In the for-profit business world, it’s rare that you get a look at what your competitors are doing, particularly if most of them are private companies.
But at Counselors Academy, an organization for PR firm leaders, best practices, strategic investments, and even financials are shared among peers with the goal of making everyone a better business owner.
Such was the case when Ken Jacobs and George Rosenberg presented a workshop on profitability for PR firms. There are a few things worth highlighting.
According to the 2012 Agency Billing and Utilization Report from StevensGouldPincus:
• The average profit per agency is 18.7 percent;
• The average salaries and benefits per agency is about 55 percent;
• The average annual billable rate per employee is $199,000;
• The average billable time for the PR firm leader is 40 percent.
The study also shows that to figure an employee’s projected billing, you should take the number of working hours per year (1,800 at an eight-hour day with paid time off and holidays removed) and multiply that by their target billable percentage. Then multiply that by their billable rate, and you have a dollar amount.
So for an account executive, you’d use the following:
1,800 (workable hours in a year)
94% (time that should be spent on billable work)
1,692 (billable hours in a year)
= $253,800 (projected billing)
Of course, the percentage of time that should be spent on billable work decreases the further up the ladder you go (which is why the leader is at 40 percent). The idea is that with more experience, your team is bringing in new business or growing clients organically, which makes up for their lost billable time.
I am not a believer in billable hours as they pertain to invoicing clients that way, but it is extremely important that you track your time and assign a rate to it. Without it, you have no idea how much things cost or how long it takes someone to do something.
That’s why, even when you’re overservicing a client, tracking time (every minute of it) helps you to be strategic and smart about the budgets you’re creating.
When you’re budgeting new business, you can go into your financial history, take the last three similar clients or projects, add up the costs, divide by three, add 10 to 15 percent for unforeseen issues, and voila
! You have a realistic budget.
Can you imagine if you’re just guessing how much things will cost, and then you go over by 50 percent? You’re unhappy, you can’t go back to the client and ask for more money, and the relationship ends badly.
Track your time, and do it honestly. I know my team sometimes wants to give clients some of their time for free. That’s fine. But tracking time means you know how much things realistically will cost in the future.
A numbers game
I know most of you went into PR because you’re not good at math.
I know this because every time I speak, I ask, “How many of you went into PR because you hate math?” Typically, more than 90 percent of the room raises their hands.
[RELATED: Hear how top companies adapted to digital PR-industry changes at this August event.]
So, I get it. I do.
But if you’re going to lead an organization that sells people’s brains for a profit, you have to get good at simple arithmetic.
Understand what your people are doing. Understand where they’re spending their time. Take the time to figure out which clients are making you money and which ones you’re losing money on.
Use the new business time to figure out realistic budgets instead of telling new clients you can do everything they want within their tiny budget.
Set expectations. Track your time. Be realistic. Work in buffers for the unexpected overages. Stay on strategy.
And, for heaven’s sake, do the math.
Gini Dietrich is founder and CEO of Arment Dietrich, Inc. and blogs at Spin Sucks, where a version of this article originally appeared.