PR wins “most profitable” marcoms crown

Let the good times roll, PR is the most profitable sector in the marketing and communications industry according to a recent report by accountancy firm Kingston Smith.

The Marketing Monitor report, which analysed the financial results of 40 top PR agencies and compared them with other Marcom sectors (advertising, branding and design, digital, media buying and marketing and sales promotion), suggests that the PR industry is operating on a 13% profit margin.

However, this isn’t all good news for the industry. PR’s good fortune follows a decline in other sectors, including media buying which has seen profit margins drop from 17.8% in the year 2000 down to the current level of 12.7%, and is reflective of a broader industry trend.

The report states: “We are seeing that profit margins are increasingly being squeezed, with advertising, branding & design, digital and the marketing and sales promotion sectors all reporting lower operating margins than they respectively achieved in the Spring edition of Marketing Monitor.”

It continues: “Stand-alone, these results do not make for particularly encouraging reading; the slight growth in gross income is very much overshadowed by the continued squeezing of operating margins.”

The report highlights the move away from retainer income towards shorter-term project based work and increasing zero based budgeting as continuing to have a negative effect on margins and suggests that many agencies are still reliant on freelance labour to service this type of work. This, alongside other on-going effects of digital disruption (creating more specialist marcom activities) have contributed to a talent shortage which puts increased pressure on HR costs and, as a result, eats into margins.

This decline is particularly noticeable in the digital sector which the report suggests may appear to be struggling when compared to other Marcom sectors, reporting only a six per cent profit margin.