EXCLUSIVE: Industry body proposes client-agency charter as PR industry reports declining profits
Due to a significant profitability drop in FY23, the PR industry is on an unsustainable declining path, according to the Public Relations Institute of Australia (PRIA) and its Registered Consultancies Group (RCG).
As a result, the industry body has proposed a client-agency charter, to improve commercial relationships with clients and help agencies make positive progress, Mumbrella can reveal.
Revenue in the PR industry increased strongly year-on-year, according to PRIA’s annual benchmark agency research findings, however the costs of operating business and associated expenses are also increasing – so profitability is down.
According to the research, in FY23, profitability was at just 11%, down nearly a third year-on-year.
“The benchmark agency research results have been very interesting, but in one aspect, very concerning,” national RCG Chair and CEO of The Savage Co, Chris Savage, told Mumbrella. “That is that in our industry, demand for our service has been strong – so revenue is up but expenses are up more than that, so profitability is not there.”
He said in the short term, the industry can cope with the demand, but long term, “it’s no-one’s friend”.
“We can’t let this trend continue or the industry won’t be sustainable to invest in the way it needs to do, because lowering profitability hurts agency owners, staff, clients and the services we provide them – it hurts all the things of value in our industry,” Savage said.
On the talent side, hourly rates only saw an average 4% increase year-on-year (-1% for small agencies, 5% for large), despite inflation rising to 6% in FY23. Salaries went up an average of 3%, with small agencies feeling the most pressure due to 7% increases, while large agencies were flat.
According to Savage, this is feeding into agency churn, with a 27% turnover year-on-year. Over 40% of that was people leaving agencyland altogether because of financial pressures.
“The industry is under pressure, the constant cycle of pitching and the pressure that puts on agencies comes at a cost,” he said. “It comes at a mental health cost, wellbeing cost, and many of our staff see that and perceive the grass is greener in-house or client-side. Whether that’s true or not, that’s the reality.”
(L-R): Allison, Savage
“The decline in profitability is our responsibility,” Savage continued. “We are in control of our own destiny and we need to make the progress. So we’ll be asking our agencies, as well as their clients, what we can do to improve. We want guidance on how we can lift and become more valuable and how we can work with the client structures to better deliver commercially.”
Shane Allison, PRIA President and CEO of Public Address, said these issues need to be addressed in an official way, so the industry body will be introducing a client-agency charter.
“The charter is designed to be a set of guiding principles that the clients and agencies agree on, constructive principles to help guide their relationship,” he said. “It isn’t a set of rules, it’s not enforceable but its going to be there as a resource for agencies and clients to have more constructive conversations and closer dialogue.”
Savage continued: “The charter will be authored by the RCG, and approved and endorsed by PRIA, so agencies can go to clients and say ‘hey our industry association is advocating these behaviours and principles’. It will give agencies more credibility, firepower and substance in their conversations with clients.”
He said the charter will help small to medium agencies in particular, who he described as the most vulnerable as the industry heads down an unsustainable path.
“This will really support them. If there’s an issue with a client, they can turn to the charter and get a dialogue going.”
The charter will cover a number of critical touchpoints in commercial relationships, including avoiding “long, convoluted incumbents”.
“Incumbents have to get involved in these long pitches, just to retain the work. 60% of the time, the incumbent retains it. And yet, the cost of having to re-pitch is depleting and sometimes, can break an agency,” Allison said.
“We’ve got to encourage clients to use this RCG client-agency charter as a guiding formula to dealing with this, and make stronger relationships with their agencies – however it’s important to remember it is the agency’s responsibility to build its commercial muscle. That’s what we hope this will help with.”
PRIA conducted the research in collaboration with independent research Lonergan Research, led by Melanie Vine, and had 42 participating agencies. The Charter will launch in March 2024, a month after the industry body’s new name and Constitution will be installed.
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