net margins of
20+ per cent – but I suspect not. And the bigger an agency gets, the
tougher it is to maintain double digit margins. Given that staff costs
are by far and away the biggest overhead for any agency, you can see
why people are trying to get more out of a people while keeping a cap
Which basically shows that generating real net pre-tax profits in the world of hi tech PR is pretty tough.