Obtaining Higher Profitability in the PR Industry | O’Dwyer’s

The building block to profitability

The most basic principle of profitability is to know what it will cost your agency to service a client. PR principals ask this question for many purposes, including formulating overall strategies, service emphasis, and meeting reporting obligations.

The PR agency needs to understand the basic principles of job costing. When we think of job costing, a manufacturing company may come to mind. While this is often correct, the PR agency needs to know the cost of providing services to each client before the service is rendered, not after. Job costing is a system where costs are assigned to a distinct unit, batch, or product or service. The product or service is often custom made, such as providing unique services to a customer.

PR agencies provide customers with services or intangible products. Within the PR sector, jobs often differ considerably in terms of their length, complexity, and resources used. It’s critical for agencies to know their job cost for profitability analysis and pricing. Accurate cost information is especially important for PR agencies because competition can be fierce among agencies.

Here’s a homework assignment for you: look up Activity Based Costing for service industry firms and determine if this method of understanding the cost of providing services to customers should be considered by your agency.

Guaranteeing low profitability

Based upon the Gould reports, many agencies are experts in this area. So, what can cause low profitability in addition to not understanding the cost of providing services to your clients?

Low profitability is a direct result of not managing your engagements properly or knowing how to price the engagement. Either of these can result in always operating in crisis mode.

Fear of losing a client is next. Fear leads, in my view, to over servicing. If it’s not fear, please let me know why you over-service at your agency. I’m happy to publish your comments, a top ten list if you will.

Thinks about the last time you hired a contractor to work on your home. You arrived at a price and the contractor started work. An unforeseen event arose that required the contractor to make a change or do the job differently or you wanted a modification to the work to be completed. Did the contractor over service you? Or, did you learn two key words: “Change Order?”

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Obtaining Higher Profitability in the PR Industry – Wed., Jul. 26, 2017.